Will the company's property be taken away if it has a Russian beneficiary?

Legislation is changing, especially during martial law. The government is trying its best to bring Ukraine closer to victory, and economic sanctions are also a fight for victory. Thus, the new norms stipulate that all companies that have participants and/or beneficiaries that are Russian citizens, Russian legal entities, and are registered or permanently residing in Russia are subject to the law, which provides for the compulsory seizure of property of such companies. 

Property is: cash, funds in bank accounts, securities, corporate rights, as well as real estate and movable property of such companies.

Such restrictions affect the interests of those companies that did not manage to give up their Russian component in time, and now find themselves under threat.

There are also a number of restrictions, such as a ban on the transfer of funds to such companies and the prohibition to dispose of the property of such companies in any way, i.e. it is impossible to sell or buy anything from such companies.

Even if an agreement of intent is concluded in order to sell it after the situation has changed, and some kind of payment is made under it, such an operation will be considered null and void.

The ban on the alienation of property does not affect such companies only if it is a non payable seizurement in favor of Ukraine.

It is also important to take into consideration that today the possibility of making notarial acts is limited if they are applied for:

  • citizens of the Russian Federation;

  • legal entities of the Russian Federation;

  • Ukrainian legal entities, where the participant or beneficiary is a citizen of the Russian Federation or legal entities of the Russian Federation.

However, citizens of the Russian Federation legally residing on the territory of Ukraine are not considered persons associated with the aggressor state. Also, such restrictions do not apply to Ukrainian companies, whose ultimate beneficial owner or participant is a citizen of the Russian Federation legally residing in Ukraine.

Legitimate grounds are considered to be:

  • permanent or temporary residence permit on the territory of Ukraine;

  • a military certificate issued to a citizen of the Russian Federation who has concluded a contract of military service in Ukraine;

  • refugee certificate or a document confirming the granting of asylum in Ukraine.

Interesting: How to withdraw money from Ukraine to the account of the parent company?

Will the company lose property and its ownership?

At this point, such a mechanism has not yet been developed. However, times of war prompt quick decisions and regulations. So you should not hope that the situation will somehow get better by itself. Already today a bill has been passed for consideration, according to which it is planned to increase by 50% the direct tax rates for the companies earning income on the territory of Russia.

For the withdrawal mechanism to become possible, there must be a decision on the compulsory withdrawal of facilities. A draft decision is formed by the Cabinet of Ministers of Ukraine, after which it is submitted to the NSDC for consideration. It is the NSDC that makes this decision. Further, the President of Ukraine signs a decree, according to which the CNBO decision comes into force.

The main point of this law is as follows: within no more than 6 months after ending or cancellation of martial period in Ukraine, the Verkhovna Rada of Ukraine should approve such decree of the President and pass a corresponding law.

That is, this law on seizure will be approved only after the end or cancellation of martial law. This means that there is a threat of seizure, but given the complexity of the procedure, it will not happen today and not now.

This gives the owners of "risky" businesses an opportunity to at least try to rectify the situation and get rid of the Russian component of such business.

To change the beneficiary will have to wait until the state registrars start working and calculate the least risky exit scheme for such a participant.

It should also be noted that the ownership of the seized property is transferred to the state of Ukraine represented by the Cabinet of Ministers of Ukraine from the moment the presidential decree comes into force. That is, the ownership of withdrawn objects is transferred to the adoption of the Law of Ukraine. From this provision is an exception - it concerns the property, the title to which needs state registration.

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Publication date: 07/04/2022

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