I OVERVIEW OF M&A ACTIVITY

Since 2012, overall M&A activity involving Russian businesses has declined in terms of the number of completed significant deals. In terms of deal value, although 2013 was a record year with approximately US$110 billion of completed deals because of the largest takeover in Russian history – the US$55 billion acquisition of TNK-BP by Rosneft – overall Russian M&A activity was stagnant. In 2014, Russian M&A slightly exceeded US$30 billion, roughly a quarter of the 2013 value level (or half, excluding the Rosneft/TNK-BP transactions). In total, in 2015, all Russian M&A transactions accounted for US$25.2 billion (by value).2 As in previous years, Russian M&A transactions were principally driven by domestic buyers and in particular by state-affiliated buyers, with the result that domestic M&A and outbound M&A accounted for around 60 per cent of all Russian M&A in 2015.3

II GENERAL INTRODUCTION TO THE LEGAL FRAMEWORK FOR M&A

The Civil Code of the Russian Federation,4 federal laws on particular forms of legal entities (such as joint-stock companies5 or limited liability companies6) and the Securities Market Law7 constitute the fundamental framework of the federal legislation governing the legal status of Russian companies and their securities, as well as relations between a company and its shareholders and among shareholders. This framework is hierarchically subject to the Constitution of the Russian Federation, which by its own terms has direct effect in Russian law, and to ratified international treaties of the Russian Federation.

This framework is further complemented by:

  • a legislation setting forth restrictions on economic concentrations affecting the Russian markets generally (competition law) and on various forms of control over assets in particular industries, including banking, insurance and the media, as well as industries deemed ‘strategic’ in Russia;8
  • b procedural and enforcement legislation relevant, for example, in the context of shareholder remedies and the resolution of corporate disputes; and
  • c subordinate normative acts of various federal authorities of the Russian Federation, including decrees of the President and regulations of the government and the Central Bank of the Russian Federation (CBR), which implement federal legislation.

Although Russia is commonly referred to as a ‘civil law’ country, implying that its legal system does not rely on judicial precedent, in fact, court practice can have normative effect and is often of persuasive authority, especially rulings by higher courts.

The legal framework for M&A activities in Russia has recently been subject to major reforms, both in institutional and substantive respects, and although the majority of expected changes in the legislation have been implemented, some further amendments are still under consideration. Currently, there are four central developments:

  • a the ‘de-offshorisation’ reform (which is still being implemented), principally concerning Russian taxation regulations that are having a substantial effect on the structuring of asset holdings and M&A transactions for domestic buyers, both inbound and outbound;9
  • b the reform of the Civil Code, and particularly in 2015, the harmonisation of the Joint-Stock Company Law and the Limited Liability Company Law with the amended Civil Code;
  • c the merger of the Supreme Commercial Court of the Russian Federation (SCC), which served as the top judicial body for the resolution of economic disputes, and the Supreme Court of the Russian Federation, with effect from 6 August 2014; and
  • d the creation of the financial mega-regulator in Russia completed in 2013 when the Federal Service for Financial Markets became part of the CBR, which has combined regulatory and supervision powers to better manage systemic risks and the stability of domestic financial markets in response to the 2008–2009 crisis.

In regard to item (c) above, prior to the merger with the Supreme Court, the SCC had been quite active and authoritative in issuing interpretative guidance on business law matters. Two types of its decisions – a resolution of the Plenum of the SCC (usually summarising court practice related to a particular issue or area of law) and a resolution of the Presidium of the SCC in an individual case declared to have ‘precedential value’ – were effectively binding in other cases considered by commercial courts. The earlier binding practice of the SCC should continue to have effect for lower commercial courts until repealed or changed by the Supreme Court. In 2015, the Supreme Court issued its guidelines on the amended Civil Code.10 There is some sentiment among practitioners, however, that the Supreme Court is much less business-oriented than the SCC, and is less adept in resolving business legal issues.

In terms of the form of M&A deals in Russia, privately negotiated deals, including auction sales, are prevalent, as Russian businesses tend to have one or several controlling or significant shareholders. Even in the context of acquiring companies publicly traded in Russia, non-solicited or voluntary public tender offers are rare.

At the same time, any acquisition of equities in a Russian public joint-stock company is subject to the Russian takeover regulations, should the acquisition exceed certain thresholds. Generally, a person who, alone or together with its affiliates, has acquired more than 30 per cent of the total number of ordinary and certain other voting shares (if any) of a public joint-stock company must submit a mandatory bid for the remaining shares of such classes.11 The CBR supervises compliance with the takeover regulations, including in the form of an advance review of any mandatory bid for publicly traded shares. Furthermore, Russian takeover regulations provide for a possibility of squeezing out minority shareholders once an acquiror’s stake exceeds 95 per cent of ordinary and certain other voting shares (if any) of a public joint-stock company, subject to rules as to how the 95 per cent threshold is accomplished, the timing of a squeeze-out and its price.

Finally, corporate shareholdings of Russian businesses have been commonly arranged as multiple-layer structures, where an offshore company (e.g., Cypriot or Dutch) holds Russian operational entities (first layer), while investors participate in that offshore holding company (second layer) or even at ‘higher’ layers of the holding structure. These structures historically emerged for a combination of reasons, including a possibility to benefit from (believed to be) flexible foreign law and legal institutions to govern relations between investors. Although Russian-law documentation is increasingly used for M&A transactions, foreign law, especially English law, still tends to govern significant M&A deals in Russia.12 It would not be surprising if greater ‘Russification’ of M&A occurs, spurred by the ‘de-offshorisation’ reform and related changes in tax, corporate and civil law.

III DEVELOPMENTS IN CORPORATE AND TAKEOVER LAW AND THEIR IMPACT

i 2012–2015 amendments to the Civil Code

The reform of the Civil Code in 2012–2015 stems from the 2008 initiative to revise the Civil Code, 15 years after it was originally adopted. The reform has been implemented by ‘packages’ of amendments, the earliest in December 201213 and the latest in March 2015,14 including a package comprising the corporate law reform.15

In terms of their scope, the 2012–2015 amendments to the Civil Code substantially affect the civil law regime of business activities with respect to Russian assets and entities.16 The amendments touch upon core areas of Russian business law, such as:

  • a permissible corporate forms for commercial legal entities;
  • b corporate structure and governance;
  • c the validity of transactions and challenges thereto;
  • d the validity of corporate decisions;
  • e statutes of limitations;
  • f rules of agency and powers of attorney; and
  • g the basic concept of an ‘obligation’ that underlies any business relationship.

We discuss below some of the recent major changes relevant in the Russian M&A context. As with any similar overhaul of core business law regulations, the practical effects of these amendments will be better understood as courts apply their provisions in litigations.

Reform of Russian corporate norms
General rules on corporate forms

The Corporate Law Amendments have codified an earlier doctrinal division of business organisations into two main categories: corporate organisations and ‘unitary’ entities. Corporations may be established in the form of joint-stock companies or limited liability companies, the most widely used types of business organisations, or other forms provided for by law. Unitary entities, an idiosyncratic form of non-corporate state-owned commercial enterprises, continue to be used in the non-privatised sectors of the Russian economy and represent a legacy of the Soviet legal system.

