Interim administration in respect of certain Russian assets of the persons from “unfriendly” jurisdictions which seized or violated proprietary rights of Russia or Russian entities abroad

Interim administration in respect of certain Russian assets of the persons from “unfriendly” jurisdictions which seized or violated proprietary rights of Russia or Russian entities abroad

26 April 2023

On April 25, 2023 the President of the Russian Federation signed Decree No. 302 “On the Interim Administration of Certain Assets” (“Decree No. 302”)1, introducing a new mechanism for interim administration of certain assets in Russia (“Interim Administration”). Decree No. 302 became effective immediately on April 25, 2023.

  • {{1.}} Grounds for and scope of Interim Administration

  • {{1.1}}In accordance with Decree No. 302, the Interim Administration can be established in case of:

  • {{(A)}} deprivation of ownership and (or) property rights to the assets; OR

  • {{(B)}} limitation of ownership and (or) property rights to the assets; OR
  • {{(C)}} a threat of such deprivation or limitation; OR
  • {{(D)}} a threat to national, economic, energy, or other types of national security or to the defense capability of the Russian Federation.

The Interim Administration may be applied in case said ownership and (or) property rights to the assets belong to the Russian Federation and (or) Russian individuals and (or) legal entities, while the assets are located in the territory of “unfriendly” states (being foreign countries that imposed sanctions against Russia, its citizens, or legal entities)2.

  • {{1.2.}} Interim Administration may be implemented over the following assets:

  • {{(A)}} movable and immovable property;

  • {{(B)}} securities and shares in authorized capital of Russian legal entities; and
  • {{(C)}} property rights.

  • {{1.3.}} To be exposed to the risk of implementation of Interim Administration the assets must simultaneously comply with all the following criteria:

  • {{(i)}} to be located within the territory of the Russian Federation; and

  • {{(ii)}} to belong to or to be under control of a foreign person associated with an “unfriendly” state3.

NB! The assets are subject to Interim Administration upon inclusion in a special list approved by the President of the Russian Federation. We understand that the Interim Administration is introduced upon entrance into force of such list (i.e. effective date of the Presidential Decree with the relevant list of assets4). Note that in contrast to, for instance, federal laws, the Presidential Decrees usually become available to the public at the date of their official publication. Thus, it is extremely important to monitor the changes regularly to be aware of imposition of the Interim Administration in respect of any new assets.

  • {{2.}} Interim Administration mechanism

  • {{2.1.}} According to Decree No. 302, the Federal Agency for State Property Management (“Rosimush-chestvo”) is appointed as the institution performing functions of an interim administrator. Rosimush-chestvo may be replaced by any other person by a separate Presidential Decree5.

  • {{2.2.}} Rosimushchestvo has all property rights to the aforementioned assets. At the same time, Rosimush-chestvo only operates and exploits the assets and has no right to dispose of them. In other words, the asset owners will be temporarily deprived of the rights of possession and use over the affected assets.

  • {{2.3.}} Expenses incurred during Interim Administration are compensated only from revenues received as a result of asset administration.

  • {{2.4.}} Rosimushchestvo is responsible for ensuring the inventory and safekeeping of the assets handed over under the Interim Administration.

  • {{2.5.}} Interim Administration can only be terminated by a relevant act of the President of the Russian Federation.

  • {{3.}} Assets under Interim Administration

The Interim Administration has been already established over the following companies listed in Decree No. 302:

  • 83.73% of shares of Unipro PJSC, owned by Uniper SE; and
  • 98.2295‬% of shares of Fortum PJSC, owned by Fortum Russia B.V. and Fortum Holding B.V., which are subsidiaries of Fortum Oyj.

Please note that the list of assets subject to the Interim Administration is expected to be monitored and updated by Russian authorities from time to time.

  • {{4.}} Impact and risk assessment

  • {{4.1.}} The criteria for introduction of Interim Administration are quite vague, so that the mechanism can be utilized by the Russian state authorities as an urgent measure in response to any deprivation or even threat of deprivation of any property rights of Russia or Russian persons to the assets abroad.

  • {{4.2.}} It is relatively hard to expect how the assets subject to the Interim Administration will be chosen. Formally speaking, the wording of Decree No. 302 allows to establish Interim Administration over any assets belonging to any foreign persons from “unfriendly” states (or even foreign states themselves) or persons under their control.

  • {{4.3.}} Meanwhile, so far Decree No. 302 is applied point-by-point only to certain assets which are under control of governments of “unfriendly” states (Germany and Finland). The analysis of the current circumstances allows us to conclude that the following issues might be taken into account by the Russian authorities while choosing targets for Interim Administration:

  • {{(A)}} Unipro and Fortum are companies which are important for the economy and energy security of Russia , which is also confirmed by the fact that they were already included in the list of companies the transactions with shares of which are subject to prior presidential approval under Decree No. 520 of August 05, 2022 (which is, in fact, the most complicated clearance procedure);

  • {{(B)}} Unipro and Fortum are controlled by the governments of “unfriendly” states;
  • {{(C)}} “unfriendly” states nationalized or took control over the companies being the shareholders of Russian companies, or their assets (e.g. Uniper SE was nationalized by Germany earlier in 2022);
  • {{(D)}} the shareholders of the companies publicly announced their exit from the Russian market and (or) suspended management and (or) control over Russian assets.

  • {{4.4.}} We think that the risk of introduction of Interim Administration over a particular asset should be assessed taking into account the abovementioned complex of factors (most of which have purely discretional nature). However, it should also be kept in mind that formally any assets under control of persons associated with “unfriendly” states can be targeted by the new Interim Administration mechanism.

You can download English translation of the Decree No. 302 following the link. The list of “unfriendly” states was approved by the Russian Government Decree No. 430-r on March 05, 2022. Means any foreign citizen / foreign legal entity related to “unfriendly” states (i.e., that has citizenship or is a resident of at least one of such states, or place of their registration, place of preferential conduct of economic activities, or place of preferential extraction of profits from activities is at least one of these states), as well as any other foreign person that is under control of the above-mentioned foreign citizen or foreign legal entity. In practice, the Presidential Decrees providing for restrictive measures are effective from the date of their official publica-tion that is expressly stated therein. To date, it is not clear who such person may be. Probably, it can be a state corporation VEB.RF as proposed in 2022 during discussion of similar draft law “On External Administration for Entity Management”.

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Note: Please be aware that all information provided in this letter was taken from open sources. Neither ALRUD Law Firm, nor the author of this letter bear any liability for consequences of any decisions made in reliance upon this information.

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Sincerely,
ALRUD Law Firm

Skakovaya str., 17, bld. 2, 6th fl., Moscow, Russia, 125040
Т: +7 495 234 96 92, Т: +7 495 926 16 48, info@alrud.com
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