Category: Russia

Morgan Lewis has represented the Far East High Technology Fund on its RUB 200 million investment in Motorica, a Russian manufacturer of high-tech hand prostheses.

Financial details of the transaction were not disclosed. 

According to Morgan Lewis, Motorica develops the prostheses and rehabilitation systems using artificial intelligence, virtual reality, and Internet of Things technologies. According to the firm,  the funds will be used by Motorica to “further develop and improve its prosthetic upper limbs, develop the Attilan tele-rehabilitation platform and invasive technologies, scale-up production, and grow its service network in Russia and in target global markets.” Furthermore, the firm reports, Motorica plans to open an R&D office and a research center in the Russian Far East in conjunction with the Medical Center of the Far Eastern Federal University.

The Morgan Lewis team included Partner Artem Tamaev and Associate Emil Shagiakhmetov.

White & Case has advised Russian long-distance telecommunication services provider Rostelecom on the USD 464.3 million sale of a 44.8% stake in SafeData to Russia-based VTB Bank. Baker McKenzie reportedly advised the buyer.

SafeData is a Moscow-based provider of data center, IT-outsourcing, web-hosting, telecom, and cloud services.

White & Case reported that SafeData may undergo an IPO within the next three years.

White & Case’s Moscow team included Partner Nikolay Feoktistov and Associates Evgeny Chernyavsky and Valery Lavrov.

Cash pooling is a convenient tool for optimizing cash management within a group of companies, but its popularity in Russia is limited. One of the reasons for this is the lack of unified legislation on cash pooling. In fact, it is subject to a complex regulatory landscape of civil, tax, banking, currency control, and insolvency law. One resulting difficulty is qualifying the very nature of the cash pooling arrangements. At first glance this may appear a purely academic problem, but in practice it has far-reaching practical implications.

Market Practice

Cash pooling products offered by Russian banks are typically structured such that each group company enters into an intra-group loan agreement with the parent company, acting in the capacity of the pool leader. Under this set-up, the bank accounts of all group companies are maintained in the same bank, with the parent company managing the master account. Most importantly, loan agreements provide for the right of the subsidiary to borrow funds from the parent company with an obligation to repay the principal amount along with market rate interest, and vice versa.

Nevertheless, structuring cash pooling arrangements as a set of intra-group loan agreements is not the only option available. In many jurisdictions, cash pooling takes the form of a multilateral cash management agreement within the group based on the freedom of contract. The financing is not strictly regarded as lending from a legal perspective, as the main purpose of the agreement is to facilitate cash flow by balancing group accounts.

Therefore, the question arises whether it is possible to structure cash pooling in a similar manner under Russian law. If so, what risks might be related to such agreements? Certain clues may be found in recent case law.

Implications in Insolvency Cases

Cash pooling rarely occupies the center of interest for Russian courts. However, the question of its structuring was the subject of a decision of the 9th Commercial Court of Appeal in Moscow – which was upheld by the Supreme Court in May 2020 – related to the multilateral zero-balancing cash pooling agreement concluded between the bank and a Russian group.

Under the agreement, funds available in the accounts of each company were written off at the end of each business day and transferred to the master account managed by the parent company. Where there were insufficient funds in the accounts to proceed with all requests for payments submitted to the bank, payments were made from the funds collected in the master account. The agreement did not provide an explicit obligation to repay the funds transferred from the master account to the account of the relevant group company.

Almost a decade after the conclusion of the agreement, one of the subsidiaries was deemed insolvent. Consequently, the parent company demanded the repayment of interest-free loans of roughly RUB 1.4 billion (approximately USD 18 million), including its claim in the register of creditors. The sum was the difference between funds transferred to the account of the insolvent subsidiary and funds transferred back from it to the master account throughout the entire life of the Agreement. Initially the courts ordered that the claim of the parent company be included in the Register of Creditors but, following an appeal, the decisions of the lower courts were eventually overturned and the case referred for reconsideration.

With respect to the agreement, the Court of Appeal ruled that: (a) it did not provide a repayment obligation (nor terms of repayment), which is an obligatory element of a loan agreement; (b) the purpose of the agreement was to improve financial flows within the group and to reduce operational costs, and that purpose may not be in line with the nature of a loan agreement.

Consequently, although structuring cash pooling arrangements as a multilateral contract based on freedom of contract was not questioned in principle, claims for the repayment of surplus obtained by group companies under such agreements bear the risk of not being protected by law and cannot be included in the Register of Creditors.

