Russia’s invasion of Ukraine has been strongly condemned by the international community. In addition to the sanctions imposed by various governments, multinational companies have also expressed solidarity with actions and withdrawn from their Russian business one after another. Archyde.com has sorted out four key points to explain whether overseas companies may face the dilemma of asset seizure or even criminal liability due to the Russian bankruptcy law.
1. Differences between Russian Bankruptcy Law and US Bankruptcy Law
Bankruptcy law in the U.S. is designed to give debt-ridden companies a chance to start over, usually by voluntary bankruptcy filings by companies in financial distress, and the law also allows petitioning companies to retain existing asset management and control.
The situation in Russia is very different. Local laws usually give priority to the needs of creditors. On behalf of creditors, including the Russian government, they can force companies into involuntary bankruptcy and have the right to remove corporate management.
Some legal experts say multinational companies are concerned that Russian creditors are abusing the process to oust former management and put their own people in place to help sell assets to companies that are pro-Russian government.
Such tactics were common in the late 1990s and early 2000s, and were often used by Russia in the post-Soviet era as a tool to crack down on corporations, said Paul Stephan, a professor at the University of Virginia School of Law.
2. Will insolvent companies face criminal liability in Russia?
Can. Bankruptcy in the U.S. is a civil case, but Russian courts impose criminal penalties for bankruptcy-related behavior, including hiding assets.
British American Tobacco, maker of the cigarette brands Camel and Lucky Strike (BTI-US) was concerned about exiting the Russian business, which could expose the company’s local management to bankruptcy-related charges.
Looking at past experience, Bill Browder, founder and CEO of US capital management firm Hermitage Capital Management, has been accused by the Russian government of intentional bankruptcy and tax evasion. Browder, one of Russia’s biggest investors, has said that issuing the fake warrants was part of Russian officials’ retaliatory tactics.
3. Is there a precedent for politically motivated bankruptcy in Russia?
have. According to an international arbitration court, Russia has punished foreign investors by forcing tax payments to bankrupt companies.
The former chief executive of Russia’s largest oil company Yukos, Mikhail Khodorkovsky and Russian President Vladimir Putin, was forced to pay billions of dollars in back taxes after authorities accused him of tax evasion in 2006. Bankrupt, most assets expropriated by state-run Rosneft.
The majority shareholder of Yukos filed a lawsuit against the International Court of Justice in The Hague. The Permanent Court of Arbitration in The Hague also ruled in favor of the shareholders in 2014, arguing that the Kremlin manipulated the judicial system to maliciously bankrupt Yukos, and demanded that the Russian authorities compensate the shareholders.
Experts say the Russian government owns large energy companies and could use energy bills or taxes as an excuse to force them into bankruptcy.
Jason Kilborn, a law professor at the University of Illinois at Chicago, said that if the government uses such tactical powers, it is likely to influence local courts, influence local business management, and even force the sale of companies to drive out foreign capital.
4. Does the company have a safe way to go down?
For businesses looking to leave Russia, Russian officials recommend fast-track insolvency procedures, with local management responsible for their assets and operations.
“If the hammer does fall, you can only hope that you’ve gotten as many people out of the country as possible to minimize the risk to your assets in this country,” said Paul Stephan, a law professor at the University of Virginia.