PUBLIC DISCUSSION OF THE PROJECT LAW ON EXTERNAL ADMINISTRATION OF FOREIGN COMPANIES

On 17/05/2022 Russian partners of the Grimaldi Alliance analyzed the comments of the Russian Union of Industrialists and Entrepreneurs (RSPP) regarding the draft law On external administration for the management of the organization, the purpose of which is to establish rules for the external management of Russian divisions of international companies whose owners have announced their withdrawal from the Russian market. The team of Linnikov & Partners stands in solidarity with the leading business association of Russia in assessing the shortcomings of the draft law and notes that, despite the obvious need to introduce an external administration to preserve jobs, production facilities, logistics and other chains in case the company remains abandoned, the draft law in its current form is deeply imperfect and requires significant revision.


First, external administration, whose functions will be performed by the state corporation VEB.RF, is given almost unlimited powers to demand information constituting banking, commercial and other secrets in relation to all counterparties of a legal entity. Since in this case we are not talking about bankruptcy or the investigation of economic crimes and other offenses related to the company’s activities, giving an external manager such broad powers seems excessive and may lead to abuse of the right by the interim administration and other interested parties, Alexander Linnikov notes.


Second, a pre-emptive right to purchase shares of a legal entity under external management by external administration, fixed in the draft law, may be another issue. This advantage goes in contradiction with the principle of freedom of trading, and the possibility of external administration to interfere in the course of auctions can lead to the concentration of a large number of assets of departed companies in one hand with an unpredictable result.


Finally, the draft law in its current version does not pay enough attention to the responsibility of the external administration. Only the mechanism of bringing an external manager to responsibility for intentional abuse and gross negligence is proposed, but nothing is said about other guilty actions that go beyond the usual business turnover. This gives the external administration a wide scope for actions that do not formally violate the law, but may negatively affect the activities of the controlled company.


Please pay attention to the fact that Linnikov & Partners analyzed the first version of the bill in mid-April: please observe the material here.


Thanks to the rich experience and deep knowledge of the Russian regulatory landscape, Russian branch of the Grimaldi Alliance effectively helps our clients overcome the difficulties of the transition period and ensure the best protection of the rights and legitimate interests of foreign investors in the environment of rapid transformation of Russian legislation.