Corporate restructuring of international business in Russia and CIS

Mainstream

Corporate restructuring for an international company is not just a change of legal entity. It is a strategy of maintaining business value and management control.

The main question is not what documents to submit. The key question is whether the group will maintain operational integrity and protect assets in the long run.

Effective restructuring begins with three checks:

1. What assets and business processes need to be preserved and protected first?
2. What legal and sanctions risks have materialized right now?
3. What the new target state will look like in terms of law, tax and governance.

If these three issues are not resolved in advance, the company risks a costly transaction that will not solve the control problem, block cash flows, or create new risks for management.

When a corporate restructuring is required

Restructuring in the jurisdictions of Russia & CIS becomes necessary if:

• the company plans to exit from the Russian asset;
• It is necessary to separate Russian business from the international group in order to maintain its operational independence.
• The current ownership structure creates a threat of secondary sanctions for the parent company or its management.
• Foreign management loses the ability to effectively manage the subsidiary;
• • Protect key assets from potential seizure, nationalization or third-party lawsuits;
• it is necessary to ensure the continuation of business in the conditions of counter-sanctions restrictions and currency regulation;
• The tax residency of the beneficiaries has changed;
• shareholders have decided to allocate non-core assets or to divide the business;
• Redomiciliation from unfriendly jurisdictions must be enforced.
• Considering internal debt restructuring or external financing substitution;
• Relocation of key management functions and profit centers to a neutral or friendly jurisdiction
• The structure no longer meets the requirements of international compliance.

The mistake most companies make

Many groups start with the question:

"Who should sell the stake to?"

That's the wrong first question.

The right question is:

“What business configuration will ensure continuity, minimize sanction risks to the parent company, and maintain the maximum value of the asset?”

Sometimes the best result is not a direct sale, but the separation of a business with an option to return. Sometimes, a change in the jurisdiction of the administration. Sometimes, it is the creation of a complex transaction scheme involving multiple jurisdictions. Sometimes it’s a complete rebranding and operational autonomy.

Corporate restructuring requires not a formal legal transaction, but a commercial strategy to move out of the risk zone.

Step 1. Strategic Due Diligence

The first thing to learn is not the charter, but the real picture of the risks.

Key points of analysis:

• Corporate structure up to the ultimate beneficiaries;
• the presence of “sleeper” companies and cross-ownership;
• sanctions risks in the chains of ownership and financing;
• Active and potential litigation;
• composition of key assets: IP, real estate, equipment, contracts;
• structure of intragroup loans, guarantees and collaterals;
• tax risks for the last three periods;
• Currency restrictions and the status of accounts;
• Real management authority;
• Restrictions in articles of association, corporate agreement or credit agreements.

If due diligence is carried out superficially, restructuring can create new vulnerabilities. In-depth analysis often shows that you need to sell not the entire business, but a separate segment, or that a preliminary “clearing” of the perimeter is necessary.

Step 2. Analyze the powers and corporate governance

It is critical for the international group to understand who is making decisions and on what basis.

It is necessary to prepare and verify:

• statutes and constituent documents;
• minutes of shareholders’ meetings;
• provisions on the board of directors;
• decisions on the appointment of the Director General;
• Corporate Agreement (shareholders’ agreement);
• power of attorney;
• conclusions on legal capacity;
• limitations of powers;
• procedures for approval of extraordinary transactions;
• The presence of a “golden share” or a special right.

It is especially important to identify the risk of deadlock and the gap between the formal and real management structure that often arises when the foreign owner is effectively isolated.

Step 3. Determine the applicable law to corporate relations

Applicable law answers the question: What rules will be used to assess the validity of decisions, transactions with shares and the protection of participants’ rights.

This has an impact on:

• the validity of the transfer of shares/shares;
• minority rights and the right to withdraw;
• procedure for challenging transactions;
• limitation period;
• fiduciary duties of directors;
• the possibility of bringing to subsidiary liability;
• The cross-border effectiveness of interim measures.

In projects involving Russia and CIS countries, there is often a conflict: the personal law of the company and the law governing the corporate contract. An error at this stage may result in the entire restructuring design being deemed void.

Step 4. Checking sanctions and counter-sanctions restrictions

This is a central element of modern restructuring.

The following should be analysed:

• status of the company and beneficiaries in the sanctions lists (OFAC, EU, UK, OFSI);
• Applicability of counter-sanctions decrees of the President of the Russian Federation (Decrees No. 79, 81, 95, 138, 302, 520, 618, etc.);
• procedure for obtaining permission from the Government Commission;
• restrictions on dividends and interest payments;
• restrictions on exit from the LLC;
• restrictions on transactions with shares / shares of strategic companies;
• Prohibition of real estate transactions and withdrawal of assets without permission;
• requirements for transactions with persons from unfriendly jurisdictions (mandatory installments, discount, budget contribution);
• Currency restrictions on repatriation of funds.

Even a legally elaborated transaction can be blocked by the regulator or become void if it is made in circumvention of the established prohibitions.