Public and non-public companies

As their most significant development, the Corporate Law Amendments distinguish public from non-public companies and establish two distinct regimes of corporate governance for each (superseding the prior distinction of ‘open joint-stock companies’ from ‘closed joint-stock companies’). Under the Corporate Law Amendments, a joint-stock company can obtain the status of a public company if its equity instruments have been publicly offered or are publicly traded, or it has (regardless of its number of shareholders) voluntarily opted for the public company regime by stating such in its charter. All other joint-stock companies and all limited liability companies are deemed non-public. The Joint-Stock Company Law subsequently defined the three-step process by which a joint-stock company may obtain the status of a public company: execution of a listing agreement with a securities exchange, registration of a prospectus of securities with the CBR, and registration of amendments to the charter stating that the company is public and disclosure of the same in the public register of legal entities. In November 2015, the CBR further clarified the process for conversion from a non-public joint-stock company to a public joint-stock company and vice versa, and introduced related disclosure requirements in connection with that process.17

Non-public companies enjoy greater flexibility in structuring their corporate governance and regulation of internal procedures. In particular, non-public companies have certain discretion to redistribute default statutory powers between the general meeting of shareholders and management bodies, as well as to settle their internal corporate structure. In addition, shareholders of a non-public company may agree to disproportionate distribution of their voting and other rights, provided that the respective rules are set forth in the charter or corporate agreements and disclosed in the public register of legal entities. Conversely, public companies must comply with mandatory rules of corporate governance.

Expulsion of a shareholder

The Corporate Law Amendments provide that a shareholder of a non-public company that has caused ‘material harm to the company’ or otherwise has ‘significantly complicated its business operations’ (including by violating her or his corporate duties by consistently failing to appear at general meetings voting on a CEO candidacy where his or her presence was needed for the decision to be adopted, or unreasonably pursuing a corporate conflict) may be squeezed out from the company for a fair value consideration upon a court ruling solicited by another shareholder. The concepts of ‘material harm to the company’ or causing ‘significant complications to business operations’ are not defined in the law, but similar concepts have already applied to limited liability companies where courts have construed them to encompass the above shareholder behaviour. In 2014, the Supreme Court warned lower courts as to the exceptional nature of the expulsion remedy in the context of a limited liability company with two 50 per cent shareholders, stating that it should not be a court-administered solution to a deadlock where neither shareholder has breached its corporate duties.18 In 2015, Plenum 25 of the Supreme Court further clarified that a court may not uphold a shareholder’s claim seeking the expulsion of another shareholder in circumstances where the claimant has violated her or his corporate duties.

Restoration of corporate rights

The Corporate Law Amendments introduce a remedy of restoration of corporate rights that is different from the classic action of vindication (replevin) applied earlier by Russian courts to the restoration of illegally deprived share ownership. Under the new rules, a shareholder may reclaim shares that he or she has been illegally deprived of from any third party owning such shares (without regard as to whether the latter acquired the shares in good faith) so long as it pays the third party fair market consideration for such shares as set by court, possibly together with a recovery of such shareholder’s losses from those responsible for the original loss of the shares. However, the court has discretion to deny this claim if the third-party owner would be ‘unfairly’ deprived of its shareholding rights, or if such reclamation would cause ‘grossly negative social consequences’ or other negative effects significant for the public interest. In the latter case, the claimant would be entitled to a fair market consideration for the deprived ownership payable by the person who originally caused the loss of the shares. This new remedy has not yet been tested to date.

‘Two-key’ principle

The Corporate Law Amendments provide for the ‘two-key’ principle, previously unknown in Russia, under which functions of the CEO may be exercised by several persons acting jointly or severally. A company applying this dual management structure must make an appropriate disclosure in the public register of legal entities. Plenum 25 of the Supreme Court has clarified that information in the public register of legal entities is prima facie evidence of the authorities of the individual or individuals entitled to represent the company and should prevail over any restrictive provisions of the company’s charter. The authorities of such individual or individuals to legally bind the company are presumed to be several and unlimited, unless otherwise clearly disclosed in the public register. Several major Russian public companies have already implemented a senior executive structure based on the ‘two-key’ principle.

Corporate agreements

The amendments to the Civil Code now also provide for a general concept of ‘corporate agreements’, confirming and expanding upon rules regulating shareholder agreements that were introduced in Russian statutory law in 2009.19 In addition to a company’s shareholders, parties to a corporate agreement may now include creditors or other third parties aiming to protect their legitimate interests (but the company itself cannot be a party). The company must be notified of the execution of a corporate agreement, while disclosure of its contents is generally discretionary. If a corporate agreement is entered into with regard to a public company, the company must disclose that such an agreement exists, but the scope of such disclosure is yet to be defined by law. Corporate agreements may provide for special voting arrangements, as well as restrictions on selling shares (which may include rights of first refusal, tags/drags and put/calls), but cannot oblige shareholders to vote in accordance with instructions of the company’s own management bodies.

According to the Corporate Law Amendments, a corporate decision may be declared void if it violates a corporate agreement to which all the company’s shareholders are parties. Furthermore, a shareholder participating in such a corporate agreement may demand that a company’s transaction in breach of a corporate agreement be voided if the other party to such transaction knew (or should have known) about the conflicting provisions of the corporate agreement.

ii Recent amendments to the Joint-Stock Company Law

As of 1 July 2016, the amendments to the Joint-Stock Company Law relating to procedures for convocation and conduct of general shareholders’ meetings came into effect. In particular, various deadlines for convening annual and extraordinary meetings, delivery of notices to shareholders and record dates have been shortened. Such shortening has been triggered by the introduction of various methods of digital communications with shareholders, including e-mail and text messages, and a possibility to complete voting ballots online and participate via videoconference, provided the same are permitted by the company’s charter.

Furthermore, each joint-stock company (whether public or non-public) is now required to maintain its shareholders’ register with a Russian-licensed registrar, and such registrar becomes an important player in assisting the company to hold shareholders’ meetings, pay dividends, buy out shares, and conduct tender offers or squeeze-outs. As a general rule, the company would send information through the registrar and make any payment (whether as dividend or share price) to an account specified in the registrar’s records (in absence of such records, to a notary’s deposit). In the event of a tender offer, if a shareholder accepts the terms of a tender offer, the registrar would block the respective shares in exchange for payment to be made by the offeror pursuant to the tender offer. Those shareholders who do not hold shares directly through a licensed registrar would receive the same information and payments channelled through their nominal holder (or a chain of nominal holders).

