Russian arbitrazh court clarifies unwinding shell company structures with Russian elements: key takeaways

In advising foreign law firms on Russian-element recovery matters over recent years, one recurring gap stands out: the assumption that a shell company structure assembled outside Russia insulates assets from unwinding proceedings before Russian arbitrazh courts. A recent Russian court decision has made that assumption considerably more difficult to sustain, and the implications for foreign counsel instructing local Russian lawyers are both immediate and practical.

Asset structures involving a Russian operating company, one or more intermediate holding layers in offshore or low-tax jurisdictions, and an ultimate beneficial owner registered abroad are familiar to practitioners across many practice areas. They arise in M&A transactions, creditor security arrangements, and joint-venture governance. The question that has repeatedly come before Russian arbitrazh courts is whether a transfer of Russian assets — whether shares, real property, or receivables — through such a layered structure can be challenged and unwound, particularly where the transfer was designed to place those assets beyond the reach of creditors or a competing claimant.

In the matter under review, the principal legal question concerned the standard of proof and the breadth of parties who could be drawn into unwinding proceedings before the arbitrazh court. Specifically, the court was asked to determine whether a claimant — in this instance a creditor with a judgment debt against a Russian entity — could pursue the reversal of a multi-step cross-border transfer where the intermediate steps had been completed through entities registered outside Russia. The respondent argued that the Russian court lacked the jurisdictional basis to examine transactions effected abroad and that the beneficial-ownership analysis required was beyond the permissible scope of domestic insolvency and asset-recovery proceedings.

The factual background, stripped of identifying detail, involved a chain of transactions spanning two jurisdictions beyond Russia. The Russian operating company had transferred its principal productive asset — commercial real estate in the Siberian Federal District — to an intermediate entity registered in a CIS member state, which in turn transferred the asset to an offshore holding company. The entire sequence was completed within a compressed timeframe and at below-market consideration. The creditor initiated proceedings in the Russian arbitrazh court seeking to unwind all steps in the chain.

The arbitrazh court upheld the claimant's case in material part. On the jurisdictional point, the court held that where the subject matter of the disputed transaction — here, Russian commercial real estate — remains governed by Russian property law regardless of the nationality or registration of the intermediate transferee, the arbitrazh court retains the competence to examine the entire transaction chain. The cross-border character of the intermediate steps did not sever the Russian court's connection to the underlying asset.

On the standard of proof, the court confirmed that the claimant need not demonstrate a specific fraudulent intent at each link in the chain. It was sufficient to establish, cumulatively, that the transactions were interconnected, that the overall result was the removal of a Russian asset from a position in which it was available to satisfy the creditor's claim, and that the consideration received at one or more steps was materially below market value. The court characterised this as a compound-transaction analysis: the chain is assessed as a whole, not as a series of independent disposals.

The court also addressed the status of the intermediate entities. It held that where an intermediate party cannot demonstrate independent commercial purpose for its role in the transaction, it may be treated as a conduit — a characterisation that then allows the court to look through that party and assess the economic substance of the chain directly. The conduit finding does not require evidence of the intermediate party's subjective awareness of the overall scheme; objective indicia — compressed timeline, below-market consideration, absence of board-level deliberation records — are sufficient.

"This decision reflects a clear doctrinal direction in Russian arbitrazh practice: courts are prepared to look through formal cross-border structures to the Russian asset at the end of the chain, applying a substance-over-form analysis that will be familiar to English and Dutch practitioners but which operates through distinct Russian procedural mechanisms." — Elizaveta Razina, Senior Lawyer, Practice Lead — IP Enforcement, Vetrov & Partners

For foreign law firms advising clients with Russian-element recovery matters, early coordination with local Russian counsel is the most reliable way to assess whether a transaction chain is exposed under this approach — make an enquiry: info@vetrovpartners.com | WhatsApp/Telegram: +7 (983) 510-38-76

For practitioners at foreign firms who instruct Russian lawyers on asset-tracing and recovery matters, the practical significance of this decision operates on three levels.

