Kremlin drafts bill to seize the assets of multinational companies that withdraw from Russia

Would companies still be able to source their stock and how do you reopen tech companies? Asks Economics Editor Joel Hills

The Russian government has drawn-up new laws to enable the confiscation of assets from global companies that close their operations in the country. ITV News has seen a summary of a draft federal bill which has not yet been presented to the Russian parliament. The proposed legislation, as set out, would enable the Kremlin to effectively take control of a company via a process of “external administration” at the request of “a board member or the state authorities”. The bill states that an application to court may be filed if:

  • The Russian company is either controlled by a foreign company or a person from an "unfriendly state" or is at least 25% owned by them

  • AND the book value of the Russian company must exceed 1 billion roubles (approximately £7,100,000 at the current exchange rate) OR the company has on average more than 100 employees.

According to the document, a request for external administration can also been triggered if the management of the Russian company or its shareholders:

  • Left Russia after February 24, 2022, in a way that “damaged the company’s economic interest”

  • Acted in a way that is judged to have damaged the value of the business or made it insolvent

  • Or took action that lead to an “unjustified termination of operations or liquidation of the Russian business”.

In the last three weeks, a series of international businesses have explicitly condemned Russia’s invasion of Ukraine and decided to suspend or shut down their activities.

The draft bill, if enacted, would allow the Russian government to ask a court to appoint an administrator to take over the management of a Russian subsidiary, either with a view to preparing it for a sale at auction or liquidation if the business is not viable. The administrator would have the power to reverse transactions, annul contracts and requisition intellectual property rights, even if they had been terminated by the parent company. In theory, the draft bill provides the legal framework for an external administrator to seize McDonald’s business in Russia, reopen the 850 restaurants (which have been temporarily closed) and continue to trade as McDonald’s without paying a licence fee to use the brand. “Essentially, it enables a hostile takeover,” a lawyer familiar with the draft legislation told me.

“The measures are so drastic but the Russian government doesn’t want companies to leave.

"They may decide to make the bill less onerous, but potentially it might be a bit more onerous, depending on how things develop.”

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380 companies have announced their withdrawal from Russia, according to analysis by the Yale School of Management. BP, Shell and Exxon were among the first to announce exit plans, quickly followed a host of tech companies, including Apple, IBM, Dell and Google. “This is a mass exodus, even Facebook and Meta ended up on the right side of history,” says Jeffrey Sonnenfeld, a management professor at the university. “Very few of the companies Vladimir Putin is trying to punish [with the draft bill] have hard assets in Russia.

"The 24 law firms, the consulting companies which pulled out - Bain, EY, Grant Thornton, Deloitte, KPMG, PWC - none of them own one inch of real estate there. BP has already written off the value of its ($25 billion (£19 billion)) stake in Rosneft. “What are they going to take from Amazon or Facebook or Google or Twitter? What is there to seize? This is a temper-tantrum. “OK, they take Pizza Hut, or a Taco Bell, or a McDonald’s. Good luck to them. I’m not sure if President Putin is any good at handling a deep-fryer. If he wants to flip-burgers and keep the signage, let him do it. If Russia does this, it will be impossible for them to do any global business, it will be more isolated than any other country in the history of the world. No one will do business with them." Never-the-less, there are a number of companies that have taken the decision to continue trading in Russia, including Accor, Auchan, Bosch, Décathlon, General Mills (which owns the Häagen-Dazs, Old El Paso and Green Giant brands), Mars, Mondelez (which owns Ritz, Oreo and Cadbury brands) Halliburton and Subway.

Many big names are still trading in Russia. Credit: PA

Those that remain risk damage to their reputations and their sales outside Russia, those that pull back face large financial losses and the threat of retribution against Russian nationals who work for them. On Friday, March 4, when it became clear that many multinational companies were considering leaving the market, Russia’s First Deputy Prime Minister, Andrey Belousov, announced that they had three options. Either they continued with business as usual; or they transferred ownership of their subsidiary to an Russian entity; or they closed production, laid-off employees and left. The Russian prosecutors office subsequently confirmed that the local CEOs, managers, directors and shareholders of companies that suspend their operations for political reasons and without an economic justification may be held criminally responsible. A lawyer who advises multinationals with subsidiaries in Russia - who for obvious reasons would prefer to remain anonymous - told me that executives or shareholders of a company that is judged to have been made “intentionally bankrupt” could face prosecution under “Article 196 of the Russian Criminal Code” and, if convicted, would face “imprisonment of up to seven years and a fine of up to five million roubles (£31,000)". Legal action against Russian citizens, working for foreign multinationals, could also be brought on the grounds of “fraud/misappropriation” or “subversive actions”. Both offences carry long prison sentences. “At this stage, I expect anything,” the lawyer told me.

“If there is massive unemployment or shortages as a result of the withdrawal of global companies I wouldn’t be surprised if the Russian government follows through on their threats.

"Management could be detained, they could face criminal charges and jail sentences. That is very possible.” The Russian government has been approached for comment.