Category: Russia

DLA Piper has advised Veon Holdings B.V., a member of the multinational VEON group, on the RUB 100 billion refinancing of its facilities with Russia’s Sberbank. Herbert Smith Freehills advised Sberbank.

According to DLA Piper, “the new term loan facility entered into with Sberbank on 3 June 2020 will be used to refinance and extend the maturity of the existing loan between Sberbank and Veon Holdings, as well as to provide additional funds for Veon Holdings’ general corporate purposes.”

The DLA Piper team was led by London-based Partner Mark Dwyer, Legal Director Mei Mei Wong and Associate Elvis Dangol. The Amsterdam team included Partner Gerard Kneppers and Advocaat Jocelyn van Moergastel, and the Moscow team consisted of Partner Karen Young and Legal Director Alexei Kolesnikov.

 

Debevoise & Plimpton has advised Sberbank on the acquisition of a 75% stake in 2GIS, an international digital maps and city guides company that provides “geo-information and hyperlocal services” to about 50 million users.

According to Debevoise & Plimpton, “As a result of the transaction, the share of Sberbank will be 72%, while the share of O2O Holding LLC, a food tech and mobility JV between Sberbank and Mail.ru will be 3%. The founders and management of 2GIS will retain a 25% stake in the company. Sberbank’s integration with 2GIS will accelerate the development of various areas of Sberbank’s business and ecosystem, as well as joint ventures of Sberbank and Mail.ru Group, such as Citimobil, Delivery Club, SberFood, Samokat, etc. In addition, 2GIS’s services will be integrated with banking applications for individuals and corporate clients.”

Debevoise’s team was led by Partner Alyona Kucher and included International Counsels Anna Maximenko and Evgeny Samoylov and Associates Vadim Kolomnikov, Nikolay Kiselev, Elena Klutchareva, Charles Low, Daria Serebrova, Olga Panfilova, Anastasia Magid, and Alexey Khnalkov.

Debevoise & Plimpton did not reply to our inquiry on the matter.

 

The COVID-19 lockdown will not last forever. Some of the Russian regions have already lifted the lockdown regime. Operating both during and beyond the lockdown could throw up novel and unexpected corporate crime and liability risks for businesses. Resuming or increasing business operations as restrictions ease will entail risk.  A resumption plan addressing logistical and operational complexities will be essential, but this should also take account of legal risks as part of overall risk mitigation measures.

This summary prepared by Sergey Yuryev and Mikhail Ivannikov aims to create business awareness of potential criminal and regulatory risks (and possible follow-on claims down the line) associated with operating or re-opening their businesses in and post-lockdown while risk of exposure to the virus remains. 

1. Could your business face criminal (or administrative) liability for exposure or risk of exposure to COVID-19 to (1) staff or (2) business partners and the public, under existing laws or new measures to combat the virus?

No specific legislation in respect of criminal (or administrative) liability has been introduced in Russia in response to COVID-19. However, existing provisions of the Criminal Code of Russia (Criminal Code) and Code on Administrative Offences of Russia (Administrative Code) are applicable and provide for criminal and administrative liability for individuals and companies for exposure or risk of exposure of COVID-19.

It is noted that under Russian law only individuals may be criminally liable, legal entities may bear only administrative liability.

The Russian Supreme Court issued special Reviews No. 1 dated 21 April 2020 and No. 2 dated 30 April 2020 relating to the application of Criminal and Administrative Codes to the COVID-19 pandemic and confirming liability for the following offences:

Administrative liability

• Violation of health and safety and epidemiological rules or failure to comply with anti-epidemic measures during emergencies in the event of a threat of the spread of a dangerous disease or when a quarantine has been introduced within a specific territory (Article 6.3 of Russian Code on Administrative Offences);

• Failure to comply with legal requests or instructions from an authorised body regarding anti-epidemic measures for example a quarantine order issued to a person who has returned from abroad (Article 6.3 of Russian Code on Administrative Offences);

• Non-compliance with the rules applicable during the state of emergency or high-alert regime (except for the breach of health and safety and epidemiological rules described above) (Article 20.6.1 of Russian Code on Administrative Offences).

