On May 4, 2022, Russian President adopted Decree No. 254 “On interim procedures for the fulfilment of corporate finance obligations towards certain foreign creditors” (“Decree“).

The Decree (1) established new restrictions on distribution of profits by limited liability companies, such as, for example, distribution of dividends (before this, the limitation only applied to distribution of dividends by joint stock companies); (2) clarified the application of some of the previously adopted restrictions.

New restrictions on distribution of profits

The Decree establishes restrictions on distribution of profits by LLCs, partnerships and production cooperatives to shareholders from unfriendly states.  The restrictions are as follows:

  • Payment of distributed profit must be made only within certain limits, namely through S-type bank accounts; and
  • Payment should be made in rubles.

Depending on the situation the Russian Central Bank or the Russian Ministry of Finance are entitled to authorize payments of distributed profits that do not comply with the established limitations.

Clarifications to the existing limitations

The Decree clarifies the application of the previously introduced restrictions (specifically, set out in Presidential Decree dated March 1, 2022 No. 81 and Presidential Decree dated March 5, 2022 No. 95).  Amongst other things, the Decree clarifies the application of the control criterion which is important in identifying the persons excluded from the scope of Russian countermeasures.

In particular, the following foreign persons are excluded from the scope of foreign persons from “unfriendly states” to which Russian countermeasures apply:

  • Persons under the control of legal entities or individuals whose lex personalis is that of a state not on the list of unfriendly states, provided that such control had been established before March 1, 2022;
  • Persons under the control of a foreign state not on the list of unfriendly states, provided that such control had been established before March 1, 2022.

In addition, the Decree clarifies the application of certain Russian countermeasures on transactions with persons from unfriendly states related to the purchase and sale of real estate, operations with additional shares and equity, discharge of independent guarantees and warranties and payments made under certain types of leasing agreements.