THE PRESIDENT OF RUSSIA SIGNED A LAW ON CLARIFYING THE LEGAL CONSEQUENCES OF THE INVALIDITY OF TRANSACTIONS

The amendments are aimed at ensuring legal certainty in the sphere of control over foreign investments in the Russian Federation

The adopted law clarifies the procedure for the court to apply the consequences of invalidity of a void transaction that was made in violation of the current legislation on foreign investment.

The amendments proposed by the Authority concern only those cases of violation of the law when unfair foreign investors illegally acquired the property of a strategic company or a share in it.

The possibility of applying the mechanism of transfer of stokes/shares/corporate rights/property in favor of the state already exists in the Law on Foreign Investments.*

By this law** FAS Russia details the legislation in accordance with the law enforcement practice of the Authority.

Currently in accordance with the Article 15 of the Federal Law No. 57-FZ transactions made in violation of its provisions are void. At the same time, the court on the claim of FAS Russia applies the consequences of their invalidity in respect of such transactions in accordance with civil law.

According to the adopted law, if an unfair foreign investor has established illegal control over a Russian strategic company, that is, has made a void transaction, then as one of its consequences, the court may recover the shares of the strategic company and the income of the foreign investor received as a result of such a transaction to the state revenue.

The document also provides for the possibility to recover the losses caused and compensation for damage from a foreign investor at the claim of an economic strategic company.

FAS Russia pays attention to the fact that the amendments provided for by the law apply only to business entities of strategic importance for the defense of the country and the security of the state.

Besides, the law clarifies and expands the concept of a foreign investor. Now it also includes citizens of the Russian Federation who have received a residence permit or other valid document confirming their right to permanent residence in a foreign country.

The obligations stipulated by the Federal Law No. 57-FZ will apply only to persons who have received a residence permit after the entry of this law into force.

Reference:

* The Federal Law of April 29, 2008 No. 57-FZ "On the Procedure for Foreign Investments in Business Entities of Strategic Importance for Ensuring the Country's Defense and State Security"

** The Federal Law of April 28, 2023 No. 139-FZ "On Amendments to the Federal Law "On the Procedure for Foreign Investments in Business Entities of Strategic Importance for Ensuring the Country's Defense and State Security"