Another significant amendment to the Joint-Stock Company Law is that a non-public company may now issue preferred shares with substantial voting rights, or even voting rights equal to rights attributable to ordinary shares or other additional rights, and any such rights may be conditional on the occurrence of certain triggering events. Preferred shares with ‘extended’ rights would be permitted on the predicate that all shareholders voted for the relevant amendments to the company’s charter.

iii Recent amendments to the Limited Liability Company Law

The Limited Liability Companies Law, as amended on 29 December 2015, establishes the priority of information on participants in a limited liability company contained in the public register of legal entities. This principle is backed up by the new rule that the transfer of participation interest as certified by a Russian notary becomes effective only upon registration with the public register. Although the law requires that registration be made in three business days, in practice it may take up to one week (or even longer). In addition, the Russian tax authorities have been given the power to verify information in respect of a transfer before entering such information into the public register (previously, a notary’s verification was deemed sufficient). Therefore, the new rule may likely affect the existing practice for completion of M&A transactions over a Russian limited liability company, as a buyer may push for a protracted completion upon the registration of the transfer with the public register to mitigate a potential risk of challenges of such transfer by the tax authorities.

Another substantial amendment to the Limited Liability Companies Law is the opportunity for a limited liability company to adopt a model charter (which the regulators have not yet promulgated) designed to speed up and streamline registration of a new company with the local tax authorities. The use of a model charter should also simplify due diligence of a company that has adopted the model charter.

iv Liability of officers and directors in Russia

The starting point for directors’ and officers’ liability under Russian law is a long-standing basic statutory rule that a corporate officer or director must act in the interests of the company reasonably and in good faith, and in the case of a breach of any such duties, must compensate for the damages caused, upon a claim of the company itself or, in certain cases, of a company’s shareholder. Until quite recently, high-level court practice on holding officers or directors financially liable to their companies was scarce. Nor were the legislative provisions (outside of the bankruptcy context) any more detailed.

In its 2013 guidance to lower courts, the SCC formulated a Russian analogue of the ‘business judgement rule’ and its limits.20 Recognising normal entrepreneurial risk, the SCC stated that the mere fact of a company’s losses is not in itself evidence of managerial bad faith or unreasonableness, and that the courts should not second-guess the commercial sense of managerial decisions. The SCC also stated that, as a rule, the burden of proving bad faith and losses falls on the claimant (while the respondent officer or director should provide explanations as to the cause of losses). Notably, the burden can shift to the officer or director to prove that he or she acted in good faith and reasonably, for example, where he or she does not cooperate in providing good faith explanations to the court.

Effectively building on the SCC practice, the Corporate Law Amendments provide that an officer or a director shall be liable for a failure to act in good faith or reasonably, including if his or her actions (inactions) were inconsistent with common business practices or normal entrepreneurial risk. The Corporate Law Amendments also extend the standard of good faith and reasonable behaviour, as well as the liability regime, to persons who have de facto ability to determine activities of a legal entity.21 This change has been viewed as a tool for piercing the corporate veil in appropriate circumstances, although to date there are no reported court cases that have applied it as such. In addition, the Corporate Law Amendments expressly prohibit a waiver of liability of officers and directors of a public company for a breach of duties, but allow them to waive liability for a breach of duty of care of officers and directors of a non-public company. A waiver of liability for deliberate actions or liability of a person who has de facto ability to determine activities of a legal entity is generally prohibited.

Further, in its 2013 guidance, the SCC formulated a list of presumptions of managerial bad faith and unreasonableness, where the burden to prove the opposite shifts to the manager. The SCC explicitly stated that an act effectively in the interests of one or several shareholders, but to the detriment of the company, is not an act in the best interests of the company.

The SCC’s resolution incorporates further guidance for officers and directors on the importance of proper procedure in decision-making and creating an adequate system of controls. In this regard, the SCC noted that officers and directors may be liable for damages caused as a result of a failure to establish an appropriate governance system within their company. According to the SCC, this can be assessed by the court, for example, taking into consideration the scale of the company’s business, usual commercial practices, and the officer’s or director’s personal involvement in his or her duties and his or her performance. In 2014, in a ruling against a CEO for inappropriate delegation of the CEO’s powers, the SCC re-emphasised the importance of senior officers’ immediate and personal involvement in the management of a company, supervision of subordinates and maintaining the governance structure appropriate for the scale of the business.22

v Representations and warranties, indemnities and pre-contractual liability under the amended Civil Code

In an effort to make Russian law more attractive as the governing law for M&A transactions, the amended Civil Code introduces concepts intended to approximate ‘representations’ and ‘indemnities’ under Anglo-Saxon jurisprudence (no distinction is made between representations and warranties, as exists under English law).

Under the amended Civil Code, representations are defined as a separate undertaking to confirm certain circumstances important for the execution, performance or termination of a contract (whether the phrase ‘execution, performance or termination’ delimits the possible scope of representations it is unclear). The amended Civil Code sets forth the following (expressly non-exhaustive) six examples of matters on which representations can be given:

  • a the authority to execute the contract;
  • b the subject-matter of the contract;
  • c the compliance of the contract to the applicable law;
  • d the existence of the required licences and permits;
  • e the financial condition of the party; or
  • f representations relating to a third party.

A breach of representations may result in both a claim for damages or a claim for termination (but not rescission) of the contract if the representations were material to the party receiving such representations (while the law also allows that a contract may exclude the termination remedy). Separately, a contract may be found invalid in the event of fraud or fraudulent misrepresentation arising from untrue representations.

The amended Civil Code establishes that a party giving representations is liable for its breach if it induced its counterparty to rely on such representations (or had reasonable grounds to believe that its counterparty would do so). If the grantor of representations is engaged in a commercial activity, or representations are given in the context of a corporate agreement or a share purchase agreement, the grantor of representations is liable for the breach, irrespective of his or her knowledge that representations were untrue (it is unclear what effect a ‘to the best of knowledge’ qualification to the representation would have). In these circumstances, it is also presumed that the grantor of representations knew that the counterparty would rely on representations. The effect of the new concept of representations in the context of an M&A transaction is yet to be tested in Russian courts (although there is a precedent where a Russian court awarded termination of the contract and damages for a breach of representations under a contract for performance of construction works23).

The amended Civil Code defines an ‘indemnity’ as an obligation to pay losses resulting from the occurrence of circumstances described in the contract and not relating to a breach of the contract. The amended Civil Code sets forth the following (expressly non-exhaustive) two examples of matters on which indemnities can be given: claims asserted by a third party or governmental authorities against the party (or a third party) and losses arising from the impossibility to perform the contract (e.g., a specific indemnity in respect of pre-closing tax obligations might be given (since the Civil Code states that an indemnity does not relate to a breach of contract, it would seem to be the case that an indemnity is not restricted to matters of performance)). An indemnity is permitted in the context of a commercial transaction entered into by companies (or individual entrepreneurs), or in the context of a corporate agreement or a share purchase agreement. The amended Civil Code stands for the proposition that Russian courts may not decrease the amount of indemnity specified by the parties in the contract (unless it is proved that the claimant deliberately increased losses), which is different from the approach to contractual penalties.

