Russia Issues New Authority to Suspend Voting Rights of Some International Investors in Major Russian Companies

Restrictions on Voting Rights. On January 17, 2023, the Russian President issued a decree that can be invoked to suspend the voting rights of some Western Investors in Russian joint-stock and limited liability companies until December 31, 2023, when:

• That Russian company operates in the energy sphere, machine-related industries, or trade; and,
• Western countries have introduced sanctions on that company’s controlling entity or beneficial owner; and,
• Less than 50 percent of that company’s interest/shares are owned or ultimately owned by Western Investors; and,
• That company or its group reported revenue of over one hundred billion rubles (approx. $1.4 billion US dollars).

If all the above parameters are met, and a Russian minority shareholder so requests, the votes controlled by Western Investors will not be counted for determining a quorum or for making decisions, effectively suspending their minority shareholder or member rights. This prohibition applies not only to general meetings but also to persons appointed to corporate bodies (such as boards of directors) on behalf of or in the interests of Western Investors, including Russian citizens.

These restrictions were reportedly introduced at the request of the Russian Union of Industrialists and Entrepreneurs to deal with deadlock situations and other difficulties that have resulted due to sanctions-related restrictions applicable to Western Investors or their reluctance to participate in the corporate governance of Russian companies due to reputational concerns.

This move aligns with previous efforts taken by the Russian government throughout 2022. The Russian government introduced several other measures that restricted Western Investors’ rights to repatriate assets, e.g., by requiring government approval for Western Investors to sell shares and interest they own in Russian companies, and by requiring larger dividends owed to Western Investors to be paid into special “S” bank accounts from which a withdrawal may only be made if authorization is received from the Russian Central Bank or Ministry of Finance. As expected, the Russian government continues to gradually implement further measures that restrict Western Investors’ rights and crawl closer to expropriation.

Western Investors affected by these and other Russian government actions may wish to review whether bilateral or multilateral treaties or other potential future options provide any relief. Claims may ultimately depend on the proper preservation of evidence and strategic planning.