“The Russian Government has been very active in addressing concerns of business regarding inadequate regulatory control that has been increasing over last years,” says Andrey Ryabinin, Partner at Integrites in Moscow. “Several declarations have been made in this respect. As part of the reform known as 'regulatory guillotine' the Government is expected to eliminate in 2020-2021 several thousand outdated and excessive regulations in various industries regarding technical standards and requirements in business practice, most of which date back all the way to the Soviet times.”
“If at least some of the declarations actually get implemented, I think we would be much better off,” Ryabinin says. “Additionally, independence of the courts would potentially bring new business and investment, which is always a great thing, and something we hope to witness in the near future.”
As everywhere else, the Covid-19 crisis has turned the agenda for business and government upside down in just few weeks, Ryabinin reports. According to him, “in Russia, a dramatic change in attitude and respective governmental actions took place in the second half of March, but regulatory changes have been very swift yet sporadic, creating a lot of stress for businesses to adapt and react.” He adds that "major issues in this respect include labor issues related to remote work and significant labor cuts expected in many industries; non-performance of commercial contracts and massive attempts to avoid contracts with or without justified grounds and applicability of force majeure; massive personal and corporate bankruptcies and restructurings that will follow after a six-month moratorium on bankruptcy petitions lapses, and the enforcement of state regulations imposing restrictions and providing for support measures in response to Covid-19 and economic crisis situations.”
Apart from the crisis, Ryabinin says that some investors are nervous about the Government’s interference in commercial disputes. “This is supposed to change,” says Ryabinin, “as the Ministry of Police recently proclaimed that they would, in the future, try to ensure that the police would not interfere when there is a pending civil dispute until a civil judgment is issued. We are skeptical how this will play out, however, considering that according to the law itself, the police have to take measures once a case is filed, and we are hoping this is not just a declaration to make investors happier.”
“There are currently two main drivers in litigation,” reports Ryabinin. “The first is bankruptcy cases, where we have seen a lot of development, especially in making top management liable for debts or the bankruptcy of the company.” According to him, “there have been a few examples recently in which the shareholders were held liable, such as when Dmitry and Aleksey Ananyev’s bank Promsvyazbank was effectively nationalized by the Central Bank of Russia. This trend was strengthened after a recent judgement explained that the liability of former top management could also be inherited by their successors. On the other hand there is now a bill to expand restructurings in bankruptcy instead of liquidations of assets which now is used in over 95% of bankruptcies."
The other trend, Ryabinin says, is an increase in litigation against state authorities. “Earlier we saw a big number of cases against tax authorities,” he says. “This has forced tax authorities to be more efficient at the pre-litigation stage and minimize the number of cases against them, although the number of tax disputes is still rather significant.” While he applauds the trend, Ryabinin is dissatisfied with the fact that the courts have demonstrated a pro-state bias. “When the situation is not completely obvious, the courts tend to rule in favor of the state authorities. This is not good, as it makes investors less optimistic and willing to invest.”
“We have also seen an increasing number of cases against the customs authority, which makes for a very problematic situation for any business that relies on import,” Ryabinin says, noting that this is unlikely to change soon.
Ryabinin says that the economy is not developing actively, although at least in early March there were no signs that a recession was coming, and many experts predicted 1-2% GDP growth and a stable rate of inflation. However, in light of Covid-19, crisis those predictions are changing, and a recession seems increasingly likely.
In terms of sectors, Ryabinin says that “the agriculture sector has been growing quickly,” and he describes investment in the area as “great.” According to him, “the State has supported agriculture with multiple subsidies, as well as low interest rates of only 2 or 3%.” In other areas however, he says the government's approach is still “very cautious."