Key Takeaway

Should you consider structuring cash pooling arrangements in Russia not as a set of intra-group loans providing for the repayment obligation, recovering surplus funds distributed to an insolvent group company may not be feasible.

By Svetlana Seregina, Partner, and Marcin Kryszko, Associate, Peterka & Partners

This Article was originally published in Issue 7.11 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

An interview with Julien Hansen of DLA Piper Moscow.

CEELM: Run us through your background, and how you ended up in your current role with DLA Piper.

Julien: I was born in the Caribbean and grew up in Antigua and Barbuda. At the age of 16, I moved to Cambridge to study for the International Baccalaureate. I had always been interested in Russian history and literature, so I then went on to read Russian and Law at the University of Surrey. During that program I also studied at the Moscow State Institute for International Relations and interned with Ernst & Young in Moscow. After completing the legal practice course at the Inns of Court in London in 2004, I returned to work at Ernst & Young and then joined DLA Piper’s Moscow office a year later. I became a partner in 2014.

CEELM: Was it always your goal to work outside of Antigua and Barbuda?

Julien: I always expected to return to Antigua and Barbuda after my studies. However, as my interest in Russia grew, my goal then became to live and work in Russia.

CEELM: Tell us briefly about your practice, and how you built it up over the years.      

Julien: I am a Partner in the Corporate, Mergers & Acquisitions practice group of DLA Piper’s Moscow office and the head of the office’s English law practice. My focus is on “big ticket” cross-border mergers and acquisitions, private equity and joint-ventures, with a strong industry emphasis on the energy, natural resources and infrastructure sectors. I also lead the office’s Life Sciences practice.

CEELM: How would clients describe your style?    

Julien: Attentive and thorough, but commercial and constructive.

CEELM: There are obviously many differences between the English and Russian judicial systems and legal markets. What idiosyncrasies or differences stand out the most?

Julien: Russia has a civil law system (i.e., codified law), while England has a common law system (i.e., case law). From a transactional point of view, the common law system has proven itself to be much more flexible than civil law systems, hence its global appeal and success. When applied in emerging markets, common law has the potential to be much more creative and exciting than when applied in its own “English” environment. This is especially true in Russia given the size and complexity of many of the transactions.

CEELM: How about the cultures? What differences strike you as most resonant and significant?    

Julien: Russians tend to be more direct and honest in their views and more “human” in their approach. In a business context, this means that a “personal” connection, both with your own client and with the counterparty, is extremely important.

CEELM: What particular value do you think a senior expatriate lawyer in your role adds – both to a firm and to its clients?

Julien: From a risk and marketing perspective, it is vital for any international law firm providing English law services to have English law qualified lawyers and partners. For clients, it is obviously crucial for them to receive sign-off from English qualified partners on English law matters.

CEELM: Do you have any plans to move back to Antigua and Barbuda?         

Julien: No I do not, but I do see myself spending a little bit more time there at some point. Possibly over the winter months!

CEELM: Outside of Russia, which CEE country do you enjoy visiting the most, and why?         

Julien: Although very different, Budapest and Vienna. There are many reasons; architecture, culture, entertainment and the history of these cities.

CEELM: What’s your favorite place to take visitors in Moscow? 

Julien: There is so much to do and see in Moscow that I always struggle to pick places for visitors. The city has changed a lot in the last five years, with renovations, etc., and it is looking really great. I would advise a strong cultural program, including a performance at the Bolshoi, visiting the Kremlin, and visiting various art galleries, monasteries, and palaces. The restaurant and nightlife scene is one of the best in the world, so there would be a lot of exploring on that front too. But walking onto Red Square for the first time is definitely a highlight!

This Article was originally published in Issue 7.11 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

“Loss of corporate control” encompasses various scenarios involving a person who controls a corporation ceasing to control its management bodies’ actions and decisions.

A controlling person is one who is entitled to give binding instructions to the corporation or otherwise determine its actions. There are three types of controlling persons: (a) a majority shareholder; (b) an officer who can consummate financial and business transactions (e.g., a CEO) or pass binding resolutions (e.g., a member of a management body); and (c) a person who can control the actions of the controlling persons defined in (a) and (b).

