Elena Gladysheva in her article about the draft law on external administration for the management of the organization.

One of the most recently discussed bills has been the draft federal law "On the external administration for the management of the organization" (draft law No 104796-8) earlier mentioned by AG.

The document, which first appeared on the Web in early March, was referred to by some media as a draft federal law on the nationalization of foreign companies, although, in my opinion, the draft does not contain and did not contain any provisions on "nationalization" (that is, the gratuitous or compensatory conversion of company assets and the company itself into Russian ownership). The reason for its development was the exceptional circumstances of foreign company owners' refusal to continue operations in Russia and the risk of job loss for a large number of people.

The initiative was widely discussed. The Federal Tax Service and the Ministry of Economic Development expressed the need to finalize and supplement the bill. As a result, by the time the bill was submitted to the State Duma it had been significantly amended; on May 16, the Government Commission on Legislative Activity supported it, and on May 24 the bill passed its first reading.

On May 16 it became known about the final withdrawal of McDonald's from Russia. In addition, in open sources there is information about the purchase of the Russian division of Reebok by the Turkish holding FLO Retailing. Moscow Mayor Sergey Sobyanin also informed about the transfer of the Moscow factory "Renault Russia" to the city balance and about the plans of Moskvich cars production on its capacities.

In my opinion, in the current circumstances the bill is more of a "strawman solution," because it protects the interests of all parties - the state, business owners, and the most vulnerable side of the process - workers and consumers (according to experts, as a result of the owners who decide to suspend work in Russia or leave the Russian market, over 200 thousand people may lose their jobs).

The draft law is aimed at preserving business units and jobs, preventing a shortage of goods (deficit), as well as the violation of technological (production) chains. It is important to remember that the decision to liquidate (suspend) a company must be justified; employees have the right to challenge such a decision of the owners in court from the position of violation of the right to work and receive income.

Pursuant to Article 235 of the Russian Federation Civil Code, property may be turned over in favor of the state in nine ways, including requisitioning and nationalization. The property owned by citizens and legal entities (nationalization) is transferred to the state ownership on the basis of the law with compensation of the value of this property and other losses in accordance with the procedure established by Article 306 of the Code. In this case the losses are subject to recovery in court.

The methods proposed in the draft law cannot be referred to the listed methods and this is why. As it is specified in Article 8 of the Federal law "On foreign investments in the Russian Federation" the property of a foreign investor or a commercial organization with foreign investments shall not be subject to compulsory withdrawal, including nationalization, requisition, except for the cases and on the grounds established by the federal law or international treaty of the Russian Federation. During requisition a foreign investor or a commercial organization with foreign investments shall be paid the value of the requisitioned property. At nationalization to the foreign investor the law guarantees compensation of property cost and losses after termination of the circumstances in connection with which the nationalization was made.

The draft law on external administration provides that the assets will be placed under management of VEB.RF. At the same time, shares (ownership interests) in companies transferred for management in accordance with the draft law will be transferred to this state corporation on the terms of management. In case of sale of these assets at auctions, VEB.RF will act on an equal basis with other participants, and only subject to application of the same conditions of purchase of assets by a separate participant of auctions and the state corporation, the latter will have a preemptive right to purchase such assets.

As for the information that has appeared in open sources about the assets of Renault Group that will be transferred to the ownership of the city of Moscow. It should be noted that the securities of Renault Russia belonged to several owners, including the Federal State Unitary Enterprise NAMI and Rostekh. Accordingly, the sale of shares to the Government of Moscow and their distribution among several owners was a transaction aimed at internal redistribution of shares, and not at "nationalization according to new rules. State capital has always been present in this company, and the transaction is "internal." In addition, according to public sources, the French owners will be given the option to buy back.

Let me remind you that the bill suggests the possibility of introducing an external administration if at least one of the following signs occurs after February 24, 2022:

Managers or owners (participants, shareholders) have ceased to manage the organization (left the territory of the Russian Federation) or have significantly reduced the value of its assets; the company's revenue for the last three months has decreased by more than 30% compared to the previous three months; there are public statements about the termination or suspension of the company (full or partial), with no obvious economic grounds for this. Such signs also include the termination of contracts essential to the operation of the business, or notice of layoff of 1/3 or more of the staff; the continuation of the company's activities creates a threat of grounds for the appointment of external administration; eliminating the grounds for the threat of external administration leads to budgetary expenditures (both federal and local).

The presence of the listed attributes is determined by the Interdepartmental Commission.

According to the draft law, the obligation to apply to the court for the introduction of external administration is imposed on the Federal Tax Service. The appeal to the court is made on the basis of the decision of the Interdepartmental Commission whose powers include the procedure for choosing the method of implementation of external administration, control over the external administration, including the appointment of an audit, making a decision on the replacement of assets. It is proposed that VEB.RF or another person determined by the Commission be appointed as the Administrator.