Plenum 7 of the Supreme Court24 states that an indemnity should relate to the ‘execution, performance or termination’ of a contract in a context suggesting (although the point is uncertain) that a third party (such as a sponsor or a subsidiary) who does not have justified relation to the ‘execution, performance or termination’ of the contract may not give an indemnity. According to the Supreme Court, the party claiming under the indemnity should prove that losses have been incurred or would be necessarily incurred as a result of a particular circumstance described in the indemnity. While the amended Civil Code refers to ‘tangible losses’ (a phrase otherwise unused in the Civil Code) being recoverable under an indemnity, in contradistinction to damages arising from a breach of contract, the ruling in Plenum 7 of the Supreme Court seems to blur that distinction. Moreover, the Supreme Court has instructed lower courts that where an indemnity undertaking is ambiguously drafted, courts should disregard the indemnity and apply standard contract damages (which have always been difficult to prove in Russian courts). Aside from Plenum 7, the indemnity concept has not yet been tested in Russian courts.

Finally, the amended Civil Code has introduced the concept of pre-contractual liability for bad faith conduct in negotiations, such as presentation of incomplete or untrue material information, or sudden and unjustified termination of negotiations that could not be reasonably expected by the other party. Damages in such cases are costs relating to negotiations and a loss of the opportunity to engage with a third party. Although there are precedents in which claimants invoked the provision setting out pre-contractual liability, Russian courts have so far refused to award damages in the context of negotiations.

IV FOREIGN INVOLVEMENT IN M&A TRANSACTIONS

i 2015 overview

In 2015, inbound deals where foreign investors acquired Russian assets accounted for US$10.2 billion, which is slightly more than the 40 per cent of total Russian M&A activity by value. In 2015, inbound deals were principally driven by investors located in the United Kingdom, South Africa and China. Some inbound deals are likely Russian money ‘round-tripped’ via offshore structures and reinvested in Russia. In 2015, outbound deals where Russian investors acquired foreign assets and purely domestic deals accounted for US$15 billion in aggregate, with a roughly equal split between these two categories by value.25

ii Legal regime for foreign investments in Russia

Russian law generally promotes foreign investments in the Russian economy, but also imposes certain limitations and restrictions on such investments. Russia is a party to over 70 bilateral and multilateral treaties (over 50 of which are currently in force)26 that guarantee fair and equitable treatment, national and most-favoured nation treatment, repatriation of investments and profits, and protection against expropriation without adequate compensation.27 These and other guarantees are further provided in the Foreign Investments Law.28 Moreover, Russian authorities aim to extend the network of such investment protection treaties to provide for reciprocal protection for Russian businesses investing abroad.29

In 2008, Russia enacted the Foreign Strategic Investments Law30 that established a special clearance procedure (outlined below) for foreign investments into companies engaged in, currently, 45 strategic activities, which can be grouped into the following categories:

  • a geological survey and exploration and production of subsoil of federal significance;
  • b weaponry, cryptography, eavesdropping devices and other similar devices;
  • c nuclear production and radiation safety;
  • d aerospace and aviation;
  • e ‘natural monopolies’, including pipelines to transport gas, oil and petroleum products, power stations, railways, airports and seaports;
  • f companies dominant (under the Competition Law)31 in a particular market;
  • g the fishing industry;
  • h television and radio broadcasters dominant in a particular region of Russia, certain large telecommunication providers (excluding the internet), and large printing and publishing companies;
  • i activities that ‘actively influence’ hydro-meteorological and geological processes;
  • j pathogens of infectious diseases; and
  • k transportation security.
Key FSIL requirements, restrictions and exemptions

Under the FSIL, the acquisition of control by a foreign investor (or a group of affiliated persons to which the foreign investor belongs), directly or through third parties, over a Russian strategic company is generally subject to an advance approval by a special governmental commission chaired by the Prime Minister (Commission). In addition, the FSIL extends the application of the FSIL to acquisitions of rights of ownership, possession, or use of fixed production assets representing 25 per cent or more of the balance sheet value of assets of a Russian strategic company; and any arrangements enabling foreign investors to obtain rights to determine corporate decisions of such a company.

Subsequent approval is required if a change of control happens as a result of buy-back or redemption of shares, conversion of preferred stock into voting shares or for similar reasons, and an application seeking the subsequent approval must be filed within three months of the respective triggering event.

The FSIL also requires foreign investors to notify the Federal Antimonopoly Service of Russia (FAS), which administers the clearance procedure under the FSIL of any acquisition of 5 per cent (or more) of voting rights in a Russian strategic company within 45 days of the acquisition that was cleared by the Commission in accordance with the FSIL.

The FSIL expressly prohibits sovereign states or entities under their control (such as sovereign wealth funds) to acquire direct or indirect control over a Russian strategic company, or rights of ownership, possession, or use of fixed production assets representing 25 per cent and more of the balance sheet value of assets of the relevant strategic company – the Commission cannot waive this rule. Within these limits, minority sovereign investments into the equity of strategic companies are allowed, subject to prior approval if the relevant equity thresholds on the aggregated basis are exceeded (which may be as low as 5 per cent in respect of strategic mining companies). The FSIL explicitly requires consideration of the notion of control in respect of foreign sovereigns on the aggregated basis: that is, one or several foreign investors that do not form a ‘group of persons’ but are directly or indirectly controlled by one or several foreign states, international organisations or entities under their control, and are able to dispose of more than 50 per cent (and, in certain cases, even less than 50 per cent) of voting rights in a strategic company, would have ‘collective control’ over a strategic company, which is prohibited by the FSIL.

Moreover, the FIL extends the application of the FSIL approval requirements to sovereign investments in a non-strategic Russian company irrespective of the value of its assets or revenues, if the sovereign acquiror would exercise directly or indirectly more than 25 per cent of voting rights in such non-strategic Russian company, although the FIL remains silent on whether foreign sovereign investors may acquire control over a Russian non-strategic company.

There are several exemptions from the FSIL jurisdiction. One set of exemptions relates to a foreign investor adding to an existing, approved investment in a strategic target. With respect to most strategic targets, no clearance is needed when the foreign investor already controls the target by virtue of an FSIL-cleared investment. However, in the case of a ‘strategic mining company’ (i.e., a company with a licence for a subsoil field of federal importance), that exemption in narrowed to the situation where the foreign investor already holds over 75 per cent of the voting rights of the target (unless the state holds over 50 per cent of the voting rights of the target, in which case the foreign investor can make its further investment without FSIL-clearance as long as such further investment does not change such voting power of the state in the strategic target); this exemption is unavailable for investments into strategic mining companies by sovereign acquirors. Another exemption establishes that where a foreign acquisition vehicle is used that is ultimately controlled by a Russian citizen and tax resident with no dual citizenship, no FSIL clearance is required.

