Relevant governmental departments (Federal executive bodies) have begun to request reports from companies on fulfillment of key performance indicators (KPIs), which were agreed upon by the Subcommittee of the Government Commission for Control over Foreign Investment in Russia (the Government Commission) when making transactions with shares in Russian companies.
Although the current legislation does not specify liability for non-compliance with the KPI, experts believe that the consequences may include termination of transactions.
A special procedure for transactions with non-residents has been in effect in Russia since the beginning of March 2022. Such transactions are possible only after obtaining permission from the Government Commission. Recently, the conditions for obtaining such permits were supplemented with a new requirement – establishing key performance indicators (KPI) for new shareholders (owners), as stated in paragraph 5.1 of the Rules for issuing by the Government Commission for Control over the Implementation of Foreign Investments, approved by RF Government Resolution No. 295 of 6 March 2022 (the Rules)
The Extract from the Decision of the Government Commission of 7 July 2023 No. 171/5 specifies that the KPI should provide for values “including the preservation of the technological potential and the main type of economic activity of such a business entity, the preservation of jobs and the fulfillment of obligations under contracts concluded by it with other legal entities.”
KPI for new shareholders/owners can be established, for example in respect of:
volume of manufactured/sold products;
revenue – EBITDA;
profitability percentage;
number of employees;
tax deductions.
Clause 15.2 of the Rules states that monitoring of the achievement of key performance indicators and their target values is carried out by the supervising Federal executive bodies.
Possible Liability for failure to meet KPIs
Liability as such for failure to meet KPIs is not provided for in the current regulations, but there are assumptions that a variety of legal consequences may be applied, up to and including the seizure of assets from new owners (declaring the transaction invalid) or the restriction of their right to dispose of assets.
Also, administrative liability is not excluded in the form of fines and disqualification of officials.
Thus, after the execution of transactions approved by the Government Commission with the indication of KPIs, it is recommended that the company shall conduct ongoing internal monitoring of the compliance of the KPIs with the indicators that were previously declared in the corresponding application to the Government Commission for approval of the transaction.