Disputes concerning the issues regulated by the draft law under discussion shall be subject to review by the Arbitration Court of Moscow. Judicial acts on such disputes are subject to immediate execution from the date of reading of the operative part and may be appealed within 14 working days from the date of the decision. At the same time the appeal does not suspend their execution. Thus, the procedure is rather transparent.

The powers of external administration in the draft law include: trust management of shares (stakes in the authorized capital) of the organization, as well as the management of the organization. It is proposed to include in the powers of the external Interdepartmental Commission the coordination of liquidation and bankruptcy, which may be declared by the head of the organization, the choice of external management procedure, as well as the introduction of asset substitution procedure in addition to selection of companies in respect of which the question of external administration is raised.

In particular, transfer of securities in trust management implies management of such asset in the interests of shareholders (participants) of a company. Under this procedure, the rights of shareholders (participants) shall be exercised for the entire management period in their interests, including payment of dividends. If the securities are pledged and the pledgee is entitled to exercise the rights of the participants (shareholders), these rights are transferred to the external administration for the duration of the external administration.

It should be noted that the provisions of the Federal Law "On the Securities Market" do not apply to the introduction of the external management procedure. The draft law contains a detailed regulation of the options for changing a company's shareholder (participant) in case of both bankruptcy and death.

The draft law does not provide for the transfer of these assets into the ownership of the external administration, let alone their gratuitous withdrawal in favor of the state. In any case, the procedure of external administration is aimed at preservation of business and protection of its shareholders (participants). This is confirmed by the provisions of the draft law prohibiting external administration to exercise the shareholders' (participants') right to vote on the liquidation (bankruptcy, reorganization) of the company, as well as to change the authorized capital, sell or alienate (encumber) the securities in any other way.

Transfer of the powers of the manager to external administration implies that it takes over all the rights and obligations of the sole executive body. At the same time, it is proposed to give the external administration the right to challenge transactions, as well as the right to terminate contracts that lead to the alienation of assets or their reduction. The activity of external administration is subject to compulsory audit for the entire period of its work. In addition, the bill stipulates that major transactions made by the external administration are not subject to approval by the shareholders (participants) of the company, but the control and approval of related party transactions are carried out by the Interdepartmental Commission. The draft law establishes restrictions for recovery of losses incurred as a result of activity of external administration.

Replacement of assets is made by reorganizing the company in the form of a spin-off. In general, this procedure is carried out in accordance with the procedure defined by the Federal law "On insolvency (bankruptcy)", with the limitations enshrined in the draft law.

When replacing the assets of the organization on the basis of its property a single economic society is created, the sole participant (shareholder) of which becomes the organization. All property (including property rights) of the organization, as well as all its obligations, except for obligations to the persons interested in the organization or affiliated with it, are transferred to such a company in the order of universal succession under the transfer act.

It is worth noting a special provision of the draft law that the transferred property of the organization includes exclusive rights to the results of intellectual activity, trademarks and service marks. The amount of the authorized capital of the created company shall be determined by the decision of the external administration and shall be set in the amount equal to the liquidation value of the property transferred to this company, determined by the results of assessment. Securities of the company created on the basis of the property of the organization are included in the property of the latter and are subject to sale at the auction in the manner prescribed by the Law on Bankruptcy, with the exceptions established by the draft law.

The most interesting in this section is, in my opinion, the norm according to which a person performing the functions of external administration can participate in the auction. Its status is defined as a "person having the pre-emptive right to purchase" shares (interests) with an indication that this person has the pre-emptive right under the condition of an equal price offered by him and another participant.

It is still difficult to assess this provision and how it will be implemented, as well as to imagine a situation in which no buyer will be found on the market and the state will take the assets for itself, bearing the additional costs. I believe that this regulation is provided for the case of "no bidding activity" and is aimed at accelerating the normalization of the enterprise's work.

The most important provision of the draft law, in my opinion, is that it will affect a limited number of organizations. We are talking about organizations of significant importance for the stability of the economy and civil turnover, the protection of the rights and legitimate interests of citizens, in which foreign persons directly or indirectly own more than 25% of shares (stakes). It is proposed that such enterprises are the following:

companies producing goods of prime necessity; producing under conditions of natural monopoly or dominant position in the market; producing certain types of products; city-forming companies; companies the termination of which may result in man-made and (or) environmental disasters or loss of life, disruption of life support, transportation or social infrastructure, energy, industry or communications facilities, as well as other socially important facilities; the termination of which may lead to destabilization, unjustified increase in retail prices for consumers; and companies participating in the chain of significant industries.

I would like to emphasize that the rules established by the bill will not affect companies that are formally owned by persons from unfriendly states, if their ultimate beneficiaries are citizens of Russia.

Thus, in my opinion, the discussed bill is an attempt at a rational, economic approach to "working" assets. It seems quite balanced and necessary in the realities of not always understandable actions of owners who "abandoned" their assets. Now we are talking about jobs and the preservation of stability in connection with the departure or suspension of activities of individual owners of certain companies. Why should these assets stand idle and people lose their jobs, when there are people willing to work with these assets and develop their businesses?

You can read more about the lawyer's opinion at the link in the AG publication

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