Notion of control under the FSIL

The FSIL uses a robust definition of control, and is based on ‘the substance over form’ approach permitting Russian regulators to consider all circumstances of a particular case rather than simply rely on pre-established thresholds. In addition to clear-cut situations such as the acquisition of over 50 per cent of voting shares or the right to appoint over 50 per cent of the members of the management bodies of a strategic target, control may exist in other less obvious situations. Under the FSIL, control may also exist where a foreign investor has less than 50 per cent of votes, but the allocation of votes is such that the foreign investor is still able to determine the decisions of a strategic company. For example, in FAS v. Telenor et al, the FAS asserted that the largest, 40 per cent shareholder (Telenor, the telecommunications conglomerate controlled by Norway) had control over publicly traded VimpelCom, one of the largest Russian telecom companies, despite the fact that there were other shareholders with significant shareholdings in VimpelCom.32 Further, according to published guidelines by the FAS, there is no de minimis (safe harbour) equity threshold (e.g., 10 per cent) and control might be acquired with no equity stake.33

Moreover, a lower threshold of ‘control’ expressly applies for strategic mining companies: the ability (directly or indirectly) to control 25 per cent of a mining company’s votes, and any subsequent acquisition of shares in a strategic mining company, is subject to additional prior approval, unless the relevant size of the stake to overall equity does not increase.34

Clearance process

The FSIL clearance process comprises two stages. At the initial stage, the FAS determines whether the applicant would acquire control over a strategic entity as a result of the reported transaction. Upon the results of the initial review, two alternative options are possible. If the FAS determines that either control would not be acquired or the target is not strategic, it should inform the applicant that FSIL approval is not required. Alternatively, if the FAS determines that the applicant would acquire control over a strategic entity, the FAS follows a standard, full-scale review, and the application is referred to the Commission.

In the case of a standard, full-scale review, while processing the application, the FAS liaises with other agencies, including the Federal Security Service and the Ministry of Defence, which shall provide their opinions to the Commission regarding the proposed transaction from the perspectives of state defence and national security. The Commission, however, makes the final decision. The FSIL does not establish specific criteria that should be applied by the Commission,35 which thus has full discretion in determining whether the transaction constitutes any possible potential threat to national security interests. The FSIL does not envisage any possibility for the applicant to participate in the approval process (other than making the filing and responding to follow-up requests by the FAS) or any grounds to challenge the Commission’s decision. If the transaction is approved by the Commission, it may be consummated within the term specified in the decision. This term can be prolonged by a decision of the FAS upon the applicant’s request.

While the statutory deadline for an application review is three months (which may be extended to six months in exceptional cases), in practice the FSIL approval process can take longer. The FAS will suspend its review of the related antitrust filing and will not issue its approval under the Competition Law until the FSIL clearance is granted.

According to public records, as of June 2016, over 350 applications have been submitted under the FSIL: 186 applications were reviewed by the Commission with 10 applications denied and 176 applications approved by the Commission (including 44 approvals given subject to conditions, usually set forth in mitigation agreements); 137 applications were returned by the FAS on the finding that no approval was required; and 40 applications were withdrawn by the applicants (possibly in some cases in circumstances where approval was not expected).36 So far, only one FAS decision premised on the FSIL has been challenged by an acquiror,37 and no decision of the Commission has been challenged.

Violations of the FSIL

Failure to comply with the FSIL can lead to severe consequences. A transaction consummated in breach of the FSIL filing requirements or prohibition is void and may be unwound (in other words, the parties returned to status quo ante). This may also potentially lead to voidance of any and all post-investment decisions of the shareholders or governance bodies of the strategic company. Other potential consequences include the loss or suspension of voting rights38 attached to the acquired interest, and administrative fines of between 500,000 and 1 million roubles for companies.39

The FAS is authorised to prosecute FSIL violations. When applying to a Russian court to unwind an acquisition violating the FSIL, the FAS usually applies – ex parte – for interim relief broadly aimed at blocking cash disbursements from the strategic company to the acquiror and its affiliates, preserving the existing management of the strategic company and prohibiting approvals of major and interested party transactions to be entered into by the strategic company.40 Moreover, litigation regarding the Astrakhan Port shows that the FAS also utilises a robust arsenal to obtain evidence supporting its position, such as intelligence reports by the Federal Security Service evidencing concerted actions by foreign companies aimed at obtaining control over the Russian strategic company. Interestingly, the FAS prevailed in two court instances, after which the FAS did not pursue an unwinding of the transaction but entered into a settlement with the acquirors permitting them to sell the Astrakhan Port to a Russian buyer or, subject to the Commission’s prior approval, to a foreign buyer within six months of the date of the settlement agreement.41 Finally, based on several cases, private parties may have a cause of action under the FSIL to unwind a transaction entered into in violation of the FSIL.42

V SIGNIFICANT TRANSACTIONS, KEY TRENDS AND HOT INDUSTRIES

As a result of a confluence of negative factors (i.e., the decline in global energy prices combined with international economic sanctions imposed on Russia first in 2014, with the result of significant Rouble volatility and Russian GDP growth slowing in 2014 and turning into a recession in 2015–2016), the Russian M&A market in 2015 was less than buoyant. Notwithstanding the decline in global energy prices, the oil and gas industry remains the dominant sector in Russian M&A.43 In 2015, there was also a spate of M&A deals in the media sector in anticipation of a new Russian requirement that ‘mass media’ enterprises in Russia cannot, from 1 January 2016, be more than 20 per cent foreign-owned.

The contraction of inbound foreign M&A (in value terms) and the prevalence of domestic M&A, combined with the new ‘de-offshorisation’ concerns for domestic buyers and generally the substantial role of state-affiliated counterparties, has resulted in continued emergence of Russian law as the governing law in significant Russian M&A transactions. In fact, what a few years ago started as an attempt to replicate foreign contractual M&A concepts in the Russian law-governed documentation is now clearly visible as a distinct and independent approach to the use of Russian law documentation.

VI FINANCING OF M&A: MAIN SOURCES AND DEVELOPMENTS

The forms of financing M&A deals commonly used in major foreign markets also apply for a Russian M&A deal. Traditionally, the prevailing structures of equity holdings in Russian businesses, which involve multi-layer offshore holdings, as well as the financial infrastructure, including major Russian and Western investment banks working in the Russian market, provided the flexibility of using multiple financing instruments.

Market intelligence reports that 40 to 50 per cent of cash payments in Russian M&A deals in 2013 were debt-financed (the remainder being financed predominantly with corporate cash reserves), consistent with the 2012 levels.44 Debt financing tends to take the form of bank loans,45 and is occasionally in the form of leveraged buyouts (which require tax structuring). Acquisitions are sometimes are funded with public debt – for example, Eurobond issuances of US$1 billion and 15 billion roubles by Novatek, Russia’s largest independent gas producer, helped to finance its US$1.4 billion purchase price for Nortgas (acquired in June 2013). A notable trend is the active and large-scale involvement of state-affiliated banks in financing Russian M&A transactions due to a range of factors: their generally cheaper cost of financing, their proximity to M&A deals on the advisory side, the prevalence of state-affiliated buyers in the domestic market and, specifically since 2014, limited foreign borrowing opportunities for Russian borrowers in light of the Ukraine-related sanctions.

