Draft legislation on the right to refuse foreign investors the exercise of buyback options
A bill providing for restrictions on foreign companies returning to the Russian market in terms of exercising buyback options was approved in the second parliamentary session. The BIRCH team has analyzed the potential changes and their impact on foreign companies’ return to the Russian market.
On 22 May 2025, the State Duma Committee on Property Issues approved for consideration a bill in the second parliamentary session providing for restrictions on the buyback option rights of foreign companies returning to the Russian market. If several conditions are simultaneously met, the current property owner has the right to unilaterally refuse to fulfill the obligations on allowing an ’unfriendly foreigner’ to repurchase the asset.
It also provides investors with the opportunity to demand compensation for such rejection of the exercise of the buyback option within 1 year after the refusal to accept, but even in this case the amount of compensation may be reduced or left unpaid under certain circumstances. The relevant agencies and state authorities may prohibit the exercise of concluded options as well if the company or group of persons to which it belongs has a significant impact on the socio-economic development of Russia.
The third reading of the bill has not yet been scheduled, but it is expected that the State Duma will consider it in June. We will monitor the status of the bill and provide updates on the criteria for the return of foreign companies to Russia.
Criteria and rules for denying the buyback option
The bill proposes to limit the ability of foreign companies that have sold their businesses in the Russian Federation to exercise the buyback option. The new owner has the right to deny foreign investors the option to buy back assets if the following conditions are met:
- Status. The foreign company and (or) a person affiliated with it are associated with ”unfriendly” states
- Period. The transaction for the sale of the business was completed in the period from 24 February 2022 to 1 March 2025
- Discount. The business was sold at a significant discount compared to the assessment of its market value, and the parties entered into an option to repurchase shares/interests in the Russian company on pre-agreed terms for a period of 3 years or more
- Term. At least 2 years have passed since the date of conclusion of the agreement on the alienation of shares/interests
- Good faith. The Russian company continues to duly fulfill its obligations to employees and creditors
Compensation
It is assumed that if the new owners deny the foreign investors the exercise of the buyback option, the foreign investors are entitled to demand compensation in connection with the termination of the relevant right within 1 year from the receipt of the refusal. However, the payment of compensation may be refused or its amount may be proportionately reduced if a foreign party or its affiliate has engaged in bad-faith actions toward the company (including evasion of shareholder/member rights and obligations, blocking decision-making processes, or otherwise obstructing the company's normal operations).
Ban from state authorities
A direct ban on buyback may also be established by state authorities in the event that a Russian company or the group of persons to which it belongs has a significant impact on the socio-economic development of the Russian Federation provided that the above conditions are met. In the context of countersanctions regulations, the authority implementing the provisions of the bill would be the relevant agency, i.e., the ministry that assisted with obtaining the approval from the subcommittee of the Government Commission for the initial transaction on the exit of the foreigner from the asset.
Repercussions for foreign companies returning to Russia
The provisions of the bill are still at the stage of discussion and preliminary consideration by parliamentarians, but a number of these initiatives raise several theoretical and practical questions.
Private vs. Public: a balance of interests?
The restrictions are aimed, first and foremost, at protecting the interests of the current owners and managers of the assets of the departed foreign companies. On the other hand, the intervention of the public element in private relations creates a potential conflict as well as grounds for dispute, especially given the subjective character of a number of criteria present in the current version of the bill. The principle of freedom of contract protects the parties to the option from changing the key provisions of the agreement, but it is not clear today whether the legislator’s requirements will be interpreted as being implemented in the interests of public policy of the Russian Federation with the corresponding consequences for the concluded buyback option.
Compensation: rules for calculation
Despite granting the right to receive compensation to foreigners, the bill does not outline the procedure for calculating it. If the amount of compensation is determined on the basis of the nominal value specified in the option, then this ratio may be unfair. Unlike establishing the transaction price or the option price based on the freedom of contract, such a procedure will presumably infringe on the rights of the participants in commerce in this case. The market valuation of the business calls into question the commercial agreements of the parties at the time of the option’s conclusion. Given the possibility of having the amount of compensation reduced, the risks of disputes over determining a fair amount of compensation are prevalent.
Compensation: grounds for paying
The provisions of the bill formally contradict the compensation mechanism provided for by Russian law. Thus, according to Article 235 of the Civil Code of the Russian Federation, compensation is provided only in the event of seizure of property from its owner. The actual owners of the businesses today are Russian legal entities and individuals, whereas the “unfriendly” foreigners are not the owners of the sold assets. Thus, such compensation has the nature of a “payment for an unrealized option”, the demand for which a foreign person can address to the current owner of the asset. In this case, in the event of a refusal to provide compensation, such a right will need to be defended in a Russian court.