Difficulties in approving transactions with foreigners

Since the introduction of the invalidity of transactions with foreign
companies from unfriendly countries without obtaining the permission of the
subcommision of the Ministry of Finance, the conditions for obtaining such
permission are constantly updated, new conditions are introduced, or old ones
are changed. Experts also note that when considering applications, the
subcommission takes into account not only formal criteria, but also a number of
informal aspects.

Recently, the commission’s experts have been paying more attention to
additional requirements for the ways of financing transactions and the working
conditions of new owners.

What is important to consider when approving transactions with
foreigners

• Influence of
  relevant ministries

Formally, the decision to issue a permit for a transaction is made by a
subcommission of the government commission for monitoring the implementation of
foreign investments. As practice shows, decision-making is influenced not only
by members of the subcommission, but also by other persons representing various
authorities. Often such persons are the relevant ministries that are
responsible for the sector in which the company operates. For example, some
line ministries may recommend to the subcommission not to allow transactions
with certain companies or jurisdictions, thus forming an informal ban on the
part of ministries.

• Additional
  requirements for the seller or buyer

To obtain permission, additional requirements for sellers or buyers may
be added to the transaction. According to the latest innovations, such
requirements may be an installment payment for several years, a discount from
the current market value of the business or a one-time contribution to the
budget. The subcommission can also determine requirements for buyers if one of
the requirements for approving a transaction is the establishment of key
performance indicators (KPI) for business buyers. Indicators can be the
provision of a certain level of employment, a certain profit and production
volumes, as well as the amount of tax fees.

• Analysis of
  the company’s behavior

When considering an application for a permit, the subcommision carefully
examines the issue of continuing the company’s activities on the territory of
Russia. Therefore, if a company curtails its activities in Russia, this may be
one of the reasons for refusing to issue a permit.

• Business
  purchase transactions by management

Recently, the subcommission has more often refused to approve
transactions for the repurchase of the company’s assets by its management.
Experts attribute this to the government’s desire to transfer foreign business
to a real buyer, as well as to attract a bank as a party that will finance this
transaction and take assets as collateral to secure the transaction.

It is important to note that not all of the above criteria are official,
but over time the subcommission may issue some of them as official, based on
existing practice.