Forms of a loss of corporate control, which dictate the measures needed to restore control, are: (a) a total loss of control (a shareholder loses the right to shares through unlawful third-party actions); (b) a loss of strategic control (a shareholder ceases to be a majority shareholder so can be outvoted); and a loss of operative control (the opportunity is lost to influence the actions and decisions of management bodies (e.g., the Board of Directors)). For example, when all a shareholder’s shares have been stolen by another person, this is a total loss of control. When a CEO is replaced through fraudulent third-party conduct, this is a loss of operative control. When a CEO personally or through affiliates establishes a corporation (a “Twin”) that duplicates the activities of that where he is CEO (the “Main Company”) and attempts to transfer the Main Company’s business to the Twin, this is a loss of operative control. When a Twin is created, often, key contracting parties depart, the Main Company’s revenues drop, financial statements are falsified, economically dubious transactions are consummated, a company with a similar name is registered, many key officers of the corporation are made redundant, the CEO tries to access the Main Company’s technologies or know-how, the CEO attempts to take charge of interactions with key accounts, and the CEO seems to have wealth incommensurate with his income.

Measures aimed at promptly identifying and preventing these risks include: (a) setting up a system that allows the interested controlling person (e.g., the majority shareholder) to control relationships with counterparties; (b) establishing a corporate rule (e.g., in the Main Company’s Charter) requiring the interested controlling person’s approval for significant transactions (not only major and interested-party transactions, as required by law, but also loans, acquisitions or disposals of fixed assets, guarantees, and assignments of claims against debtors); (c) transferring bookkeeping and financial oversight to a company controlled by the interested controlling person; (d) arranging for an auditor designated by the interested controlling person to perform regular audits to identify economically unjustified transactions; (e) monitoring whether corporations with similar names are incorporated; and (f) interviewing departing employees on relevant matters. Such a transfer of the CEO’s functions can seem bureaucratic and costly, so precise steps should be determined on a case-by-case basis.

If a Twin is encountered, measures to promptly reinstate control and mitigate losses include conducting an audit to identify abuse by the CEO (for example, if payments are not confirmed with supporting documents, compensation to the CEO upon dismissal may be eliminated); taking an inventory to identify misappropriated assets (explanations can be demanded from the CEO); dismissing the CEO; and passing a resolution to recover such losses from the CEO. To dismiss the CEO a corporate resolution is strongly recommended to avoid potential difficulties under labor legislation. In addition, compensation should be paid as provided for by law and the employment agreement. This can prove expensive, but it will stem losses by promptly stopping the CEO’s actions. Compensation can be recovered later if the corporation successfully pursues the CEO for losses he caused.

Indeed, the final step for restoring corporate control will be to litigate to recover losses. This must be done because it helps compensate for actual losses caused by the CEO, and because not doing so can be viewed as approval of his actions. Then, if the corporation is declared bankrupt, secondary liability could be imposed not only on the CEO but also on the controlling person for allowing the CEO to avoid liability.

By Anna Zabrotskaya, Specialist Partner, and Andrew Bezhan, Counsel, Borenius Russia

This Article was originally published in Issue 7.11 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

As of June 19, 2020, Russian arbitrazh (commercial) courts have exclusive jurisdiction to hear certain cases related to “anti-Russian” sanctions. Affected legal entities and individuals may also apply for anti-suit injunctions in an attempt to prevent counterparties from pursuing claims abroad. Recent cases show that these new entitlements are not as favorable as once thought.

Exclusive Jurisdiction

Russian commercial courts were granted exclusive jurisdiction over two categories of cases. The first are those that involve either a sanctioned Russian individual/entity or a foreign entity subjected to anti-Russian sanctions (primarily entities controlled by sanctioned Russian individuals/entities via either majority shareholding or an executive position, as provided by both EU and US sanctions). The second are those with subject matter related to sanctions. Hypothetically, this may include claims due to defaults caused by sanctions or challenges to the validity of transactions.

Remarkably, exclusive jurisdiction rules may not apply if the parties already have an enforceable clause for dispute resolution outside Russia. If there is a case pending abroad that concerns the same subject matter, Russian courts have no jurisdiction to try claims, but they do have jurisdiction to consider an application for anti-suit injunctions.

However, where a dispute resolution clause that gives jurisdiction to a foreign forum (either a state court or an arbitral tribunal) becomes unenforceable because of anti-Russian sanctions, and that restricts the “access to justice” of the affected party, the rules on exclusive jurisdiction remain applicable.