Criminal liability

The violation of health and safety and epidemiological rules which cause mass disease through negligence or create the threat of mass disease or cause death by negligence may be subject to criminal prosecution.

2. Could senior management or other company representatives face criminal or other liability for any such exposure or risk of exposure?

Yes, a company’s management and officers responsible for the offences indicated in the paragraphs above may bear administrative and criminal liability.

3. What are the potential penalties for (1) the business and (2) its management?

Administrative

• Fines of up to RUB 300,000 (EUR 3,750) for individuals;

• Fines of up to RUB 500,000 (EUR 6,250) for company officials or disqualification from holding certain positions for up to three years;

• Fines of up to RUB 1,000,000 (EUR 12,500) for individual entrepreneurs or administrative suspension of operations for up to 90 days;

• Fines of up to RUB 1,000,000 (EUR 12,500) for legal entities or administrative suspension of operations for up to 90 days.

Criminal

• Fines up to RUB 700,000 (EUR 8,750) or imprisonment for up to seven years.

4. Have prosecutors or regulators brought any cases so far?

At the time of publication, there are no confirmed cases of such prosecution, however we may expect a number of such cases once the quarantine measures begin to be relaxed.

5. Are there any specific measures mandated for companies continuing to operate or resuming operations during the pandemic, concerning exposure to staff, business partners and/or the general public?

According to Presidential Decree of 2 April 2020 (Number 239) each Region of the Russian Federation shall adopt its own adequate measures to minimize threat of exposure COVID-19.

Therefore, each region of Russia may adopt its own set of rules and regulations in response to the COVID-19 pandemic.

For example, the self-isolation regime has been extended in Moscow and the Moscow Region until 31 May 2020. Only industrial and construction companies are permitted to restart operations as of 12 May 2020 and people must wear masks and gloves in public places and working places. Mandatory social distancing rules are in force and people are only permitted to leave their home for essential reasons. (Moscow Mayor Decrees dated 5 March 2020 No. 12-UM; 4 April 2020 No. 40-UM; 11 April 2020 No. 43-UM as amended and supplemented).

Other Russian regions apply broadly similar measures, however such measures largely depend on the epidemiological situation of the particular region.

There are is also Federal Guidance in respect of measures to be implemented, for example the Letter of the Minister of Labor No. 14-2/10/P-3710 dated 23 April 2020 in respect of the recommendation to work remotely; Letter of Rospotrebnadzor No. 02/7376-2020-24 dated 20 April 2020 in respect of recommendations for the organisation of workplaces and enterprises during the COVID-19 outbreak.

6. What potential liability could there be for civil claims by (1) staff and (2) business partners or members of the public in respect of infection (or other health issues) allegedly connected with a business’ operations during lockdown or in the aftermath? How might liability arise? Could companies face class-actions/ group claims?

The Russian Civil Code permits such claims potentially, however so far none of such claims have arisen.

The scope of the claims may be extremely wide and shall largely depend on the acts or omissions of business or the failure to comply with applicable regulations.

According to the Civil Code any person (group of individuals) may claim damages caused by wrongful acts (or indeed failures to act) if there is a direct causal link between the wrongdoing and the damage suffered. Clearly, there may be issues with proving the causation and Russian courts interpret causation restrictively.

Companies may face class-actions or group claims which are possible under Chapter 22.3 of the Russian Civil Procedure Code and 28.2 of Russian Arbitrazh (Commercial) Procedure Code. It is however noted that such claims have not been commonplace in Russia due to the procedural complexity of applicable procedures.

This is the Russia chapter from the global comparative CMS Expert Guide to COVID-19 Corporate Crime & Regulatory Issues.

By Sergey Yuryev, Partner, and Mikhail Ivannikov, Attorney at Law, CMS

Rybalkin, Gortsunyan & Partners has launched the RGP Advocates Bureau, a separate-but-connected legal entity for the firm’s dispute resolution/litigation/arbitration lawyers, with the Arbitration practice to be led by former Egorov, Puginsky, Afanasiev & Partners Co-Head of Litigation Dmitry Dyakin, and the Litigation & Investigations practice to be led by Partner Ilya Rybalkin.

