The Russian Parliament is expected to shortly adopt a draft bill that is now reported in the Russian media as the “law on nationalization”. We expect this draft bill to become law by the end of this week.

The key highlights are the following:

The draft law introduces the regime of external administration in a Russian company that the court may establish at the request of a board member or the state authorities. By intent, this draft law is a response to decisions of foreign companies to stop their work in Russia.

Upon the appointment of the external administration, the external manager assumes all powers of the Russian company’s general director (CEO), the powers of all other managing bodies of the Russian company are suspended, all previously issued powers of attorney are suspended, all previously filed applications on voluntary liquidation and/or bankruptcy are suspended, all counterparties are barred from unilateral out court termination of their contracts with the Russian company.

The request (application to the court) may be filed if the following criteria have been met:

  1. The Russian company is either controlled by a foreign company or a person from an “unfriendly state” or is at least 25% owned by them.
  2. the book value of Russian company’s assets exceeds RUB 1 billion (approx. USD 7,460,000 at the current exchange rate) or the company has on average more than 100 employees.

Any of the following can trigger the request:

  1. The Russian company’s management left Russia after 24 February 2022 thus leaving the Russian company “without management” which is contrary to the Russian company’s economic interest.
  2. The Russian company’s management publicly announced that they suspended their business activities in Russia without obvious economic reasons or notified more than 1/3 of the employees of the staff redundancy or terminated material agreements.

The external administration shall be introduced by the court for the period from 3 to 6 months. The court must decide on this case within 7 days following the date on which the application was received by the court. If requested, the court may decide to freeze any business decisions of the company.

At the moment, it is expected that VEB.RF will be appointed to act as an external administrator for the non-financial sector and Deposit Insurance Agency of Russia as an external administrator for the financial sector.

Author

Pavel Novikov is a partner in the Moscow office of Baker McKenzie. He focuses on domestic litigation and international commercial arbitration, specifically on insolvency and restructuring disputes. He represents clients in commercial, corporate and administrative (regulatory) disputes. He also acts on behalf of the clients in criminal investigations and cases.