Where exclusive jurisdiction is established, parties affected by sanctions may have their claims heard in a Russian commercial court, apply for an anti-suit injunction, or argue against the enforcement of foreign judgments or arbitral awards based on the exclusive jurisdiction vested in the commercial courts. However, foreign judgments and arbitral awards will be enforceable if the affected party does not challenge the jurisdiction of the foreign forum or does not seek an anti-suit injunction in Russia.

Anti-Suit Injunctions

Legal entities and individuals may now apply for anti-suit injunctions. Injunctions will be granted under two conditions: First, there must be a case pending or proposed against the applicant abroad (hypothetically, evidenced by a pre-trial letter of claim), and second, the Russian commercial courts must have exclusive jurisdiction to hear the case. Where an anti-suit injunction is breached, the applicant may seek an order to pay compensation up to the amount that could be awarded by a foreign court or arbitral tribunal, plus attorneys’ fees (resembling l’astreinte, adopted to Russian law). This may require that the defendant’s assets be located in Russia for the injunction to be effective. If the breaching party has no presence in Russia, issuing an injunction may take several months due to notification requirements set by international treaties.

Recent Cases

Commercial courts have so far heard only a few cases involving claims for exclusive jurisdiction, and none involving anti-suit injunctions. In case No. A40-107039/2019, Russia Today (Russia) sued Barclays Bank (England) to restore maintenance of its bank account, which had been frozen in compliance with EU sanctions against RT’s CEO. The court of cassation rejected RT’s reference to the Russian court’s exclusive jurisdiction, as it was raised after the dispute had been settled by the court of the first instance and as RT was not directly sanctioned by the EU. In case No. A60-62910/2018, Uralvagonzavod (Russia) sued Pesa Bydgoszcz SA (Poland) to declare the clause providing for arbitration at the Arbitration Institute of the Stockholm Chamber of Commerce (Sweden) unenforceable. The court rejected the claim, holding that UVZ experienced no restriction of “access to justice” due to sanctions. First, it was actively participating in the arbitration, hiring attorneys, and paying arbitration fees. Second, the court rejected UVZ’s reference to the “no-claims” provision in the EU’s sanctions, as it protects only parties from the EU who default due to sanctions, whereby in arbitration the claim was raised against Russian UVZ under a contract for sale of trolley cars (unrelated to sanctions).

Therefore, it is evident that the new rules are not applied as easily as once thought by the legal community.

By Anastasia Cheredova, Head of Special Projects, Vegas Lex

This Article was originally published in Issue 7.11 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

As expected, Clifford Chance Moscow has spun off its entire Dispute Resolution team into a new and independent boutique on the Russian market: Aitkulov & Partners.

Aitkulov & Partners is led by Partner Timur Aitkulov, who joined Clifford Chance back in 2004 and became Partner in 2007, and it includes Partners Olga Semushina, Dmitry Malukevich, and Victor Parkhomenko (the latter two of which were Senior Associates at Clifford Chance), as well as Senior Associate Galina Valentirova, Associate Alexey Vyalkov, and Junior Associates Bogdan Lavrichenko and Evgeny Solomatin.”

According to Timur Aitkulov, “the team will concentrate on its core specialization – complex international and Russian arbitrations, cross-border and domestic litigation, white collar and internal investigations.” According to him, “the team has considerable experience in construction, M&A, corporate, antitrust, bankruptcy and IP disputes, disputes in oil and gas, mining, energy, pharma, transportation and financial sectors.”

According to Aitkulov, his new firm “will continue to provide dispute resolution services to Clifford Chance and its clients from various jurisdictions under a global cooperation agreement between Aitkulov & Partners and Clifford Chance, but it will be much more flexible as compared to a branch of a big international law firm with respect to, among other things, conflicts, selection of co-counsel and pricing.”

The split had been under discussion for several months (as described by Clifford Chance Partner Torsten Syrbe in an interview with CEE Legal Matters last December). A representative of Clifford Chance Moscow asserted that “we wish Timur and the team the best of luck in their new venture and look forward to collaborating with them on future client mandates.” In the meantime, that representative said, “the firm will continue to provide advice on risk management and dispute resolution support to clients, including issues with a Russian law dimension.  We will be investing in these areas, and our wider Moscow practice, in line with our overarching strategy, focusing on being the firm best placed to meet the evolving needs of our clients in a dynamic market.”

