26 July 2013
EPAM Legal Highlights: Foreign company holding Russian real estate will have to disclose its beneficiaries to prove its good faith in court

Change

The Supreme Arbitrazh Court’s latest position is that a foreign purchaser of Russian real estate (e. g. an offshore company) will have to disclose information on beneficiaries in the case of court disputes to prove good faith and to prevent the seizure of property.

 

Benefits

This position will prevent the practice of fictitious transfer of unlawfully purchased real estate in favour of an offshore company held by the same beneficiaries as the previous unlawful buyer. The position may be the reason for review of already agreed court decisions if they were based on similar facts.

 

Risks

It should be taken into account that:

  • All state arbitrazh court decisions are fully published on the Internet. The information on the beneficiaries disclosed in the court will therefore no longer be confidential, even if it proves the good faith of the purchaser.
  • The Supreme Arbitrazh Court also claimed that non-disclosure of the beneficiaries in court may be treated as the misuse of rights. Russian legislation provides that in this case the court may refuse to protect a party’s rights against, for instance, third parties’ intrusion.

Recommen-dations

This court practice emphasises the importance of thorough due diligence before any real estate acquisition.

We do not recommend making a foreign (offshore) company a holder of a disputable real estate in case it’s undesirable to disclose its beneficiaries.

Besides, it is now possible to re-open the case and recover the property if a party lost its property due to fictitious alienation in favour of so called bona fide offshore purchaser.

Author 

Anton Alekseev, Associate Egorov Puginsky Afanasiev & Partners