“In these challenging times, we have managed to dramatically enhance our team with outstanding professionals, and together we will continue to create a unique Russian legal firm and defend our clients in the most complex disputes in Russia and across the world,” commented Partner Ilya Rybalkin.

After all initiatives for drastic countermeasures to respond to the US/EU sanctions (criminal liability for sanctions compliance, comprehensive import restrictions, liability for cross-border transfer of information relevant for sanctions) ground to a halt for one year, the legislator has now resumed the proposal to establish the jurisdiction of Russian courts over disputes with listed persons.

To this end, on 8 June 2020 far-reaching changes to the Russian Arbitrazh (Commercial) Procedural Code were adopted which will enter into force on 19 June 2020:

• There is a specific jurisdiction in Russia for any disputes with the participation of listed Russian persons as well as foreign legal entities which have been listed due to sanctions imposed on Russian persons. This specific jurisdiction also applies to disputes between Russian or foreign persons which have their basis in sanctions against Russian persons. It is yet unclear whether this regulation will cover not only personal but also sectoral sanctions.
• The above disputes now fall into the exclusive competence of the Russian commercial courts, provided that the parties have not entered into an agreement referring the dispute to a foreign court or international commercial arbitral tribunal located outside of Russia. However, this agreement shall not apply in cases where it cannot be enforced because sanctions imposed on any party to the proceedings establish “obstacles in the access to justice”. These undefined terms may be potentially interpreted broadly in practice.
• As a result, in many cases listed Russian and foreign persons (as well as parties in disputes having their basis in sanctions against Russian persons) will be able to choose whether to use a Russian commercial court or to comply with the agreement on jurisdiction/arbitration clause and to initiate proceedings at the agreed foreign court/arbitral tribunal or to accept such proceedings, as the case may be. In the latter cases, the resulting decisions of the foreign court or arbitral tribunal can be recognized and enforced in Russia.
• To enforce the new rules on specific jurisdiction in Russia, the protected listed persons may apply to the commercial court for an injunction prohibiting the counterparty from initiating or continuing proceedings before a foreign court or arbitral tribunal. To ensure that the injunction will be complied with, the Russian court may order the counterparty to pay a penalty to the protected listed person in case of non-compliance with the injunction. The amount of the penalty will be determined upon the court’s discretion but may not exceed the amount of the claim brought or to be brought by the counterparty before a foreign court or arbitral tribunal.

Over the last few years, Russian courts have developed case law which complicates the implementation of the US/EU sanctions in Russia[4]. Due to the legislative changes, foreign companies may be faced with this court practice more often when trying to enforce claims against listed persons or rights under sanctions clauses. This applies in particular where the foreign company owns assets in Russia, or the court decision or arbitral award would have to be enforced there. It is therefore even more important to draft sanctions clauses carefully on a case-by-case basis taking into account applicable Russian court practice.

By Hannes Lubitzsch, Associated Partner, and Viktor Gerbutov, Associated Partner, Noerr

White & Case has advised Russian online video streaming service IVI on financing it received from Alfa Bank. Herbert Smith Freehills advised Alfa Bank on the deal.

IVI is a Russian online video streaming service that offers licensed video content, including more than 65,000 movies, TV shows, cartoons, and music videos.

According to White & Case, “the deal is a benchmark in the rapidly growing Russian video services market. IVI is the first online service to attract external financing instead of using its own equity funds. The bank provided IVI with a venture loan with a maturity of six years. According to the terms of the transaction, Alfa-Bank also received the right to acquire 2.5 percent of the company’s equity under a warrant agreement.”

White & Case’s team was led by Partner Natalia Nikitina and included Partner Irina Dmitrieva, Local Partners Ekaterina Logvinova and Dmitry Lapshin, Counsels Pavel Boulatov and Adam Smith, and Associates Azamat Gaisenov, Adel Shageev, and Roman Kudryavstev.

