The Decree introduces a mechanism for the temporary management of assets held by Persons of Unfriendly States (as defined below) in the event that restrictive measures are imposed against Russian persons abroad (“Temporary Management”).
Background
Legislative initiatives relating to the management of foreign assets have existed before.For instance, on 12 April 2022, Draft Law
The Draft Law was never adopted, but some of its provisions are reflected in the Decree.
Grounds for introducing Temporary Management
Under the Decree, Temporary Management is introduced in the event:- that the Russian Federation and/or Russian legal entities or individuals are deprived of their ownership right to property located in unfriendly foreign states“Unfriendly” states include: Albania, Andorra, Australia, Canada, all member states of the European Union, Iceland, Japan, Liechtenstein, Micronesia, Monaco, Montenegro, New Zealand, Norway, Republic of Korea, San Marino, North Macedonia, Singapore, Switzerland, Taiwan (China), Ukraine, the United Kingdom (including Jersey and all 14 British Overseas Territories), and the United States of America. The list was approved by Order of the Government of the Russian Federation dated 5 March 2022
No 430-r and expanded by Resolution of the Government of the Russian Federation dated 29 October 2022No 3216-r .; - of the deprivation or restriction, or the emergence of a threat of such deprivation or restriction, of property rights; and/or
- of a threat to the national, economic, energy or other types of security of the Russian Federation, or its defence capability.
For example, US courts may make such decisions in criminal cases (see, for example, the USD5.4 million decision regarding Konstantin Malofeev’s assets). Meanwhile, proceedings are underway in Canada to confiscate the
Furthermore, European countries have also previously imposed external management over Russian companies’ assets. For example, the EU and UK authorities have introduced external management in relation to, among others, Gazprom Germania GmbH and a number of EU and UK entities of VTB, Sberbank and Rosneft.
Assets subject to Temporary Management
Temporary management is imposed in relation to the assets of foreign persons associated with unfriendly foreign states and persons who are controlled by foreign persons (“Persons of Unfriendly States”).However, the term “associated” is not defined unambiguously. The Decree provides for a non-exhaustive list of grounds for establishing an association with an unfriendly foreign state: nationality or residency, place of incorporation, place of predominant economic activity and place of predominant profit-making.
Assets of Persons of Unfriendly States for which Temporary Management may be introduced include:
- immovable and movable property located in the Russian Federation;
- securities, participation interests in share (pooled) capitals of Russian legal entities; and
- other property rights
List of specific Assets
According to the Decree, Temporary Management has been introduced in relation to the following securities:- 83.73% of shares in PJSC Unipro owned by Uniper SE;
- 69.8807% of shares in PJSC Fortum owned by Fortum Russia В.V.; and
- 28.3488% of shares in PJSC Fortum owned by Fortum Holding B.V.
“External management is being imposed in relation to generating assets that are of paramount importance to the stable functioning of the Russian energy sector. Such approach makes it possible to ensure the uninterrupted operation of companies significant for the national economy and exclude the risks of influence of political positions of certain unfriendly countries, which may have a negative impact on the economic and energy security of the Russian Federation.”
Additional Assets
Rosimushchestvo has confirmed that “if necessary, the list of enterprises under external management may be extended.”The Decree does not provide for the transfer of powers to determine the Assets in respect of which Temporary Management is to be imposed, for example, to the Government of the Russian Federation. We therefore believe that the decision to impose Temporary Management in respect of additional Assets will be made by the President of the Russian Federation (unless a different procedure for determining the Assets is established in the future).
Temporary Management period
The Decree entered into force on the day of its official publication. Therefore, the abovementioned shares in PJSC Unipro and PJSC Fortum fall under Temporary Management from 25 April 2023. Upon the introduction of the Temporary Management, the managers of PJSC Unipro and PJSC Fortum were promptly replaced.Temporary Management may be terminated upon the decision of the President of the Russian Federation.
Temporary Manager and his powers
According to the Decree, the temporary manager is the Federal Agency for State Property Management (Rosimushchestvo). However, the President of the Russian Federation may designate another person as temporary manager.The temporary manager will:
- exercise the powers of the owner of Assets without the right to dispose of them; and
- perform the functions of making an inventory of Assets and ensuring their safety.
It is therefore possible that regulations will be adopted subsequently to clarify and/or extend the powers of the temporary manager.
Expenses relating to Temporary Management shall be financed by income generated by the use of Assets.
Temporary Management and ownership/corporate rights
The following comments made by Rosimushchestvo should be taken into account:“The Decree does not deal with ownership issues or deprive owners of their assets. The external management is temporary in nature, which means that the original owner no longer has the right to make management decisions. The external manager is given powers which help ensure that the enterprises are run efficiently in line with their significance for the Russian economy.”
Specifically, Russia is party to more than 85 such bilateral treaties (including with Finland, Germany and the Netherlands), and to a number of multilateral treaties for the protection of investments (including the EU–Russia Agreement).
While the Russian Federation has not ratified the Energy Charter Treaty (ECT) of 1994 and withdrew from it on 30 July 2009, foreign investors have previously made claims against the Russian Federation under the ECT, which becomes quite relevant upon the introduction of external management in the energy sector.