Step 5. Select a strategy: MBO, Selection, Change of Jurisdiction or “Sleeping” Regime

Management Buy-Out (Buyback by Management)

Suitable if:

• The foreign owner is looking for a quick and clean exit.
• Local management has the resources and the desire to continue the business.
• the price of the transaction and installments allow you not to lose value;
• Regulatory attention should be minimized;
• There is clarity about obtaining government consent.

Separation of business in an independent contour

Effective when:

• The international group does not want to lose the asset completely.
• It is necessary to isolate Russian business, but maintain operational control through the management company.
• a future refund option is considered;
• Some of the business (such as IP) is transferred to a neutral jurisdiction.

Redomicilation (change of personal law)

It applies when:

• the parent company is registered in an unfriendly jurisdiction (Cyprus, BVI, Netherlands);
• it is required to continue possession of Russian assets in a “friendly” legal field (SAR in the Russian Federation, the UAE, Kazakhstan);
• It is important to maintain the public status of the AO.

Conservation ("sleeping" mode)

Scenario when:

• Active activity is not possible due to sanctions;
• Bank accounts are blocked;
• The purpose is to keep assets in the legal entity until the situation changes or gradual withdrawal.

Step 6. Structuring the transaction

This is the key stage at which phasing and mechanics are determined.

The structure of the transaction should answer the questions:

• Who's the seller, who's the buyer?
• What is the structure of payment (instalments, discount, loan conversion)?
• Is the Government Commission’s approval required before or after the transaction?
• What is the fate of intragroup debt?
• What happens to the staff, contracts and licenses?
• Do I need to create an intermediate holding company?
• How can you protect the buyer from historical risks and the seller from future claims?
• Is structuring through a personal fund or a closed mutual fund acceptable?
• What assurances and guarantees are critical?

In current conditions, a cascade scheme is often used: exit of one participant, change of corporate control, refinancing of debt to the parent company and subsequent change of structure.

Step 7. Protect key assets before the transaction begins

Safeguards and safeguards help to avoid losing business in the process.

Possible tools:

• Stage Title (shares/shares are transferred only after full payment);
• pledge of a share in favor of the seller before fulfilling obligations;
• call option (right of seller to buy back);
• qualified majority in key decisions;
• irrevocable power of attorney with a limited period;
• Transfer of key IP assets or contracts to a neutral company
• liquidation of inactive group companies prior to the transaction;
• Settlement of claims with employees and creditors.

It is especially important to protect against a scenario where the new owner gets control, but delays settlements, and assets are already withdrawn from collateral.

Step 8. Applying for decisions and obtaining regulatory consents

After the strategy and structure are chosen, legal implementation begins.

Preparation should be made for:

• a decision on restructuring (taking into account the norms of the company’s personal law);
• Legal opinion (legal opinion)
• transaction form (contract of sale of shares / shares, option, allocation);
• Corporate approvals;
• application to the Government Commission;
• notifications of the FAS, the Central Bank of the Russian Federation or other regulators;
• documents for a notary (for Russian LLCs, the transaction for the sale of a share is subject to notarization);
• Payment trajectory, taking into account currency control.

At this stage, the slightest error in wording or approval procedure can result in a regulator failure and lock down the entire project for months.

Step 9. Complete the transaction and spend “Day X”

Transaction is not only the signing of documents, but also the change of control.

Key elements of the closing day:

• notarization of the transaction with a share (RF);
• registration of transfer of rights to the USRLE (RF) or the register of shareholders;
• transfer of constituent documents, seal, EDS keys;
• Change of director and chief accountant;
• updating of bank cards with samples of signatures;
• notification of key counterparties and creditors;
• Activation of settlements between the parties;
• Disclosure of information (if applicable).

In parallel, intra-group liabilities are often closed, security instruments (pledge, surety) are issued and an agreed payment schedule is launched.

Step 10. Ensure post-transactional stability

The implementation and integration of the agreement is a separate project.

This may include:

• control over the receipt of payments on schedule;
• Preserving security arrangements until full settlement;
• resolution of the tax consequences;
• Translation of operating licenses and permits;
• rebranding and change of commercial name;
• Separation of IT infrastructure from the parent group system;
• settlement of post-transaction claims;
• Preparing for a potential buyback or partial return to the business.

Practice shows that the execution stage is often more critical than the transaction itself. This is where it becomes clear whether the business is truly separate and the risks to the parent company are minimized.

Script selection table

The choice does not depend on the overall trend in the market, but on the specific structure of assets, the readiness of management to buy out, the position of the regulator and the ultimate goal of the beneficiary.

How to strengthen your position before the crisis

The best restructuring is one that is not done in a hurry, but in a preventive manner.

Preferably in advance:

• conduct an audit of the corporate structure;
• check the sanctions risks of the beneficiaries;
• Remove “layers” from unfriendly jurisdictions;
• to conclude a detailed corporate agreement with a mechanism to break the deadlock;
• Structure ownership of key IP assets in a neutral company;
• Establish clear transfer prices and intra-group loans;
• synchronize tax and legal positions;
• Establishing back-up funding channels;
• Develop an action plan in case of sanctions or counter-sanctions restrictions.

The structure must be designed not only for a good market, but also for survival in conditions of maximum turbulence.

