Update: New Decree Allows Certain Russian Companies to Remove Voting Rights of Minority Shareholders and Directors from Unfriendly States

Russian President Vladimir Putin adopted Decree No. 16 on January 17, allowing Russian companies to change their corporate decision-making so that minority shareholders from the so-called “unfriendly states” (or those controlled by persons from such states) and directors nominated by them lose their voting rights at the shareholder meetings in the boards of directors (supervisory boards) and management boards of affected Russian companies.

AFFECTED RUSSIAN COMPANIES

Decree No. 16 applies if a Russian company, such as a stock company or a limited liability company, meets the following criteria:

• It conducts activity in one of the following industries:
  • Energy (in the broad sense of the term, including oil and gas sectors, the coal industry, and potentially other energy industries), as well as the electric power that Decree No. 16 expressly refers to, which would include conventional power, nuclear, and renewables;
  • Machinery manufacturing; and
  • Trade (this is a broad legal term and may include any business associated with the sale and purchase of goods; it remains to be seen whether there will be further clarifications on this);
• Its Russian controlling shareholder (in general, a person holding directly or indirectly more than 50% votes, or having a right to appoint the sole executive body or more than half of the board of directors, in the company) or an ultimate beneficial owner (in general, a person holding directly or indirectly over 25% equity interest in the company) is sanctioned by a foreign state;
• The shareholders from the unfriendly states or controlled by persons from these states (the unfriendly shareholders) hold not more than a 50% equity interest in the Russian company; and
• The annual revenue of the Russian company (or the revenue of its group of persons) exceeds 100 billion rubles.

CORPORATE DECISION-MAKING

Under Decree No. 16, the shareholders of an affected Russian company who are not considered unfriendly persons can, by a majority of votes held by them, adopt a decision declaring that the votes of unfriendly persons will not be counted for quorum and the unfriendly persons will not have voting rights (the Decree No. 16 decision). If the Decree No. 16 decision is taken, it will apply to decision-making at the governing bodies of an affected Russian company, including at any shareholder meeting where the unfriendly shareholders will not be able to vote, and in the board of directors and the management board where directors nominated (appointed from the candidates nominated) by the unfriendly shareholders will not be able to vote.

Once the Decree No. 16 decision is adopted, all further decisions of the affected governing bodies will be taken in a similar manner: by a majority of votes of all members of a body (shareholders, directors) other than the unfriendly persons (the Decree No. 16 decision-making). Decree No. 16 explicitly states that this rule applies regardless of whether the charter of an affected Russian company or a corporate (shareholder) agreement concerning this company contains other rules and regardless of the governing law applicable to such corporate agreement.

The Decree No. 16 decision will apply until Decree No. 16 ceases to apply, or the Decree No. 16 decision is repealed.

TEMPORARY NATURE

Decree No. 16 establishes that the change of corporate decision-making is possible until December 31, 2023. We cannot exclude that this term will be extended.

EFFECT OF DECREE NO. 16

Decree No. 16 represents a change in the statutory rules on corporate decision-making. In general, as a matter of Russian corporate law, such change could be adopted only by a law rather than a presidential decree. However, Decree No. 16 is adopted under the auspices of the Russian countersanction laws that allow the president to introduce any countersanction measure he deems necessary. Decree No. 16 represents yet another countersanction measure introduced by the president using his broad powers under the Russian countersanction laws.

Decree No. 16 does not list the affected Russian companies. Some commentators think that given the criteria outlined in Decree. No 16, there could be only about a dozen of such companies. In any event, given that it is up to certain shareholders of an affected Russian company to decide whether to adopt a Decree No. 16 decision, it remains to be seen how many companies will in fact be subjected to the Decree No. 16 decision-making.

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