In the absence of the approval of the Government Commission, a transaction is invalid – the Moscow Circuit Commercial Court

In a ruling published on 24 October 2023, the Moscow Circuit Commercial Court  upheld the finding that the sale of real estate by a company with an “unfriendly” participant without the approval of the Government Commission[1] is invalid.

On 19 August 2022, Bauer Technology LLC (the “Company”), which is 100%-owned by Bauer Spezialtiefbau GmbH (Germany), sold several items of real estate to an individual entrepreneur.

In December 2022, the new CEO of the Company filed a lawsuit to have the sale invalidated.

The Commercial Court of the Moscow Region dismissed the claim, but the 10th Commercial Court of Appeal reversed the decision and declared the transaction invalid based on Articles 10 and 168 of the Civil Code of the Russian Federation. This was on the ground that such transaction had been made in circumvention of the law, and the court of appeal cited paragraph 4 of Article 166 of the Civil Code of the Russian Federation, which refers to void transactions.

The court of appeal determined that the Company is a person associated with a foreign state that is committing unfriendly acts against the Russian Federation, and the contested transaction is a transaction entailing the acquisition of title to immovable property carried out (executed) with persons of foreign states committing unfriendly acts.

These transactions require approval from the Government Commission and payment must be deposited into a special “S”-type account, as set forth in Presidential Decrees No. 81 “On Additional Temporary Economic Measures to Ensure the Financial Stability of the Russian Federation” and No. 95 “On a Temporary Procedure for the Execution of Obligations to Certain Foreign Creditors”.

The buyer applied for the approval of the Government Commission after the transaction had been effected, and the payment was transferred to a regular account, not to an “S”-type account.

While agreeing with the invalidation of the sale, the court of cassation excluded direct references to the invalidation clauses of the Civil Code.

If the buyer appeals the ruling, the Supreme Court will have the final say in the dispute.

[1] The Government Commission for Control over Foreign Investments in the Russian Federation.

Arina Dovzhenko

+7 931 210 09 55
St. Petersburg

Anton Borisyuk

+7 921 593 68 90
St. Petersburg

Kseniya Malmygina

+7 921 953 81 41