The risks of exiting from and operating in Russia: Recent developments
The legal situation for multinational companies operating in Russia continues to become more precarious by the day. It is important for any companies operating in or seeking to exit Russia to consider the developments we consider in this post, as well as to take appropriate steps to protect their interests.
The price for exiting Russia
Any entities seeking to exit from Russia have to face a number of regulatory and financial hurdles, including permissions from the Russian government. The Sub-Commission of the Governmental Commission for Control over Foreign Investments (the Sub-Commission), which reviews and approves the exits, has indicated that it will consider approving any exit if:
- an independent valuation of the market value of the Russian assets is provided, which is: (a) prepared by an appraiser from an approved list, and (b) verified by a self-regulating organisation, of which the appraiser must be a member,
- the Russian assets are sold with a discount of at least 50% from the appraised market value, and
- unless the purchase price is paid in instalments over 1-2 years, a ‘voluntary’ contribution to the state budget must be paid, amounting to at least 10% of either: (a) half of the appraised market value of the Russian assets, or (b) the total appraised market value of the Russian assets if the assets are sold with more than a 90% discount. Before March 2023, the 10% ‘voluntary’ contribution was calculated based on the deal value, which was expected to have accounted for any of the discounts imposed by the Sub-Commission.
Further details on this development and the regulatory issues facing exiting companies in Russia are available here.
Subjecting foreign companies exiting Russia to the requirements set out above could be a breach of various investment treaty standards. In particular, a strong argument could potentially be made out for expropriation as well as a breach of the fair and equitable treatment standard. Any companies in Russia need to consider whether they have such protections in place. The best solution would depend on the particular circumstances of each company.
Claims in breach of arbitration agreements
Earlier this month, we discussed how claims are being filed in the Russian courts in breach of arbitration agreements. Using amendments to the Russian Arbitrazh (Commercial) Procedure Code, Russian courts are taking jurisdiction over foreign seated arbitrations. Consequently, international parties with terminated or suspended contractual relationships with Russian parties, are at risk of adverse judgments from Russian courts. Any assets still retained in Russia are then at the risk of enforcement. The optimum course of action will depend on a number of factors such as the existence of exposed assets in or outside Russia, the applicable arbitration rules, identity of the counterparty, etc.
Strategic next steps and risk mitigation
Parties faced with these issues have to take a number of urgent strategic calls to mitigate the risks to their assets. There are a multitude of options and as noted above, the optimum course of action will depend on the specific circumstances of each party. We are currently advising a large number of parties who are actively having to deal with the issues described above and we can provide expert and informed advice on an urgent basis if you are facing, or anticipate facing, such issues.