Efforts to withdraw 380 million rubles from the Nizhny Novgorod region were thwarted by a prosecutor's intervention.
In a significant development, the Ninth Arbitration Appeal Court has overturned a previous decision made by the Moscow Arbitration Court, declaring an assignment contract between a foreign company and a Russian water transport enterprise in the Nizhny Novgorod region invalid. This marks a notable milestone in the ongoing dispute between the two parties.
The plaintiff, the Russian water transport enterprise, had filed a lawsuit seeking to invalidate the contract, a move that was supported following the intervention of the Transport Prosecutor's Office. The Prosecutor's Office had reported the incident to the press service, underscoring the gravity of the situation.
The invalidation of the contract has implications for the foreign company, which, under Russian regulations, is required to fulfill financial obligations to Russian counterparties through special restricted rouble accounts opened at Russian banks. These accounts are used to deposit proceeds, profits, or payments related to contracts and transactions subject to currency controls and sanctions measures.
Foreign companies from sanctioning countries must deposit funds related to asset sales, profits, or contract payments into these restricted accounts, where the funds are effectively frozen from transfer abroad. Exporters and foreign payers are also required to convert a substantial portion of their foreign currency proceeds into roubles within a prescribed timeframe, which then remain in Russia’s banking system.
Restricted outward payments are another key aspect of these accounts, as Moscow’s capital controls strictly limit or block transfers of these funds out of Russia. The legal consequences of an invalid contract could complicate or delay the release or use of such funds.
It is important to note that any payment process must observe both international sanctions targeting Russian entities and domestic Russian laws restricting foreign currency transactions with residents. The Prosecutor's Office took action to prevent illegal transfer of funds abroad in this case.
The transfer of 380 million rubles abroad was previously prevented by the Volga Transport Prosecutor's Office. However, the overall process following contract invalidity remains unclear, with funds related to the contract remaining tightly controlled in Russia until legal clearance or negotiated settlements are resolved.
Despite the challenges in returning foreign business to Russia, as reported in previous analyses, this dispute does not appear to have been affected by these factors. The dispute continues to be handled in the arbitration court, with the Transport Prosecutor's Office continuing to play an active role.
The foreign company, now facing the invalidation of the contract it signed with the Russian firm, must navigate these complexities to resolve the matter. This incident underscores the importance of understanding and complying with Russian regulations when conducting business in the country.
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