Herbert Smith Freehills’ team in Moscow included Partner Artjom Buligin, Senior Associates Georgiy Entin, Samara Goode, Vadim Nikitin, and Denis Morozov, Associate Georgy Kurgansky, and Trainees Robert Bikbulatov, Igor Musienko, Yulia Sobko, and Maria Zerkalova.

KIAP Law Offices, DS Law Law Offices, and Balashova Legal Consultants have de-merged, reframing their association as a “best friends” relationship.

The three firms announced that they would be merging at the end of 2019, reporting at the time that they would be operating going forward under the KIAP Digital & Smart brand (as reported by CEE Legal Matters on November 15, 2019).

According to a statement on the KIAP website, from November 2019 until March 2020, the firms “carried out large-scale work to integrate business in terms of the overall strategy, personnel, and marketing.” Ultimately, “however, the COVID-19 pandemic made a significant impact on the economic situation on the market, narrowing planning horizons, and putting many industries in a state of turbulence.”

Noerr has advised the Bauer Media Group on the sale of its interests in its Russian publishing companies to its current Russian management. The portfolio sold by BMG consists of interests in five Russian entities and around 90 magazines in total.

The Bauer Media Group, which is headquartered in Hamburg, is Europe’s largest magazine publisher. 

Earlier this year Noerr advised Bauer on the sale of the Interia Group to the Polsat Group (as reported by CEE Legal Matters on May 5, 2020) and on the sale of its Romanian publishing business to Ringier (as reported by CEE Legal Matters on May 12, 2020).

Noerr’s team on the Russian deal included, in Moscow, Partner Bjorn Paulsen, Associated Partners Stefan Wolfgang Weber and Viktor Gerbutov, Counsels Olga Mokhonko and Vyacheslav Khayryuzov, Senior Associates Polina Galtsova, Artjom Kara, and Anna Fufurina, and Associate Yulia Baimakova; and, in Hamburg, Partners Volker Land and Karsten Metzlaff, Associated Partner Simone Schoenen, and Senior Associate Markus Broesamle.

Noerr was unable to provide more information on this matter.

Please find below information about support measures for system-forming organizations as of 28 May 2020.

1. What are system-forming organizations?

Companies are included in the list of system-forming organizations by means of a decision taken by the Russian Government Commission.

The criteria for system-forming organizations depend on their industry (e.g. for the aviation industry, turnover of more than RUB 10 billion and a headcount of more than 1000; for the oil and gas engineering industry, turnover of more than RUB 2 billion and a headcount of more than 250). The complete list of criteria can be found in the annex to the minutes of the meeting of the Government Commission of 10 April 2020 no. 7kv). The calculation is based on the group indicators. There are no restrictions on foreign participation for the companies to be recognized as system-forming organizations.

If an organization does not meet the established criteria, it may still be included in the list of system-forming organizations according to other criteria established by the Government Commission (for example, ensuring information security; ensuring transport accessibility of remote territories; dominant position in a particular market).

As of 2 June 2020, the Government Commission approved a list of 1139 system-forming organizations.

2. What support measures are available for system-forming organizations?

2.1. Regulation of the Russian Government of 24 April 2020 no. 582 – Subsidized loans for system-forming organizations

According to Regulations of the Russian Government of 24 April 2020 no. 582 and 20 May 2020 no. 712, system-forming organizations and their subsidiaries may obtain state-subsidized loans. The loan amount for the group of companies should not exceed RUB 3 billion, and the maximum interest rate is 5%. The loan is granted for a period of up to 36 months, and this preferential interest rate is applicable for the first 12 months.