White & Case has advised Russia-based petrochemicals company Sibur Holding on its sale of 40% of its stake in Amur Gas Chemical Complex to China’s energy and chemicals company Sinopec. Dechert advised the buyer on the deal.

Dechert reported that, through the transaction, Sinopec and Sibur established a joint venture aimed at establishing the Amur Petrochemical Project and that Sinopec will be the exclusive distributor of its products in China.

According to Sibur, “the Amur GCC project is expected to help attract international investments in the Russian economy, while also making a considerable contribution to the national program of growing the nation’s non-commodity exports.” In addition, the company reported, “given the facility’s geography, its products will be targeting Asian markets, primarily China, which is the largest consumer of polymers globally.

The White & Case team consisted of, in Moscow, Partners Nikolay Feoktistov, Jonathan Langley, and Irina Dmitrieva, Counsels Adam Smith and Pavel Boulatov, and Associates Evgeny Chernyavsky, Ksenia Tyunik, Jiutuo Sun, Alexander Karmalita, Roman Kudryavtsev, and Tigran Saakyan; in China, Partners David Li, Melody Chan, and Vivian Tsoi, and Senior Legal Consultant Frank Shu; in Brussels, Partner Katarzyna Czapracka; in Washington, D.C., Counsel Peter Chessick; and in Geneva, Counsel Sara Nordin.

Dechert’s team included, in Hong Kong, Partner Xiao Yong and Counsel Nicholas Molan; in Beijing, Counsel Zhaohui Li and Associate Adam Schmelzer; in Moscow, Partner Laura Brank, National Partner Evgenia Korotkova, and Associates Kirill Skopchevskiy and Pavel Dunaev; in Washington D.C., Partners Jeremy Zucker and Darshak Dholakia; and in Brussels, Partner Alec Burnside and Associates Adam Kidane and Delphine Strohl.

Clifford Chance’s Moscow office has helped Sovcombank obtain a USD 350 million ESG loan — its first loan based on environmental, social and governance principles.

Allen & Overy advised mandated lead arrangers and book-runners AO UniCredit Bank, Commerzbank AG, HSBC Bank plc, ING Bank AO, JSC Russian Regional Development Bank, and PJSC Rosbank, mandated lead arrangers the Eurasian Development Bank and PJSC Bank ZENIT, additional lead arrangers Banca Intesa, Credit Suisse (Switzerland) Ltd., and the International Bank for Economic Co-operation, coordinator and facility agent ING Bank N.V., and ESG coordinator HSBC Bank plc. 

Sovcombank is a Russian bank that operates a network of 2,500 offices and employs more than 15,000 people. According to Clifford Chance, the bank “will use the funds to finance its foreign trade operations, its general corporate purposes, and [for] further growth of its portfolio of Halva BNPL platform.” According to reports, the bank initially set the sum to be borrowed at USD 200 million but raised it to USD 350 million after oversubscription.

Clifford Chance’s team included Partner Vladimir Barbolin and Counsel Igor Bichenkov. 

Allen & Overy’s team consisted of London-based Partner Oleg Khomenko, Moscow-based Counsel Sergey Blinov, and Moscow-based Associates Daisy Chapman and Alexander Nabokov.

Former Hogan Lovells Moscow Managing Partner Oxana Balayan has left the firm to found her own consultancy — the Balayan I Group — which is scheduled to open its doors in April, 2021.

According to Balayan, the new venture “is an innovative platform which combines a law firm, a VC firm, and a public policy consultancy to support high growth industries and technology driven clients.” According to her, “our goal is to achieve synergies between these core areas and create a transformative player — a game changer.”

“Many successful companies build whole ecosystems around them to be competitive and to offer extended range of products and services,” Balayan says. “Due to regulatory restrictions, particularly in mature markets like the US, UK and Europe, things become difficult when it comes to legal services. But this industry is going to change too, sooner than we think. I want to be on the cutting edge and to use advantages of the Russian market where certain things are still easier and faster to implement. My team will consist of not just attorneys, but professionals in different business areas. This is how we are going to develop an innovative approach.”

Balayan stepped down as Managing Partner of Hogan Lovells’ Moscow practice in January, 2020 (at which point Hogan Lovells Partner Natalya Gulyaeva took the role over). Balayan spent a total of 20 years at the firm, after spending the first seven years of her professional career with Beiten Burkhardt. She obtained her Bachelor of Laws degree from the Lomonosov Moscow State University in1992, and followed that up with a Ph.D. from the University of Regensburg in 1996.