At the peak period of the financial crisis in 2009, the share of direct state investments in financing Russian M&A deals (among others, via Vnesheconombank, the Russian development bank, which has suffered a liquidity crisis in 2016) exceeded 20 per cent, but had decreased by 2010 and remained under 5 per cent in 2013.46 In view of the tightening liquidity conditions for Russian borrowers, in 2014, the CBR came up with a new refinancing instrument for Russian banks, which allows banks to use loans provided for certain investment projects as collateral for obtaining financing from the CBR.

The private equity (PE) market in Russia is underdeveloped, as evidenced by its moderate size47 and the changing composition of the players that make PE investments in Russian assets from year to year. Prominent PE funds active in the Russian market include Baring Vostok, the Russian Direct Investment Fund (RDIF), Rosnano and the PE arms of Russian state-affiliated banks. Since 2014, the chilling effect of sanctions has dissuaded global PE players from making major new investments in Russia.

In recent years, government-backed sponsors (such as the RDIF and PE divisions of state-affiliated banks) have strengthened the domestic segment of PE investments in Russia, which is expected to continue to increase. The RDIF was created in 2011 to catalyse PE investments in the Russian economy, including by way of attracting foreign co-investors who would otherwise be reluctant to invest on their own.48 The RDIF has participated in deals valued at 400 billion roubles, out of which 350 billion roubles was provided by foreign co-investors, partners and banks.49 In 2015, the Public Investment Fund (Saudi Arabia’s sovereign wealth fund) invested US$10 billion into the RDIF with the purpose of investing in Russia’s infrastructure and agriculture, the largest announced co-investment to date.50 In recent years, PE in the Russian M&A markets has focused on the consumer retail, telecommunications and IT, financial services and real estate sectors.

VII EMPLOYMENT LAW

In Russia, executive compensation falls within the purview of employment law. In principle, the CEO of a Russian company can be dismissed at any time upon the decision of the corporate body that has the relevant competence under the company’s charter. Until recently, upon dismissal, the CEO of any Russian company was entitled under law to compensation equal to three average monthly salaries or, if greater, in the amount set forth in the CEO’s employment agreement. This is no longer the case for certain state-controlled companies and all banks operating in Russia, as explained below, and a question remains about whether other contractually agreed executive ‘parachutes’ could be curtailed in court.

Unlike in some other jurisdictions, executive compensation did not become a hot topic in Russia at the time of the financial crisis. However, a case that started in 201351 and that dealt with a ‘golden parachute’ of around 200 million roubles to the dismissed CEO of the state-controlled company Rostelecom drew attention. Certain shareholders of Rostelecom challenged the board’s decision on the payout. The Supreme Court sided with the claimants, stating, among other reasons for its decision, that compensation upon early termination must be consistent with its purpose (i.e., to be an adequate protection for an ex-CEO upon his or her loss of employment) and, given its amount, should have been well-justified by the company.

In February 2014, the Russian legislature reacted to this case by passing a law that retroactively limited ‘golden parachutes’ to various categories of executives of companies more than 50 per cent owned by the state to three average monthly salaries.52 Possibly, Russian courts may adopt a similarly restrictive approach to ‘golden parachutes’ for outgoing executives of non-state owned companies (particularly, those with public shareholdings), relying on the concepts of reasonableness, good faith and best interests of shareholders.

Separately, new rules for compensation in the banking industry (both in its private and state-controlled segments) were adopted in 2013 and 2014.53 The CBR now has supervisory powers over executive compensation for all Russian credit organisations. The new rules oblige credit organisations to implement a system of compensation, including executive compensation, under which remuneration can be cancelled, reduced or clawed back in the case of a negative financial result of the entire organisation or an individual business segment.

VIII TAX LAW

Since January 2015, the core part of the ‘de-offshorisation’ legislative package became effective in Russia.54 Although the ‘de-offshorisation’ reform is principally carried out in respect of taxation, it directly affects corporate aspects of structuring Russia-related M&A transactions (traditionally structured via foreign jurisdictions) and corporate holdings of Russian businesses and individuals, to the extent they rely on foreign companies such as special purpose vehicles, trading or cash management companies. This and other legislative measures followed calls by Russian leadership to stimulate the relocation of de facto Russian businesses, in particular their ownership structures, into the realm of Russian law and Russian jurisdiction.

As a recent trend, Russian tax authorities and courts have become more active in applying the ‘look through’ approach in respect of taxation of dividends, capital, interest or other income received from Russian sources to determine an ultimate beneficial owner of such income, irrespective of the fact that such income may have been first received by another person acting as a conduit for such income. In a recent case involving shares in Severstal, the largest Russian steel producer, the court disregarded the application of the Russia–Cyprus double taxation treaty in respect of the Cyprus companies holding shares in Severstal on the grounds that the ultimate beneficial owner de facto controlling such shares were companies registered in the British Virgin Islands, with which Russia does not have a double taxation treaty.55

In parallel, efforts are being undertaken to make Russian corporate law more ‘user-friendly’ (such as the new rules on corporate forms and institutions discussed above) so as to incentivise the use of Russian corporate vehicles and Russian law by the business and legal community.

In Russia, tax advice, including for major M&A deals, is typically provided by the ‘Big Four’ companies. We suggest readers review their alert memoranda (available on their websites regularly) on Russian tax law developments related to M&A activities.

IX COMPETITION LAW

Russian competition law and practice, including merger control, have been developing rapidly over the past decade. After administrative reforms in 2004, the Russian antitrust regulator, the FAS, has achieved substantial and visible results in the enforcement of Russian competition law and its evolution.56 Since the enactment of the Competition Law in 2006 (which replaced the 1991 law), there have been four major sets of amendments to the Competition Law.57 The fourth set of amendments made in 2015 abolished the ‘register of legal entities with a market share in excess of 35% of a particular goods or services market’ that the FAS had previously maintained. Inclusion of a company into this register automatically triggered a requirement for FAS clearance for acquisitions where such company was a target or the acquiror itself (or part of the acquiror’s group). FAS eliminated the register under the thinking that the 35 per cent threshold was arbitrary, and that competition issues could arise both above or below that threshold.

The amended Competition Law now requires, with effect from 5 January 2016, prior clearance of a joint venture agreement relating to the Russian territory, provided the combined asset value of the parties to such agreement (or their group of persons) who are competitors exceeds 7 billion roubles or their combined annual revenues for the preceding calendar year exceed 10 billion roubles. Accordingly, it is now clear that a shareholders’ agreement at the level of a Cyprus holding company that holds a material Russian subsidiary should be submitted for clearance to the FAS. While this requirement does not apply to shareholders’ agreements entered into before 5 January 2016, amendments to such an agreement from that date should be cleared.