In order to obtain a subsidized loan, a system-forming organization or its subsidiary should meet the following criteria:

• it should belong to one of the industries designated in Regulation of the Russian Government of 20 May 2020 no. 712 (e.g. the automobile industry, oil and gas engineering, metallurgy, wholesale and retail trade of non-food goods, the pharmaceutical industry);
• it has not entered into any other concessional loan agreement;
• the funds are used only for specific purposes (e.g. salaries, rent, transport charges, current repair, communications services, security services);
• it is not in the process of reorganization, liquidation or bankruptcy;
• it retains at least 90% of its workforce as of 1 May 2020;
• its income decreased by at least 30% for the period of 1 April-30 June 2020 compared with the same period in 2019;
• it is not a foreign legal entity/the total share of participation of foreign legal entities in its share capital does not exceed 50%.

Borrowers cannot use received funds to refinance loans they have previously received. While the preferential interest rate is in effect, they are not permitted to pay dividends without Government approval.

Regulations of the Russian Government of 24 April 2020 no. 582 and 20 May 2020 no. 712 do not address the application procedure for subsidized loans. To obtain a subsidized loan, organizations should contact a bank that participates in the state program (e.g. Sberbank, VTB, Gazprombank).

2.2. Regulation of the Russian Government of 10 May 2020 no. 651 – Other support measures

According to Regulation of the Russian Government of 10 May 2020 no. 651, system-forming organizations are eligible for:

• subsidies to cover production and sales costs;
• tax deferral or instalment plans subject to criteria listed in Regulation of the Russian Government of 2 April 2020 no. 409;
• state guarantees for loans.

Requirements for system-forming organizations to receive state support under Regulation of the Russian Government of 10 May 2020 no. 651

In order to obtain state support, a system-forming organization should meet the following criteria:

• it is not a foreign legal entity/the total share of participation of foreign legal entities in its share capital does not exceed 50% (this criterion may be waived by a decision of the Government Commission).
• a stress test has been passed and an analysis of financial and economic activities has been carried out;
• the organization has no tax arrears exceeding RUB 10,000 or arrears on the return of federal subsidies as of the application date.

Decrees of the Ministry of Economic Development of Russia of May 13, 2020 Nos. 276, 277, 278, 279 provided the procedure for a stress test, analysis of the financial and economic activities of system-forming organizations, the procedure for considering applications from such organizations, as well as the procedure for maintaining a register of system-forming organizations applying for state support in 2020.

Overview of the procedure for obtaining state support under Regulation of the Russian Government of 10 May 2020 no. 651

1. A system-forming organization submits an application to the specialized federal body and the Ministry of Economic Development of Russia in which it discloses its beneficial owners and agrees to share its commercial secrets.
2. The Government Commission reviews the application and decides on the approval of the provision of state support.
3. Information on the decision adopted by the Government Commission is sent to the system-forming organization.

By Maxim Vladimirov, Associated Partner, and Sergey Sergeev, Legal Advisor, Noerr

Bryan Cave Leighton Paisner has advised Kopy Goldfields AB on Russian matters related to its acquisition of authorized capital of the Russian gold mining company Amur Gold from HC Alliance Mining Group Ltd. and Lexor Group SA. Baker McKenzie advised the sellers.

As a result of the transaction, Kopy Goldfields will receive a 100% stake in the authorized capital of the company in exchange for its own shares.

According to BCLP, “the transaction provides Kopy Goldfields and Amur Gold LLC with a unique opportunity to significantly increase the value of the company by combining the portfolio of assets and projects of the two companies. The merger will increase the volume of gold mining and production, as a result of which the merged company will become one of the leading gold mining companies traded on the Stockholm Stock Exchange.”

BCLP’s team was supervised by Partner Anton Sitnikov and Adviser Nikolai Kholshev and included Senior Lawyer Anastasia Kudryashova, Advisers Ekaterina Verle and Inna Firsova, Lawyer Victoria Malashenkova, and Junior Lawyers Anastasia Buryak and Olga Yarunina.

Baker McKenzie’s team included: from Moscow, Partner Alexey Frolov, Senior Associate Kirill Manshin, Associate Valeria Zheludkova, and Trainee Danila Logachyov; from Stockholm, Partner Joakim Falkner, and Associates Stefan Balazs, Ian Gulam, and Johanna Flink; and from London, Partner David Duncan and Associate Jackson Martin.