Common Mistakes in Corporate Restructuring

1. Restructuring without the permission of the Board

The transaction may be considered void and the title of the buyer invalid.

2. Ignoring Currency Controls

Payments abroad can be frozen by a correspondent bank, especially when passing through a chain of “unfriendly” banks.

3. Selling to “Empty” Local Management

If the buyer has no funds and the seller’s only purpose is to leave, the asset will be lost without payment.

4. Transfer of an asset without collateral

You need a pledge, option or irrevocable power of attorney until full payment.

5. Conducting a transaction in a corporate conflict

Risk of challenging the transaction by the current or former partner in a lawsuit for bad faith of the parties.

6. Preserving cross-default ties

If cross-guarantees and loans are not severed, a default in one part of the group will destroy the restructured business.

7. Not to analyze the tax consequences

Exiting a participant or forgiving a debt can create imputed income and tax on the withdrawing party.

Checklist for the start of restructuring

Before starting the project, 15 questions must be answered:

1. Who is the ultimate beneficiary and is he subject to sanctions?
2. Where is the parent company registered?
3. What are the key assets in Russia and the CIS?
4. Is it possible to make a decision without the participation of foreign directors?
5. Is the Government Commission’s permission required?
6. Is the local management ready for a buyout (MBO)?
7. What is the amount of intragroup debt and collateral?
8. What is the status of IT systems, licenses and trademarks?
9. Is there a corporate contract and arbitration clause?
10. Where are the bank accounts open and are they at risk of being blocked?
11. What are the tax risks of withdrawing or forgiving debt?
12. Are there any pending labor or legal disputes?
13. Can you separate a business without losing control?
14. What is the minority position?
15. Which scenario will retain the maximum value for the beneficiary?

What a strong restructuring strategy looks like

A strong strategy usually includes five levels:

1. Risk Assessment Maps sanctions, corporate and tax risks across the group.

2. Strategic Design Determining the desired end state: Exit, conditional exit or retain control through a new jurisdiction.

3. Transaction Engineering Building a Secure Transaction Architecture MBO, allocation, redomiciliation, taking into account special permits and currency control.

4. Regulatory Engagement Passage of the Board, FAS, Central Bank and other regulators.

5. Post-Closing Governance Settlement, separation of IT and operating systems, settlement of historical obligations.

Without a fifth tier, the top four can turn a trade into an incomplete, costly and risky process.

FAQ

Is it possible to sell a stake in a Russian LLC to a foreign buyer?

It is possible, but for persons from unfriendly countries, as well as for persons controlled by them, the prior permission of the Government Commission is required.

Which is better: Redomiciliation from Cyprus to SAR or sale of an asset?

There is no better universal option. Redomicilation retains the structure, but does not remove the sanctions risks from the ultimate owner. Selling takes risks, but it leads to a loss of control. The choice depends on the status of the sanctions and the appetite for risk.

Can a restructuring be carried out without the participation of a foreign director?

Yes, if local management has sufficient authority, or if corporate contract mechanisms are in place. In critical cases, it is possible to transfer powers to the manager or appoint an interim director through the court.

What if a joint venture partner blocks the exit?

It is necessary to use the mechanisms of deadlock resolution in a corporate contract or apply to arbitration with a claim for the exclusion of a partner or the liquidation of the company.

Does the company have subsidiary liability for directors who leave the company?

Yes, the risks persist for three years. Before leaving management, it is necessary to conduct a compliance audit and ensure the transfer of cases with an act that minimizes the risks of prosecution in bringing to bankruptcy.

Can I withdraw assets without a sale transaction?

It is possible, through the procedure of reorganization (allocation), but it requires time, a clear business plan and carries the risk of challenge from creditors.

More importantly: The price of the deal or the purity of the exit?

For an international group, purity of exit (exemption from future claims and compliance risks) is often more important than price. The deal should not just be profitable, but flawless from the point of view of sanctions legislation.

Related services

• Corporate Structuring, M&A and Post-Merger Integration
• Sanctions, Export Controls & International Compliance
• International Commercial Arbitration & Cross-Border Disputes
• Government Investigations & Regulatory Advisory
• Tax Structuring & International Tax Compliance
• Asset Protection & Succession Planning

Related material

• Sanctions Compliance in Russia and CIS: What has changed in 2024
• Redomicilation in ATS: step-by-step
• How to obtain permission from the Government Commission for a transaction
• Management Buy-Out in Russia: legal risks and protection
• Control of assets through a personal fund
• Exit of a foreign participant from the LLC: prohibitions, permits and practices
• Protection of assets from subsidiary liability
• How to Create an International Corporate Contract

Conclusion

Corporate restructuring of international business in Russia and CIS requires not a standard approach to M&A, but a strategy of survival, asset protection and preservation of commercial value.

A successful project is based on deep compliance analysis, a choice between control and clean output, a precise transaction architecture and impeccable compliance with sanctions, currency and tax restrictions.

In the current environment, the winner is not the one who acts fastest. The winner is the one who understands in advance what price he is willing to pay for leaving, how to structure the deal without the risk of challenge, and how to turn legal restructuring into a real protection of the value of the business.