Amended and Supplemented Requirements for Government Commission Approval of Transactions (Operations) with Unfriendly Persons

12 June 2023 saw publication of an excerpt from the minutes of a meeting of the Government Commission for control over foreign investment in the Russian Federation (the Government Commission) establishing a new approach to approving transactions (operations) with so-called unfriendly persons[1] and payment of dividends thereto by Russian companies (Minutes). Minutes No. 171 replace Government Commission minutes No. 118/1 and No. 143/4 regulating the same matters.

The new minutes contain the already customary criteria (such as requirements for an independent appraisal of a business/assets, a discount of at least 50% on the market value and an obligation to make a voluntary payment to the Treasury), as well as a number of new ones, appearance of which was evidenced at different times by media publications and unofficial drafts of the given document. The majority of the amendments concern precisely transactions (operations), while the approaches to payment of dividends have remained virtually the same.

Below, you will find a review of the updated criteria in relation to both approval of transactions (operations) and issue of permits to pay dividends to unfriendly persons.


Approval of transactions (operations)

Above all, it is important to note that the updated list of criteria is still formally applied only to transactions (operations) involving disposal of securities, including shares, and interests by foreign unfriendly persons. So, for other transactions, particularly involving disposal of real property, the given criteria are not applicable.

Moreover, proceeding from existing practice, it is highly likely that the Government Commission will apply the updated criteria to all transactions on which no decision had been made when Minutes No. 171 were published, no matter when the application was submitted and reviewed.

Minutes No. 171 set the following criteria for approving transactions (operations):

Old criteria[2]

  • availability of an independent market value appraisal of the assets by an appraiser recommended by the Ministry of Finance[3];
  • availability of a conclusion regarding the appraisal report by an SRO from the list recommended by the Ministry of Finance[4].
Even though this requirement was previously formulated as a recommendation, in fact such a conclusion was already required by the Government Commission for approving transactions;

  • sale of an asset at a discount of at least 50% on the market value determined by the appraiser;
  • establishment of KPI for the purchaser and (or) the target company, which could include:
  1. maintenance of the technological potential and main form of economic activity of the target company;
  2. retention of jobs;
  3. fulfilment of obligations under contracts concluded with other legal entities.
The changes relating to the given criterion affected only the wording, which now specifies the types of KPI, providing for the possibility of establishing KPI for both the target company and the purchaser. So-called “responsible ministries” are charged with exercising control over observance of KPI;

  • payment to the Federal Treasury of 5% (for a discount on the transaction price of less than 90%) or 10% (for a discount on the transaction price of over 90%) of the market value of the assets within three months of transaction completion.
Let us note that the new version of the given requirements sets a fixed three-month period for making the payment. Previously, the Government Commission set the period for each case separately. In addition, Minutes No. 171 propose that the given period run from the transaction completion date, whereas the previous unofficial versions of the relevant minutes proposed that the period run from the date the permit was issued and stipulated that it be paid by the purchaser. This stipulation having been deleted from the text means that both purchaser and seller may still make this payment.

New criteria

  • possibility of buyback (inclusion of a call option in the transaction) of the asset at market price within two years of the sale provided there is economic benefit for the resident seller;
In fact, this condition restricts the possibility of approval of a call option for the seller of the assets within two years of completion of the initial transaction. We believe that buyback outside the given period will be possible either on separate grounds (as indicated by the words “as a rule”), or on the basis of a separate permit from the Government Commission (the current regulation being retained), or could be prohibited. Meanwhile, the economic benefit conditions could be interpreted as a need for the resident seller to receive a profit on sale of the asset, irrespective of its market value.

  • payment of the purchase price to an unfriendly person is possible:
  1. into a type C account;
  2. in roubles into an account with a Russian bank;
  3. into a foreign account on the condition of payment deferral.
Payment of the purchase price to a seller outside the Russian Federation is thus restricted by the need to agree its deferral. The deferral term will be decided by the Government Commission considering all the circumstances and conditions of the transaction under review, including the payment amount and currency. We also believe that each payment within the scope of the deferral may be linked to attainment of assumed KPI, though the minutes do not specify this directly.

  • existence of other transaction permissions.
This applies, for example, to permission from the FAS of Russia and/or the Central Bank of the Russian Federation for a transaction, which might affect the process for obtaining approvals and prioritising obtaining them within tight deadlines;

  • listing of up to 20% of an acquired block of shares in a public joint-stock company within one year, the listing not exceeding three years. If the shares in the public joint-stock company are acquired as a result of another company merging into it, the listing of shares in the public joint-stock company within three years of the merger numbering the equivalent of up to 20% of the shares in the merged company in consideration of the conversion ratio;
  • listing of up to 20% of an acquired block of shares in a public joint-stock company in the event of termination of the joint-stock company’s public status or its winding up as a result of performance (fulfilment) of the transaction (operation). The listing and acquisition of public status must take place no more than three years from performance (fulfilment) of the transaction (operation);

We believe that the idea behind the given item consists in the need to exclude the situation when, in connection with the exit of the foreign owner, the shares in the company are delisted. So the new owner must provide for such a company to be listed on the exchange (in relation to a block of up to 20%) by the given deadlines.

Let us note separately that the previous unofficial versions of the criteria also included a number of other conditions, such as ones concerning excluding foreign persons from the asset’s ownership structure and restricting subsequent overseas payment of dividends by the target company, but they do not feature in the final text of Minutes No. 171. We suppose that this might be explained in relation to dividends by such restrictions in fact already being in place within the scope of existing requirements.

Payment of dividends

Minutes No. 171 retain the former approaches to considering issue of permission to pay dividends to unfriendly persons. The changes to the wordings of the criteria are essentially only technical in nature and their inclusion in the text of the minutes is determined exclusively by the previous Minutes No. 118/1 containing these criteria no longer being in effect.

[1] Foreign unfriendly persons or persons under their control
[2] Criteria that were already in place in one form or another
[3] List of appraisers (appraisal organisations) recommended by the Russian Ministry of Finance for assessing the market value of assets:
[4] List of self-regulating organisations of appraisers recommended for providing an expert opinion as per article 17.1 of Federal Law No. 135-FZ dated 29.07.1998 on “Appraisal Activities in the Russian Federation”: