Dmitry Kuptsov

Various types of management responsibility are not myths any longer, they have become a reality. We are glad to introduce our new guide devoted to current trends analysis – “The (non-)Myths of Management and Beneficiaries Responsibility”. We have prepared practical answers to the most frequently asked questions: “what one can be held liable for” and “what shall be done to avoid it”. We hope you find the material useful.

The Judicial Chamber on Economic Disputes of the Supreme Court of the Russian Federation has considered TrustForex LLC case (No. A40-167835/2021) concerning the essential issue of recovery of penalty for providing false representations while selling assets. We believe this case to be very important both for the court practice and for the business. Starting from the moment the institution of representations was introduced into the Russian law, Russian courts often assessed the representations from the viewpoint of their accuracy before or at the time the relevant representations were given, and extended their effect only to the parties to the contract. This approach has sometimes made it difficult to protect the interests of buyers of assets in case of breach of representations. Besides, it was not always in line with requirements of business needs, as representations on the lack of potential future claims from the authorities became a common practice in the sale of shares, stakes, and other assets. On 22 March 2023, the full text of the Supreme Court Ruling in the case of TrustForex LLC (the 'Ruling') was published. It contains a number of important conclusions aimed at unifying court practice in cases of liability for making false representations. Below we provide a brief overview of this case and the key findings of the Supreme Court of the Russian Federation. 1. TrustForex Case. Background In August 2018, a certain person entered into an agreement for the sale of shares in the charter capital of TrustForex LLC (the 'Agreement' and the 'Company'), which contained representations that no claims would be made against the Company on any grounds arising before the conclusion of the Agreement, and the Company itself by the time the Agreement would be certified would have a valid forex dealer license , under which the Company would operate its key business. However, a few months later the forex dealer license of TrustForex LLC was revoked by the Russian Central Bank due to violations committed during 2018, after which the buyer filed a claim with the court to recover a penalty in the amount of the price paid for the shares. The lower courts dismissed the buyer’s claim on the following grounds: Representations may only be provided with respect to specific facts that have taken place and for which a party to the SPA is responsible. At the time of the transaction the license was not revoked, and no claims were filed against the Company by the Central Bank of Russia. The sellers of shares are not liable for the consequences of the results of the company's business activities. The sellers of shares are not liable for claims by the Central Bank of Russia as these claims arise from actions of persons not being parties to the SPA. 2. Key points of the TrustForex Case The Supreme Court of the Russian Federation overturned the decisions of the lower courts and remitted the case for reconsideration, giving some fundamental interpretations regarding representations in the sale of a business. Please find below the key points of the Supreme Court's ruling. {{(A)}} The circumstances having possible future consequences relating to monetary loss for the party relying on it may be the subject of representations. {{(B)}} The seller of a company share that has given a representation as to the absence of company’s violations is generally liable to the buyer for all losses and other negative consequences of claims of third parties, including the authorities, filed due to such violations revealed. {{(C)}} Cancellation of a forex dealer license due to violations committed before entering into the SPA is a ground for claiming penalties (if an obligation to pay such penalties was expressly provided for in the agreement, as provided in Article 431.2 of the Civil Code as a consequence of false representations). This Ruling is an important precedent, as the Supreme Court of the Russian Federation supported the buyer in the absence of uniform court practice on this issue. We believe that further court practice will be based on these findings, making disputes over representations more predictable and the inclusion of such representations in contracts more secure.

Dmitry Kuptsov, Partner of the Dispute Resolution practice, and Yuri Knyazev, Dispute Resolution practice Senior Attorney, published an article “English anti-suit injunctions in Russian bankruptcy – evolution or revolution?” in The International Bar Association. The authors comment upon several milestone decisions related to English courts granting anti-suit injunctions in disputes with a Russian element. Special attention in the article is focused on the evolution of the approach the Russian courts take to anti-suit injunctions. Using a recent major Russian bank bankruptcy case as an example, ALRUD experts assessed the impact of anti-suit injunctions in current case law. You may view the article here.

Our firm's Partner Sergey Petrachkov, Senior Associates Dmitry Kuptsov and Ksenia Erokhina prepared the chapter about the situation in Russia for the The Legal 500 Force Majeure Country Comparative Guide. Each chapter of this guide provides information and analysis about the current issues affecting force majeure in a particular states and addresses topics such as legislation, commercial contracts, courts approaches, COVID-19 pandemic, obligations, requirements, contractual remedies, consumer contracts, insurance policy and state measures to support citizens and legal entities. Chapter about Russia of the Legal 500 Force Majeure Country Comparative Guide can be reached here.

Sergey Petrachkov and Dmitry Kuptsov, Partners of the Dispute Resolution practice, wrote an article “Delayed-action bankruptcy in Russia” for The International Bar Association. ALRUD experts explored practical consequences of the moratorium on bankruptcy introduced in Russia in April 2020 as an emergency measure aimed at protecting businesses from Covid-19 pandemic impact. Authors considered several key issues related to legal aspects of the moratorium as applied both to the debtors and the creditors. You may view the article here.