Generally modelled on EU competition law,58 the merger control rules of the Competition Law require prior approval by the FAS for the incorporation and merger of Russian business entities and the acquisition of equity in a business entity (Russian or foreign with substantial sales into Russia) above certain acquisition thresholds, provided that an asset or revenue test is met. In practice, given that asset or revenue tests consider group assets of the acquiror and the target, the FAS’s approval is almost always required if the acquiror takes over 50 per cent ownership at any level (including an offshore parent of Russian operating subsidiaries). For a minority investment, FAS approval is needed to acquire over 25 per cent of voting shares in a Russian joint-stock company, over one-third of the interest in a Russian limited liability company or over 20 per cent of the target company’s assets. An investment constituting less than 50 per cent of equity in an offshore parent is not per se subject to FAS approval under the Competition Law (but now, as discussed above, a shareholders’ agreement in respect of such offshore parent would need to be cleared by the FAS).

The general review period by the FAS is 30 days following the submission of the complete application package. The FAS may extend this period for an additional 60 days if it needs extra time to review the transaction and request additional information. The FAS may do so if it believes that the transaction may restrain competition, for example, as result of the establishment or an increase of the ‘dominant position’ of the acquiror. The Competition Law also provides that the FAS may extend the review period to set conditions precedent for its approval and set the deadline for their satisfaction, which cannot be longer than nine months from the FAS decision (in practice, FAS rarely sets conditions precedent). The FAS may also suspend its review of the application pending the approval of the transaction under the FSIL if it finds that the transaction is subject to FSIL approval. Upon review, the FAS may:

  • a clear the transaction without any conditions if there are no competition concerns;
  • b issue its approval subject to behavioural conditions or divestiture remedies; or
  • c withhold its approval if the transaction may lead to the restriction of competition, including as a result of the establishment or increase of the ‘dominant position’ of the acquiror; or if the FAS was not provided with requested information or the information provided was inaccurate.

The FAS will also withhold its antimonopoly approval if the requisite FSIL approval is not obtained.

X OUTLOOK

The outlook for M&A activity in the Russian market in 2016 remains subdued. Western sanctions imposed as a result of events in Crimea and Ukraine have had a chilling effect both on foreign investment in Russia and Western financing to Russian businesses. Significant foreign investment of a predominantly Western origin is unlikely before the resolution of the situation in Ukraine and the de-escalation of wider political tensions between Russia and the West. Despite long-standing expectations that a strategic reorientation will facilitate greater Sino-Russian M&A activity, we have not yet seen a major shift in that direction, as evidenced by relatively modest Chinese M&A investments in Russia in 2014 (in terms of value and number).59 The government privatisation plans that were announced in 2013 have largely stalled since then, although the first wave of the privatisation (including privatisations of Bashneft, one of the largest Russian oil companies, and Alrosa, one of the largest world diamond producers) may take place in 2016. Given the devaluation of the rouble, sustainable Russian assets may at some point again become attractive acquisition targets. However, buoyancy is likely to return to the Russian M&A market only when global energy prices turn bullish, which, as history suggests, they inevitably will.

Footnotes

1 Scott Senecal and Yulia Solomakhina are partners and Ekaterina Abrossimova is an associate at Cleary Gottlieb Steen & Hamilton LLC.

2 Source: Thomson Reuters. In this chapter, Russian M&A activity refers to acquisitions of businesses in Russia by domestic investors, irrespective of the place of incorporation of their holding structures (domestic M&A), and by foreign investors (inbound M&A), as well as acquisitions by Russian investors of businesses abroad (outbound M&A). All data and references to legislation are as of 23 June 2016.

3 Source: Thomson Reuters.

4 Civil Code of the Russian Federation, Part I (Federal Law No. 51-FZ of 30 November 1994), Part II (Federal Law No. 14-FZ of 26 January 1996), Part III (Federal Law No. 146-FZ of 26 November 2001), Part IV (Federal law No. 230-FZ of 18 December 2006), in each case, as amended (Civil Code).

5 Federal Law No. 208-FZ ‘On Joint-Stock Companies’ of 26 December 1995, as amended (Joint-Stock Company Law).

6 Federal Law No. 14-FZ ‘On Limited Liability Companies’ of 8 February 1998, as amended (Limited Liability Company Law).

7 Federal Law No. 39-FZ ‘On the Securities Market’ of 22 April 1996, as amended (Securities Market Law).

8 See Sections IV and IX, infra.

9 See Section VIII, infra.

10 Plenum of the Supreme Court No. 25 ‘On the application by courts of certain provisions of Part One of the Civil Code of the Russian Federation’ of 23 June 2015 (Plenum 25) and Plenum of the Supreme Court No. 7 ‘On the Application by the Courts of Certain Provisions of the Civil Code of the Russian Federation on Breach of Contract’ of 24 March 2016 (Plenum 7).

11 Russian takeover regulations are concentrated in Chapter XI.1 of the Joint-Stock Company Law, as well as implementing acts of the CBR and its predecessor. Prior to the 2014 Civil Code amendments, the mandatory bid rule applied to any equity acquisition above a certain threshold in an open joint-stock company, irrespective of whether its shares were publicly traded or not. Although the corporate form of an open joint-stock company has ceased to exist, the mandatory bid rule continues to apply in certain cases to open joint-stock companies that have not been transformed into a current corporate form, as well as to public joint-stock companies.

12 D Afanasiev, ‘Competition of Jurisdiction: 10% Sovereignty’, Vedomosti No. 117 (3131) of 27 June 2012 (in Russian).

13 Federal Law No. 302-FZ ‘On Amendments to Chapters 1, 2, 3 and 4 of Part I of the Civil Code of the Russian Federation’ of 30 December 2012.

14 Federal Law No. 42-FZ ‘On Amendments to Part I of the Civil Code of the Russian Federation’ of 8 March 2015.

15 Federal Law No. 99-FZ ‘On Amendments to Chapter 4 of Part I of the Civil Code of the Russian Federation […]’ of 5 May 2014 (Corporate Law Amendments), generally effective from 1 September 2014.

16 The amendments to the Civil Code adopted as part of the reform described here gradually entered into force over 2013 and 2014, with some changes becoming effective on 1 June 2015.

17 CBR Letter No. 06-52/10054 of 25 November 2015.

18 Determination of the Supreme Court No. 306-ES14-14 of 8 October 2014.

19 Article 32.1 of the Joint-Stock Company Law, as amended by Federal Law No. 119-FZ of 3 June 2009; a similar provision exists in respect of limited liability companies since 1 July 2009.

20 Resolution of the Plenum of the SCC No. 62 ‘On Certain Questions of Compensating Damages by Members of the Governance Bodies of a Legal Entity’ of 30 July 2013.

21 Article 53.1 of the Civil Code (in effect from 1 September 2014).

22 Resolution of the SCC No. 9324/13 of 21 January 2014. In this case, damages in an amount of 100 million roubles were assessed against the CEO personally for a failure to act in good faith and reasonably.

