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Amendments to the laws on economically significant organisations adopted

legal updates
19 / 12 / 2023
On 14 December 2023, the State Duma of the Russian Federation passed in the third reading draft law No. 475202-8 amending Federal Law No. 470-FZ “On the Specifics of Regulation of Corporate Relations in Business Companies that are Economically Significant Organisations” dated 4 August 2023 (“Law No. 470-FZ”) and other legislative acts of the Russian Federation (“Draft Law”).

According to the explanatory note to the Draft Law, the amendments are related to the need to: (i) improve the procedure for transferring shares (participation interest) from foreign holding companies operating in unfriendly countries (“FHCs”) to indirect owners of shares (participation interest); and (ii) protect the interests of economically significant organisations (“ESOs”) in the conditions of sanctions pressure.

If signed by the President of the Russian Federation, the Draft Law will enter into force from the date of its official publication (except for certain provisions entering into force on 1 January 2024).

Below we analyse in more detail the most significant provisions of the Draft Law.

Supplementing the criteria for qualifying a business entity as an ESO

According to the Draft Law, the following new criteria are established for qualifying a Russian business entity (“Company”) as an ESO:

  1. financial criterion:

    (a) the aggregate value of the property held in trust by the Company or its subsidiary, according to financial statements, exceeds RUB 400 billion, and the number of customers of such Company or its subsidiary is at least RUB300,000Provided that the Company or its subsidiary is a professional participant of the securities market; or

    (b) the number of users of services and facilities provided by the Company and other legal entities belonging to the same group of entities (including via the Internet) is more than 2 million people;

  2. the criterion of performing a certain activity (in relation to the Company and its subsidiaries):

    (a) is a professional securities market participant engaged in securities management activitiesIn accordance with Federal Law No. 39-FZ “On the Securities Market” dated 22 April 1996 and has a significant impact on ensuring the stability of the development of the financial market of the Russian Federation (subject to simultaneous compliance with the criterion specified in paragraph 1(a) above); or

    (b) has the right (licence) to use subsoil resources in the Russian Federation, except for mining commonly occurring mineral resources (provided there are more than 500 employees).

Expansion of the list of persons indirectly owning shares (participation interest) in ESOs

The Draft Law establishes that persons indirectly owning shares (participation interest) in an ESO also include beneficiaries, founders and/or participants in foreign structures without the formation of a legal entity (trust, personal foundation, etc.), including if, at the time of a court decision to suspend FHC’s corporate rights, the beneficiary of such structure has lost this status as a result of the application (threated application) of restrictive measures of a blocking nature to it after 24 February 2022.

Such persons are recognised as controlling the relevant foreign structure for the purposes of determining the share of their indirect participation in an ESO.

The founder of such foreign structure is also deemed to be a controlling person if the founder transferred property (capital) to this structure before 24 February 2022.

Establishment of mandatory and optional procedures for assuming direct ownership of shares (participation interest) in ESOs

The Draft Law provides for two procedures for assuming direct ownership of shares (participation interest) in an ESO (“Direct Ownership”) for persons indirectly owning shares (participation interest) in an ESO held by an FHC:

  1. mandatory for persons who are citizens and/or residents of the Russian Federation (“Russian Beneficiaries”); and
  2. optional for persons who are not citizens and/or residents of the Russian Federation (“Foreign Beneficiaries”).

The ESOs shall, within 20 business days of the court’s decision to suspend FHC’s corporate rights, send the relevant notice to all Russian and Foreign Beneficiaries known to it.

In turn:

  1. Russian Beneficiaries are obliged to send to the ESO an application with the informationThe list of the required information is specified in clause 5 of article 7 of Law No. 470-FZ. required to assume Direct Ownership (“Application”) within three months from the date of receiving the notice; and
  2. Foreign Beneficiaries are entitled to send the Application to the ESO within four months from the date of the court’s decision to suspend FHC’s corporate rights.
The ESO shall, within 10 business days from the date of expiry of the deadline for accepting the Applications of the Foreign Beneficiaries, determine the list of persons assuming Direct Ownership, as well as perform the actions necessary to transfer the shares (participation interest) in the ESO to such persons.

It should be additionally noted that if a Foreign Beneficiary assumes Direct Ownership of at least 50% of shares (participation interest) of an ESO and at the same time evades exercising its rights as a shareholder (participant), its corporate rights may be suspended in accordance with the general procedure provided for by Law No. 470-FZ.

Exemption from the need to obtain regulatory and other approvals when assuming Direct Ownership

According to the provisions of the Draft Law, the transfer to an ESO of shares (participation interest) in a FHC, as well as assuming Direct Ownership, shall not be subject to the provisions of the laws regulating the procedure for:

  1. obtaining the consent (approval) of the Bank of Russia;
  2. obtaining the consent of the Government Commission on Monitoring Foreign Investment of the Russian Federation (“Government Commission”) and the consent of the Federal Antimonopoly Service of the Russian Federation;
  3. acquiring more than 30% of shares in a public company;
  4. engaging a federal executive authority to determine the price of the ESO share offering;
  5. exercising the right of first refusal with respect to shares (participation interest) in an ESO; and
  6. approval (consent to enter into) a related-party transaction.

Extension of the period of excluding an international company from the foreign register

The Draft Law also amends Federal Law No. 290-FZ “On International Companies and International Funds” dated 3 August 2018 (“Law No. 290-FZ”), which regulates the procedure for the redomiciliation of foreign companies to special administrative districts of the Russian Federation.

The two-year period established by Law No. 290-FZ for excluding an international company from the foreign register may be extended for no more than one year by a decision of the Government Commission. Such a decision is taken by the Government Commission at the request of an international company under the following circumstances:

  1. the foreign legal entity has been unreasonably denied being excluded from the foreign register (liquidated under personal law), provided that the entity has performed all necessary actions in due course; and/or
  2. three or more applications of the foreign legal entity for exclusion from the foreign register (liquidation under the personal law) have been left unanswered by the competent authority.

If after the expiry of the extended term the foreign legal entity is still not excluded from the foreign register (liquidated under the personal law), such person has the right to resubmit the relevant application to the Government Commission.

More detailed rules regarding the procedure and terms of the Government Commission’s decision to extend the period of exclusion from the foreign register will be determined by an act of the Government of the Russian Federation.