Russia proposes new law to take control of foreign companies’ assets

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Russia is already showing signs of nationalizing Western companies that left Russia due to the war. On May 16, 2022, Renault sold its majority stake in automobile manufacturer Avtovaz to the Russian Central Research and Development Institute for Automobiles and Engines, while Renault Russia was sold to the city of Moscow – apparently for a ruble each.

Forms of external administration

According to the bill, external administration could take two forms.

The first is the transfer of all or part of the shares of the company to a new trust management body, which would exercise all the rights of the shareholders except for the vote on the liquidation or the reorganization of the company or on the modifications of the capital. social.

The second form of external administration would involve the transfer of managerial powers to external management. This would see the suspension of the powers of the lead organization, duties under bankruptcy law, powers of attorney and any winding-up resolutions. Dividend payments and payments to most creditors would also be suspended.

The choice of the form of external administration belongs to the interministerial commission. An external administration operating in the form of a trustee of the shares may also apply to court to change the form of the external administration from the fiduciary management of the shares to that of an executive body.

The external management would only be liable for damages incurred in the exercise of its powers in the event of an intentional violation of Russian law.

Both types of powers would allow either to acquire the effective control of the shares of the company, or to supplant its administrators.

The distinction is important because it affects how the external administration will end up managing the day-to-day operations of the organization. From experience, we know that Russian corporate law clearly separates the rights and powers of shareholders and executive bodies and does not allow one to exercise the powers of the other.

A director, but not the board, acts as an extension of the company and creates and enforces rights and obligations on its behalf. A shareholder, or a person vested with the power to act as a trust manager for the shares, cannot do this and must appoint someone as a director to exercise this type of control.

It is clear that with respect to both types of external administration, the bill grants almost unlimited powers to the person appointed by the state to manage the company, leaving no control to the foreign person controlling or to the business owner.

Asset substitution

When the main organizing powers of a company are transferred to the external management, the external management can invoke a mechanism by which all the assets – including ownership rights, all types of exclusive rights, all types of rights of intellectual property, all obligations and debts, and valid and operational licenses – would be transferred to a newly created company of which the organization would be the sole shareholder.

The shares of the company would then be sold at auction, organized by the external administration, which also has a priority right of redemption. Foreigners from so-called “unfriendly” states would not be able to participate in the auction.

The proceeds would first be used to pay the expenses of the external administration and the interministerial commission, then to pay for the loans authorized by the external administration and for the other services used.

Any balance would be distributed to shareholders of the company.

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