Russia’s state support for Russian businesses amid the unprecedented consequences of the coronavirus (COVID-19) pandemic has been so far focused primarily on small and mid-sized businesses. This LawFlash examines the measures Russia is taking or considering to support larger businesses coping with COVID-19.
Russia plans to introduce financial and economic monitoring with respect to Russian companies that play a key role in the Russian economy—so called "systemically important companies"—and provide targeted support to such companies. The systemically important companies are also sometimes referred to as companies that are “too big to fail”.
The Russian Government has the power to approve and amend the list of systemically important companies. The list was initially developed in response to the economic crisis of 2008 and has been revised on several occasions. In response to the COVID-19 pandemic and its effects, on 20 March 2020, the Government increased the number of companies on the list from approximately 200 companies to more than 600 companies.
The list includes energy companies (oil, gas, mining, power), infrastructure and transportation companies, real estate developers, and agricultural producers. Importantly, the list has been expanded to include companies representing industries that have been severely hit by the pandemic (e.g., airport operators, airlines, and large hotel, restaurant, and catering chains), major food suppliers (e.g., retail chains, food and beverage producers, and agriculture producers), major financial groups, and other companies that employ a large number of people.
The list includes both state-controlled and private companies. Interfax published a draft of the list which includes 646 companies (view the draft circulated for coordination with various authorities). It has not yet been finalized and is still subject to changes, according to state officials.
Russian Prime Minister Mikhail Mishustin ordered the Minister of Economic Development (jointly with other regulators) to develop the procedure for monitoring the systemically important companies, which is expected to take the form of weekly stress-tests.
The targeted state support to such key companies may include state subsidies, debt restructuring, and other measures to be determined on a case-by-case basis depending on the results of the monitoring. Reportedly, the government is also considering broader measures of support to key companies, including a temporary freeze on any bankruptcy proceedings within its new powers discussed below.
Russia amended its legislation on bankruptcy to allow the Russian Government to introduce a temporary freeze on the initiation of bankruptcy proceedings. The new provisions are part of a set of amendments related to emergency prevention and response that were introduced into multiple laws by Federal Law No. 98-FZ on 1 April 2020 (the Amendments).
The Amendments allow the Government to introduce a freeze in respect of bankruptcies in extraordinary situations including natural disasters, technical emergencies, substantial fluctuations of the ruble exchange rate, and other similar circumstances.
When introducing a freeze, the Government must specify the term of the freeze and what industries and particular companies (or types of businesses) benefit from it. It is expected that the government is likely to use its new powers to address COVID-19 consequences.
During a freeze, courts will not be permitted to accept a bankruptcy claim, whether filed by a creditor or a debtor, in respect of any company subject to the respective list, nor is the court permitted to enforce a pledge or other security in respect of such company’s property.
Russia introduced amendments to its corporate legislation to address corporate governance requirements. The recent amendments allow joint stock companies to conduct annual meetings of shareholders by absentee vote (rather than in person) and joint stock companies and limited liability companies to extend the mandatory deadlines for annual meetings, as well as the deadlines for submission of issuers' financial statements. There is also an exception from the statutory requirement for companies to have positive net assets in respect of 2020.
The State Duma also adopted a law allowing Russian public companies to buy back their shares from the market by using a simplified buy-back procedure if the company’s average share price drops by 20% or more in 2020.
The Russian Government has postponed the introduction of a number of new regulations and laws in an effort to not increase the burden on businesses. For example, the Amendments postponed until 1 January 2021 the requirement that all gadgets sold in Russia must have certain preinstalled Russian software. Read our LawFlash describing this requirement.
The Russian Central Bank has postponed the introduction of new reporting requirements for insurers (IFRS 17) which establishes a new procedure for calculating reserves and increases the administrative burden on the issuers. Furthermore, the largest insurers appear to be included in the list of systemically important companies.
The Ministry of Industry and Trade has suggested postponing the introduction of new recycling and environmental fees that are to be imposed on producers of goods sold in Russia. This initiative is at an early stage; however, given the current trend, it is likely to be supported.
There are many other initiatives in various stages of development. The Russian Central Bank is considering a number of initiatives, including methods of providing credit history protection in respect of delays or failures to pay caused by the consequences of COVID-19 and the provision of loans on special terms for this period. Many of these initiatives appear to be primarily targeted at the protection and support of small and mid-sized business; however, as the initiatives are introduced, some of them might prove beneficial to larger businesses as well.
Note: The COVID-19 situation is exceptionally dynamic and various initiatives to support business continue to be introduced and/or are changing. The above-discussed initiatives are stated as of 3 April 2020.
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If you have any questions or would like more information on the issues discussed in this LawFlash, please contact the following Moscow-based members of Morgan Lewis’s corporate and business transactions practice (Vasilisa Strizh, Jennifer Josefson, Alexandra Rotar, and Valentina Semenikhina) or a member of our labor and employment practice (Bela Pelman).