Right to buy back shares or interests—what should foreign investors expect?

On May 21, 2025, a draft law was published for its second reading. It outlines special considerations that would apply to foreign investors wishing to exercise their right to acquire (buy back) the shares (interests) previously held in Russian companies (the “Draft Law”) [1].

The Draft Law stipulates that a special procedure will apply when a foreign investor[2] retains the right to buy back shares (interests) in a Russian company and the purchaser in the transaction is a Russian citizen, a Russian company or a foreign company from a so-called “friendly country” [3] that is controlled by a Russian citizen.

Purchaser’s right to refuse a compulsory sale

The Draft Law provides that the purchaser may unilaterally waive the obligation to sell shares (interests) back to a foreign investor, if the following conditions are simultaneously met:

1. A foreign investor is a person associated with so-called “unfriendly countries” (g., by citizenship, registration, place of business or profit-making), or is under the control of such persons.
2. The shares (interests) were sold between February 24, 2022 and March 1, 2025.
3. The shares (interests) were sold with an option to buy them back within three years or more, and the sale price was significantly lower than the market price;
4. It has been at least two years since the sale of shares (interests) took place; and
5. The company, in which the shares (interests) were acquired, (the “Target Company”) has been properly fulfilling its obligations to its employees (former employees) and creditors.

If the purchaser exercises the right to refuse a compulsory sale, the foreign investor’s right to buy back will be terminated. In other words, buying back such shares (interests) will no longer be possible.

Prohibition on a buyback

According to the Draft Law, the federal executive body that supervises the Target Company’s activities will have the right to prohibit a foreign investor from buying back shares (interests) in it, even if the purchaser has not exercised his right to refuse a compulsory sale. This prohibition may be imposed if the Target Company—and/or the group, of which it is a member—has a significant impact on Russia’s socio-economic development or if there are other circumstances as determined by the federal executive body.

The Draft Law fails to shed any light on what exactly will be considered a “significant impact” on Russia’s socio-economic development. Relevant executive bodies may at their sole discretion prohibit buybacks on any other grounds. It gives the federal executive bodies wide discretion, which creates additional uncertainty and the need for foreign investors to assess their risk of being refused a buyback in advance.

Foreign investor’s right to compensation

Within one year from the date on which the purchaser exercises the right to refuse a compulsory sale, or from the date on which the federal executive body prohibits a buyback, the foreign investor will have the right to demand compensation from the purchaser for the termination of his right to buy back.

If the transfer of shares (interests) was due to the foreign investor refusing or evading the exercise of the rights of shareholder (member) rights, hindering company management, or creating risks for the Target Company, including suspension, liquidation or bankruptcy, the purchaser will have the right to demand a reduction in compensation or refuse to pay it altogether.

Since the procedure for calculating compensation and the grounds for reducing it or refusing to pay it have not yet been determined, and it is still unclear who will determine whether there is a risk to the Target Company and how they will do so, all of this can lead to disputes between purchasers and foreign investors.

The Draft Law has not yet been finalized. It still has to go through several readings in the Russian State Duma when changes and additions may be made.

Still have questions or want to discuss something? Send an email to Julia Talagaeva or Artem Eretenko.

 

Sincerely,

Forte Tax & Law Team

[1] https://sozd.duma.gov.ru/bill/1059849-7#bh_histras

[2] The term “foreign investor” is defined by Federal Law No. 160-FZ dated July 9, 1999 On Foreign Investments in the Russian Federation

[3] The countries that have not been included on the list of so-called “unfriendly countries”, as approved by Directive No. 430-р of the Russian Government dated March 5, 2022