Russian subsidiaries of Danone and Carlsberg will formally remain owned by their foreign shareholders, but in fact a state agency (Rosimushchestvo) will exercise most of their authority. In particular, the foreign owners will not be able to sell or otherwise dispose of these assets.

The power of the Russian state to impose temporary administration on the Russian assets of foreign companies was provided by Decree of the Russian President No. 302 dated 25 April 2023 “On Temporary Administration of Some Assets”.

The Decree contains no specific criteria as to which assets may be subject to temporary administration. A separate decision of the Russian President is issued once specific assets are included or excluded into the list of assets under temporary administration of the Russian state.

Once certain assets are included into the list, the temporary administrator (Rosimushchestvo), will exercise the powers of the assets’ owner. In particular, the temporary administrator has the power to make managerial decisions in companies subject to temporary administration (e.g. by appointing and removing corporate officers, making amendments to the charter, approving corporate transactions), but does not have the powers to dispose of assets (Decree of the President of the Russian Federation dated 16 July 2023 No. 520).

A strategic legal entity was merged into another entity whose shares had been charged in favor of a foreign lender to secure a debt. Russian courts found that this type of merger was tantamount to establishing indirect foreign control over the strategic enterprise (via the charge over shares in the surviving entity upon completion of the merger). As this foreign control had not been approved by the Russian government as required by the Russian Strategic Enterprises Act, the courts seized the shares of the surviving entity in favor of the Russian state.

In 2015, as part of a privatization procedure, “Kupets” LLC purchased the shares of Murmansk Sea Fishing Port, which is designated as having strategic importance for the defense and security of Russia. Subsequently, in 2020, “Kupets” LLC was acquired by “Zeus” JSC, whose shares had been charged (used as a collateral to secure a debt) in favor of a foreign company, C.I. Falcon Ltd (which later assigned its rights to Hermes Investment & Trading Pte Ltd).

Although the charge agreement did not provide that the foreign lender would be able to exercise any shareholder rights in the company by virtue of its security interest, the Russian Federal Antitrust Service (FAS) found that this arrangement (including an assignment of debt between foreign companies and a number of other transactions such as the acquisition of “Kupets” LLC by “Zeus” LLC) breached the Russian Strategic Enterprises Act (Federal Law No. 57-FZ “On the Procedure of Foreign Investment in Enterprises of Strategic Importance for National Defense and State Security”).

Russian courts agreed with FAS and found that prior approval required by the Russian Strategic Enterprises Act had not been obtained prior to establishing foreign control over the strategic enterprise in question. As a result, Russian courts found that the relevant contracts were invalid and ordered that shares in the strategic enterprise be seized in favor of the state (Ruling of the State Arbitrazh (Commercial) Court of the North-West District dated 13 June 2023 on case No. А42-7217/2021).

New Ruling of the Plenum of the Supreme Court of the Russian Federation dated 01 June 2023 No. 15 provides for a lower standard of proof to grant interim measures.

The Supreme Court emphasized that since interim measures are an expedited and preliminary remedy, they have to be granted if the applicant showed that enforcement of a court decision would otherwise be impeded or made impossible. In this regard, courts should take into account the likelihood that the applicant may suffer significant prejudice if interim measures are not taken.

At the same time, when considering an application for interim measures, courts must determine whether the particular measure requested by the applicant is related to the subject matter of the claim in question, is proportionate to relief sought and consistent with the objectives of interim measures. For example, a preliminary injunction prohibiting further construction works is related to the subject matter of a claim to demolish an unauthorized structure or to bring the structure into compliance with statutory requirements. Apart from that, the court should ensure that the requested preliminary injunction is aimed at protecting legitimate interests of the applicant or other persons, rather than at causing unreasonable impediments to the defendant’s legitimate activities (Ruling of the Supreme Court of the Russian Federation dated 01 June 2023 No. 15 “On some questions of taking injunctive relief, interim and provisional protection measures by courts”).

In the Digest of case law on bankruptcy cases for 2022, the Russian Supreme Court indicated cases in which it is permissible to consolidate the bankruptcy estates of all entities in a group of companies to satisfy the claims of creditors of one of its members.

In one of the cases included in the Digest of case law on bankruptcy cases for 2022, the Russian Supreme Court stated that complexity in a group’s corporate structure that causes a free flow of assets between various group members, as well as creation of entities with substantially identical economic activities as an insolvent entity, indicates that the group does not treat its individual members as having independent legal personality. As a result, the court may consolidate the bankruptcy estates of the entire group into a single bankruptcy estate to satisfy creditor claims of its individual member if it becomes insolvent  (Para. 31 of “Digest of case law of resolving disputes on insolvency (bankruptcy) for 2022” approved by the Presidium of the Supreme Court of the Russian Federation on 26 April 2023).

A company instructed a Russian bank to make a money transfer to its foreign supplier, but the funds were never credited to the recipient’s bank account because they were blocked in the United States. The lower courts ordered the bank to pay damages to the client, but the cassation court reversed and remanded the case for reconsideration, stating that the courts failed to take into account the bank’s argument that the actions of foreign intermediary banks were beyond its reasonable control.

In March 2022, a Russian company (the buyer) instructed a Russian bank to transfer U.S. dollars to a foreign supplier. As these funds were never credited to the foreign counterparty’s bank account, the company applied to the court to recover damages from the Russian bank.

The court of first instance granted the claim, stating that the losses were caused not by any legal prohibition on banking operations by the U.S. authorities, but by the actions of the bank’s contractual partners (intermediary banks), which blocked the money as part of their enhanced compliance control in respect of payments by the Russian residents. Thus, the bank cannot invoke the intermediary banks’ failure to transmit the payment as a force majeure circumstance pursuant to Article 401(3) of the Russian Civil Code. The appellate court agreed with this position.

The cassation court reversed the decision of the court of first instance and the ruling of the appellate court and remanded the case for a new trial, stating that the courts failed to take into account the company’s argument that from February 2022 Russian banks cannot carry out cross-border transfers of U.S. dollars due to foreign sanctions and due to unfriendly actions of foreign banks. In addition, the courts unfairly disregarded the bank’s argument that the actions of the foreign intermediary banks were beyond its reasonable control. According to the cassation court, the courts should also have looked into whether the claimant had applied to the Office of Foreign Assets Control of the U.S. Department of the Treasury for authorization to unblock the money (Ruling of the State Arbitrazh (Commercial) Court of the Moscow District dated 05 April 2023 on case No. А40-109469/2022).