Author: Victoria Gladysheva

In response to the EU, US and other states sanctions against Russia, in early March 2022, the Government of the Russian Federation adopted Measures to increase the economic stability.

One of the currently possible scenarios in market is a situation when foreign companies stop working in Russia, close their business and fire employees. As First Deputy Prime Minister Andrey Belousov noted, this option "will be considered as intentional bankruptcy" and "the state will intervene through the expedited bankruptcy procedure." [1]
The draft federal law on external management of foreign companies has been approved by the Government and may soon be considered by State Duma of the Russian Federation. In some cases, the draft law may be applied even before its entry into force.
The functions of external management will be carried out by the state corporation VEB.RF and Deposit Insurance Agency (in relation to financial organizations).

The proposed criteria for introduction of external management are the following:

  • The foreign company or person connected with hostile states [2] (including if such a person has citizenship of these states or registered/has its place of business there) is a controlling person or owns 25% or more of the voting stocks or shares;
  • The balance value of the company’s assets is more than 1 billion rubles and/or the average number of employees exceeds 100 persons.

The draft law includes two grounds, each of which is sufficient to apply for introduction of external management:

  • The company’s management left the company without any administration contrary to its economic interest after 24 February 2022;
  • After 24 February 2022 the company’s management has taken actions resulted in unjustified termination of business, liquidation or bankruptcy (for instance, publicly announced suspension of its business activities in Russia at the absence of obvious economic grounds for this, terminated essential contracts, sent notices of reduction to more than one third employees).

External administration is introduced for a period of 3 to 6 months by a court judgement, which must be taken no later than 7 days after the court accepts the application. The court can also take interim measures in the form of freezing such business decisions as disposal of shares, dismissal of employees etc.

In order to continue the business activities of the company, a mandatory procedure for the replacement of assets should take place. Under this procedure all the property of the company is transferred to a specially established business entity which sole participant is the company itself.
The external administration is obliged to apply for compulsory liquidation or bankruptcy. The share or stocks of the company to which all the property was transferred are subject to sale at auction.

[1] The Russian government will take measures to support employment in connection with the leaving of foreign companies from the Russian market

[2] The list of hostile foreign states was approved by Decree of the Government of the Russian Federation dated 5 March 2022 No. 430-r and as of 17 March 2022 includes such countries as Australia, Albania, Andorra, Great Britain (including the island of Jersey and controlled overseas territories - the island of Anguilla , British Virgin Islands, Gibraltar), EU Member States, Iceland, Canada, Liechtenstein, Micronesia, Monaco, New Zealand, Norway, Republic of Korea, San Marino, North Macedonia, Singapore, USA, Taiwan (China), Ukraine, Montenegro, Switzerland, Japan.