Putin Cancels Transfer of Danone's Russian Assets to Federal Property Management Agency

Russian President Vladimir Putin has annulled the temporary management of the assets of the French food company Danone by the Federal Property Management Agency in Russia. This information has been reported by Vedomosti.

Danone and the Federal Property Management Agency declined to comment.

On April 25, 2023, Putin signed a decree regarding the implementation of a temporary management mechanism for foreign assets in Russia. This decision is a mirror response to the confiscation of Russian property in Europe. Under the president's decree dated July 16, 2023, the shares owned by foreign companies in Danone's Russian subsidiary were transferred to temporary management in Russia.

According to the document, 83,000 and 85,000 shares of “Danone Russia,” owned by Produits Laitiers Frais Est Europe and “Danone Trade,” were transferred to Rosimushchestvo. In response, Danone stated that the holding would review this decision. They emphasized that Danone would take all necessary measures to protect its rights as a shareholder of Danone Russia and ensure the continuity of business for the benefit of all stakeholders.

Since July 18, the new CEO of “Danone Russia” has been Yakub Zakriyev, the Deputy Head of the Chechen government and nephew of the Republic’s leader Ramzan Kadyrov.

In July 2023, Danone deconsolidated its dairy and plant-based food divisions in Russia, withdrawing nearly 200 million euros, according to the company’s first half-year report. There is neither a legal mechanism nor any developed legal application for this issue. At the same time, records in the unified state register regarding the previous sole executive body have been eliminated, and there are no grounds for their restoration.

Returning to the management of share/shareholder titleholders implies the necessity of their expression of will, which is established by the minutes of the general meeting, which would serve as the basis for making a new entry regarding the company's director, says Dmitri Prosvirin, managing partner at Central District Law Firm.

The shares have been transferred to temporary management by the presidential decree, thus this decision can only be annulled in two ways: either by challenging the act based on a State Duma application or by submitting it to the Constitutional Court through general jurisdiction courts (the presidential decree has been annulled by the Constitutional Court only once in modern Russian history—in the early 1990s), or through the publication of another decree.

According to Yuri Fedyukin, managing partner at Enterprise Legal Solutions, this decree comes into force from the date of publication, which means that the decision regarding the transfer of shares has already been annulled. He suggested that the motives behind such a decision could be linked to certain agreements reached with the parent company, that is, directly with Danone regarding the future of its business in Russia and its level of involvement in its development and management.

Such cases are rare, as there are not many companies whose assets have been transferred to temporary management by the presidential decree, Fedyukin added. As such, Russian legislation has yet to develop a worked-out mechanism for the implementation of restrictive measures removal, notes Ivan Ribakov, advisor on mergers and acquisitions at MEF LEGAL.

The cessation of certain restrictive measures on shares implies the return of all corporate rights to the corporations’ title participants, including their rights to participate in management. And if we follow the essence of Russian corporate legal regulation, we may soon see decisions from the relevant legal entities’ authorities regarding the selection of new executive directors, but not the automatic reinstatement of previous managers’ contracts, Ribakov added.

In early March 2022, against the backdrop of the launch of Russia's special operation in Ukraine, Danone announced the cessation of investment projects in the Russian Federation. At that time, the company stated that the decision would not affect food production and distribution. In October of the same year, the company announced plans to withdraw from the business in Russia, with control over the dairy and plant-based product production division intended to be transferred to a new owner.