On December 22, 2022, the Government Commission on Monitoring Foreign Investment in the Russian Federation (hereinafter the "Commission") issued additional restrictions[1] on transactions with shares (participatory interest) in joint stock companies and limited liability companies (hereinafter the "Shares"), as well as on payment of dividends in favor of shareholders from so-called “unfriendly” states.

As you might be aware, since September 9, 2022, all share deals with persons from "unfriendly" states are subject to approval of the Commission. The Commission’s approval is also required for distribution of dividends in favor of persons from "unfriendly" states, if the amount of dividends exceeds RUB 10 million (approx. EUR 135,000) per month, unless the payment is made to a special C-type bank account.

Starting from January 2023, the share deals can be approved by the Commission only if the following requirements are met:

1. • The market value of the Shares is evaluated by an independent appraiser, where the appraiser’s report is prepared within 6 months prior to the share deal and is confirmed by an expert opinion of the respective self-regulated organization (SRO);
   • The purchase price for the Shares is discounted by at least 50% in comparison to the market value of the Shares specified in the appraiser’s report;
   • Key performance indicators must be established for the new shareholders/owners of the Shares, such as the obligation to continue the business of the target company and not to reduce its staff within 6 to 12 months following the share deal, etc.;
   • The purchase price for the Shares is paid in installments within 1 to 2 years and/or a voluntary contribution of at least 10% of the purchase price is made to the federal budget of the Russian Federation (so-called “exit payment”).

With regard to the payment of dividends to shareholders from "unfriendly" states, the following conditions must be met in order to obtain the Commission’s approval:

1. • The amount of payable profit/dividends cannot exceed 50% of the net profit for the previous year;
   • Retrospective analysis of dividend payments for previous periods must be taken into account;
   • Willingness of foreign shareholders to continue their commercial activities in the Russian Federation;
   • The opinion of the federal executive authorities and the Bank of Russia regarding the impact of the company’s activities on the technological and production sovereignty of the Russian Federation as well as on its social and economic development must be taken into account;
   • Quarterly key performance indicators must be established for the target company by the federal executive authorities;
   • Dividends can be paid on a quarterly basis only if the established key performance indicators are fulfilled by the target company.

FOREIGN CURRENCY LOANS

Starting from December 27, 2022,[2] residents of the Russian Federation may provide loans in foreign currency to non-residents who are not related to so-called “unfriendly” states or are under control of persons from “unfriendly” states.

This procedure is valid until March 31, 2023.

RESTRICTIONS ON VOTING RIGHTS

A temporary procedure for voting at meetings of shareholders, boards of directors and executive boards of Russian limited liability companies and joint stock companies has been established by Decree No.17 of the Russian President dated January 17, 2023.

Under the new rules, shareholders (or members of the respective board) who are not classified as "unfriendly" persons have the right to establish a special procedure under which the voting rights of "unfriendly" persons will not be taken into account when decisions are adopted in the company.

The decision on the new procedure can be established by the majority of the shareholders (or the members of the respective board) who are not classified as "unfriendly" persons and only if the company meets the following requirements:

• The company carries out its activity on the energy market (including electricity), machinery manufacturing or trade; and
• The controlling person and/or beneficial owner of such company is subject to restrictive measures imposed by "unfriendly" states; and
• The "unfriendly" persons own no more than 50% of shares in such company; and
• Revenue of the company (or group of companies of which such company is a part) from the sale of goods, performance of work or provision of services for the year preceding the date of the above-mentioned decision exceeds RUB 100 billion (approx. EUR 1.35 million).

This procedure is valid until December 31, 2023.

We recommend taking into account the above new requirements when planning transactions with regard to the companies located in Russia.

Legal brief is prepared by Of Councel of Corporate practice Capital Legal Services Elena Zhigaeva and paralegal Svetlana Alekseeva.