Investor without a package – Newspaper Kommersant No. 236 (7437) dated 12/20/2022

A draft law has been submitted to the State Duma to tighten sanctions for the acquisition of shares in strategic enterprises by foreign investors without the approval of the relevant government commission. For such a violation, the acquired package may be confiscated to the state. In practice, cases of uncoordinated purchases occur, but now the case is limited to depriving a foreign investor of the right to vote on acquired shares. Lawyers believe that the proposed expansion could encourage investors to comply with the law on pain of losing assets, but would create legal uncertainty and discourage new foreign investment.

The government has submitted a bill to the State Duma that continues the logic of tightening control over foreign investment in Russian strategic enterprises. The law “On the Procedure for Making Foreign Investments in Business Companies of Strategic Importance for Ensuring the Defense of the Country and the Security of the State” (57-FZ) plans to fix the possibility of seizing in favor of the state shares that provide the investor with direct or indirect control over such enterprises and acquired at the same time with violations. In addition, it provides for the possibility of recovering from a foreign investor at the claim of a “strategist” losses (including lost profits) caused to him as a result of a transaction made in violation of 57-FZ.

The strategic ones include, in particular, enterprises of the military-industrial complex, subsoil users and companies engaged in the extraction of aquatic biological resources. Now transactions, as a result of which an investor acquires (directly or indirectly) more than 50% of voting shares, must go through the approval procedure with a government commission. Violations in such transactions are not uncommon. The Federal Antimonopoly Service (FAS), which developed the bill, explained earlier that it participates in about a dozen such litigations every year (see Kommersant of January 21).

Now transactions made in violation of 57-FZ are recognized as void – as a general rule, bilateral restitution is applied in such cases, that is, the parties must return to each other everything received under the transaction. In case this is not possible (for example, the selling company was liquidated), the law provides for a special sanction – depriving a foreign investor of the right to vote at a general meeting of shareholders.

However, according to the Civil Code (CC), if the transaction “contradicts the foundations of law and order or morality,” the court may recover everything received by the parties to the income of the Russian Federation, if they acted intentionally, in cases expressly provided for by law. As noted in the explanatory note, such a possibility already follows from 57-FZ (although it is not provided for in it), but “in order to correlate” the norms of the law on “strategists” and the Civil Code, this should be additionally described for “legal certainty”.

During the public discussion of the project, comments were received from businesses – for example, VimpelCom, as follows from the information published on redulation.gov.ru, proposed limiting the list of cases where “such an extreme measure” could be applied (for example, transactions in relation to enterprises OPK), LUKOIL noted that the FAS initiative would create opportunities for abuse and have a negative impact on the investment climate. It should be noted that law enforcement practice is already following the path indicated by the FAS – this year, for example, a decision was made to turn the shares of the Murmansk fishing port into state revenue (see Kommersant of October 8).

Lawyers are very wary of the bill. Oleg Sheikin, a lawyer at Forward Legal, notes that “the purpose of Federal Law 57 is to prevent a situation in which the management of a strategic enterprise is in the hands of a foreign investor, and the current sanction in the form of deprivation of the right to vote quite copes with this task.” Anna Mitroshkina, Head of M&A Transactions Coordination Kulik & Partners Law.Economics, agrees with this, noting that this mechanism “sufficiently” protects the interests of the state, preventing a foreign investor, for example, from withdrawing profits and approving unprofitable transactions. Apparently, Oleg Sheikin believes, the authorities consider this measure insufficient – “without changes to the law, government agencies have to look for other mechanisms for withdrawing shares to the state’s income – for example, by challenging the privatization of strategic enterprises.”

Ekaterina Baranova, a lawyer at BGP Litigation, notes that “in fact, the project establishes the grounds for confiscation – on the one hand, this will stimulate compliance with the law under fear of loss of assets, on the other hand, it will obviously not promote new investments by foreign investors.” Moreover, Anna Mitroshkina notes, no decisions are proposed on how to distinguish between the grounds for seizing assets for state revenue and for depriving the right to vote, which “undermines the principle of legal certainty.”

Evgenia Kryuchkova