Changes in the Federal law “On the procedure for foreign investment in economic companies of strategic importance for national defense and state security”

 
Starting from August 11, 2020, amendments to the Federal law “On the procedure for foreign investment in economic companies of strategic importance for national defense and state security” (“Law”) have come into force1, strengthening state control over transactions of foreign investors or a group of persons in respect of shares of companies of strategic importance for national defense and state security (“Company”).
 
The Law establishes the concept of control of a foreign investor or group of persons over the Company, the criteria by which it can be determined whether the Company is under control, and also establishes a list of transactions subject to preliminary approval under the Law. As a result of the amendments, when determining the basis of ownership of a foreign investor or group of persons in order to establish whether the Company is under control, as well as to enter into transactions subject to  preliminary approval under the Law, the cases when a foreign investor temporarily transfers its rights to dispose of voting shares of the Company to another person (or other persons) are to be considered in addition to direct ownership. Also, the Law sets out a list of the most common contractual structures based on which such a temporary transfer can take place:
 
  • Contract of trust management of the property;
  • Pledge agreement;
  • Repo agreement;
  • Security payment;
  • Other agreements or transactions (i.e. the list provided by the Law is not exhaustive).
 
These changes are aimed at improving the legal regulation of investment in strategic companies to eliminate the existing uncertainty regarding cases of temporary transfer of investors’ rights to other persons.
 
1Federal law No. 255-FZ dated 31.07.2020