ARBITRATION COURT SUPPORTED FAS POSITITON AND DEPRIVED OFF-SHORE COMPANIES OF CONTROL OVER “RED OCTOBER” VMW” JSC

Foreign companies acquired one of the largest steel producers without an approval by the Government Commission

Earlier FAS established that “Red October International S.A.” and “Segoa Ventures” Ltd. unlawfully acquired the majority stake of “Red October” VMW” JSC. In particular, the companies acted by passing the law [1] and established control over the company, of strategic importance for Russian economy, without pre-approval of the transaction with the Government Commission for Control over Foreign Investments.

For instance, in 2013 shares of “Red October” Volgograd Metallurgical Works” JSC were acquired by a Swiss off-shore company - “Red October International S.A.” In 2016 and 2017 the company issued shared bought by “Segoa Ventures” Ltd. of Cyprus. The same person was a beneficiary of both off-shore companies.

In view of the above, FAS concluded that “Red October” Volgograd Metallurgical Works” JSC was acquired in breach of Russian law, and filed a lawsuit to invalidate the transactions. Arbitration Court supported FAS conclusions and deprived foreign companies from voting rights at a general shareholders’ meeting.

Deputy Head of FAS Daniil Fesyuk stressed: “All deals related to establishing control of foreign investors over Russian strategic companies must obtain mandatory pre-approval through the Governmental Commission for Control over Foreign Investments, especially when it concerns companies whose operations are related to national security. Breaching the approval procedures and unwillingness to observe the rules of the game forms the grounds to return assets”.  

Reference:

[1] No.57-FZ Federal Law “On Procedure for foreign investments in economic entities of strategic importance for national defence and state security”