23 Resolution of Commercial Court for the North-Western Region Case No. A56-16076/2015 of 10 February 2016.

24 Plenum of the Supreme Court No. 7 ‘On the Application by the Courts of Certain Provisions of the Civil Code of the Russian Federation on Breach of Contract’ of 24 March 2016 (Plenum 7).

25 Source: Thomson Reuters.

26 Source: investmentpolicyhub.unctad.org/IIA/CountryBits/175#iiaInnerMenu.

27 Resolution of the government of the Russian Federation No. 456 ‘On the Conclusion of Agreements Between the Government of the Russian Federation and the Governments of Foreign States on Promotion and Reciprocal Protection of Investments’ of 9 June 2001, as amended.

28 Federal Law No. 160-FZ ‘On Foreign Investments in the Russian Federation’ of 9 July 1999, as amended (FIL).

29 Order of the Ministry of Economic Development of the Russian Federation No. 195 ‘On Approval of the Plan of the Negotiations on the Conclusion of Inter-Governmental Agreements on the Promotion and Reciprocal Protection of Investments in 2015’ of 1 April 2015: merit.consultant.ru/page.aspx?74752 (in Russian).

30 Federal Law No. 57-FZ ‘On the Order of Accomplishing Foreign Investment In Entities Having Strategic Importance for Procuring State Defence and Security’ of 29 April 2008, as amended (FSIL).

31 Federal Law No. 135-FZ ‘On Protection of Competition’ of 26 July 2006, as amended (Competition Law).

32 Ruling of the Moscow Commercial Court in Case No. A40-57614/12-56-542 of 24 April
2013, upheld by Resolution of the Ninth Commercial Appellate Court of 28 September
2012.

33 FAS Guidelines on 57-FZ of 6 December 2013 (FSIL Guidelines): fas.gov.ru/documents/documentdetails.html?id=1050 (in Russian), Item 4.

34 FSIL Guidelines, Item 3.

35 The FSIL merely requires the FAS to check a number of factors with respect to a strategic target, such as whether it has IP rights in relation to technologies important for social, economic or national defence and security (critical technologies), a licence to conduct works using state secret data and other factors.

36 Source: www.fas.gov.ru/analytical-materials/analytical-materials_31194.html (in Russian).

37 Resolution of the Federal Commercial Court of the Moscow District in Case No. A40-120785/12-120-1184 of 21 October 2013, upheld by Ruling of the Supreme Commercial Court No. 798/14 of 4 April 2014.

38 Ruling of the Ninth Commercial Appellate Court in case No. A40-124526/11-138-1056 of 21 June 2012, upheld by a Ruling of the Moscow Region Commercial Court of 24
September 2012.

39 The Code of Administrative Offences of the Russian Federation, Article 19.8.2.

40 Ruling of the Moscow Commercial Court in Case No. A40-57614/12-56-542 of 24 April 2012, upheld by Resolution of the Ninth Commercial Appellate Court of 28 September 2012; Ruling of the Moscow Commercial Court in Case No. A40-57614/12-56-542 of 23 May 2012, upheld by Resolution of the Ninth Commercial Appellate Court of 16 November 2012; and Rulings of the Astrakhan Region Commercial Court in Case No. A06-2683/2012 of 1 June 2012 and 16 July 2012.

41 Decision of the Astrakhan Region Commercial Court in Case No. A06-2683/2012 of May 23, 2014; the amicable settlement was approved by Resolution of the Povolzhsky District Commercial Court Case No. F06-2666/2015 of 4 February 2016.

42 See, for example, Resolution of Ninth Commercial Appellate Court in Case No. A40-40521/10-22-354 of 21 October 2010, upheld by Resolution of the Federal Commercial Court of the Moscow District of 21 February 2011 and Ruling of the Supreme Commercial Court of 22 June 2011.

43 Source: KPMG, Russian M&A Market Review, 2015 (February 2016), p. 7.

44 Source: ‘Review of M&A Deals – 2008-2013. Structure and Financing of Transactions’ by OJSC Gazprombank, January 2014 (excluding the financing for the Rosneft/TNK-BP deals). More recent data are unavailable, although the percentage share of debt financing could have somewhat decreased, as borrowing opportunities for Russian entities drained in 2014 in view of the Ukraine-related sanctions.

45 Ibid.

46 Ibid.

47 In 2013, completed deals in respect of Russian businesses, which involved PE buyers or sellers, reached US$2 billion, compared, for example, with Brazil (US$6.6 billion), India (US$3 billion) and China (US$17.8 billion). More recent data is unavailable. Source: Thomson Reuters.

48 Source: rdif.ru/InvestModel (in Russian).

49 Source: rdif.ru/About.

50 Source: www.rdif.ru/Eng_fullNews/1477.

51 Decision of the Commercial Court of St Petersburg and the Leningrad Region in Case No. A56-31942/2013 of 2 December 2013, ultimately upheld by Determination of the Supreme Court No. 307-ES14-8853 of 30 March 2015. The dismissed CEO received the payout, but later returned around 75 per cent of it to Rostelecom.

52 Federal Law No. 56-FZ ‘On Amendments to the Labour Code of the Russian Federation Regarding Introduction of Limitations on Severance Payments, Compensations and Other Payments in Connection with Termination of Employment Contracts with Selected Categories of Employees’ of 2 April 2014.

53 Federal Law No. 146-FZ ‘On Amendments to Selected Legislative Acts of the Russian Federation’ of 2 July 2013; Instruction of the CBR No. 154-I ‘On Procedure of Assessment of Compensation System in Credit Organisations and Procedure for a Directive to a Credit Organisation on Curing Deficiencies in Its Compensation System’ of 14 June 2014.

54 Federal Law No. 376-FZ ‘On Amendments to Parts One and Two of the Tax Code of the Russian Federation (With Respect to Taxation of Profits of Controlled Foreign Companies and Revenues of Foreign Organisations)’ of 24 November 2014.

55 Resolution of Federal Commercial Court for the North-Western Region Case No. A13-5850/2014 of 15 March 2016.

56 For example, in recognition of this achievement, the Global Competition Review rated FAS 17th globally out of 140. Meeting with FAS Director Igor Artemyev, 17 June 2014: at eng.kremlin.ru/news/22494 (in English).

57 Federal Law No. 275-FZ ‘On Amending the Federal Law ‘On Protection of Competition’ and Other Legal Acts of the Russian Federation’ of 5 October 2015 introduced the fourth set of amendments effective as of January 2016. Among other things, the amendments permit seeking a FAS opinion in respect of a potential transaction without a formal filing with the aim to pre-agree the possible terms of the antimonopoly approval with the FAS.

58 Russian Competition Law Textbook, edited by I Artemiev, S Puzyrevskiy and A Sushkevich (2014), p. 37.

59 Approximately US$2.9 billion worth of M&A investments in four deals in 2015 (source: KPMG, Russian M&A Market Review, 2015 (February 2016)), compared with approximately US$1.1 billion worth of M&A investments in two deals in 2014 as well as with US$2 billion worth of M&A investments in four deals in 2013 (source: Thomson Reuters).