First, the compound-transaction analysis substantially widens the scope of structures that may be challenged. A structure that would previously have appeared adequately insulated — because each individual transfer step, taken alone, could be characterised as a conventional commercial transaction — may now be assessed in its entirety. Foreign counsel advising on structures with Russian underlying assets should treat the overall economic result, not the form of each step, as the operative legal test.

Second, the conduit characterisation introduces a new pressure point in transaction due diligence. Where an intermediate entity holds a Russian asset or a Russian operating company and cannot point to genuine board deliberation, independent financial advice, or an independent commercial rationale for its participation in the transaction, it risks being characterised as a conduit in subsequent proceedings. For firms advising on M&A transactions or creditor security arrangements involving Russian elements, this means that the governance documentation for each intermediate layer is not a formality — it is a material evidential record.

Third, and of direct relevance to firms instructing Russian lawyers in the context of enforcement: the ruling confirms that Russian asset freeze applications — interim measures sought in the arbitrazh court to preserve assets pending a full unwinding claim — can be grounded in a compound-transaction argument from the outset of proceedings. This makes early-stage coordination between foreign counsel and local Russian counsel, including a rapid assessment of the transaction chain and the availability of interim relief, considerably more consequential than it may have appeared under prior practice.

For in-house teams at foreign creditors and for litigation partners at foreign law firms seeking to instruct experienced Russian lawyers, the key operational shift is this: exposure analysis for any Russian-element structure must now account for the entire chain, and that analysis needs to be conducted before, not after, an adverse party begins proceedings.

If you are advising a client with a Russian-element recovery matter and need a rapid assessment of exposure under this approach, speak to our team: info@vetrovpartners.com | WhatsApp/Telegram: +7 (983) 510-38-76

• Legislative amendment affecting the unwinding of shell company structures with Russian elements
• Unwinding shell company structures with Russian elements: a practitioner overview
• Asset Tracing & Recovery in Russia

Q: What does this ruling change?

A: The ruling sharpens the analytical framework Russian arbitrazh courts apply when assessing multi-step cross-border transfer chains involving Russian assets. Prior to decisions of this kind, there was meaningful uncertainty as to whether a Russian court would examine intermediate steps completed through foreign-registered entities. The decision confirms that where the underlying asset is Russian — real property, shares in a Russian company, receivables governed by Russian law — the court will assess the entire transaction chain as a composite whole. Each link is not evaluated in isolation. The practical change is that structures which rely on the cross-border character of intermediate steps to resist unwinding proceedings are considerably more exposed than a step-by-step analysis would suggest.

Q: What should foreign companies do in light of this decision?

A: Foreign companies — and the law firms advising them — should conduct an immediate review of any structure with Russian underlying assets where one or more intermediate steps in the ownership or transfer chain were completed through entities outside Russia. The review should address three points: whether each intermediate entity can demonstrate independent commercial purpose, whether transaction documentation at each step is sufficient to rebut a conduit characterisation, and whether the overall consideration received across the chain reflects market value. Where exposure is identified, the priority is to understand the availability of interim relief under Russian procedure and the timeline within which an adverse party could bring a claim. Early instruction of local Russian counsel — before proceedings are commenced by an opposing party — remains the most effective protective step.

Vetrov & Partners is a Russian boutique law firm established in 2009, recognised by Pravo-300 — Russia's principal legal directory — for eight consecutive years and listed as a trusted adviser by the German Consulate General in Novosibirsk.

The firm's Asset Tracing & Recovery practice advises foreign creditors, foreign law firms, and institutional claimants on Russian-element recovery matters, including unwinding proceedings, interim asset preservation, and cross-border enforcement coordination. With over 1,000 matters handled since inception, the team provides direct partner involvement on every engagement.

Enquiries: info@vetrovpartners.com | WhatsApp / Telegram: +7 (983) 510-38-76 | t.me/vitvetcom

This publication is provided for informational purposes only and does not constitute legal advice under Russian or any other applicable law. The information herein should not be relied upon as a substitute for professional legal counsel tailored to your specific circumstances. Vetrov & Partners is a Russian-qualified law firm. For matters governed by foreign law or requiring local admission in another jurisdiction, we collaborate with trusted counsel in the relevant jurisdiction. For advice regarding your particular situation, please contact info@vetrovpartners.com.

— Elizaveta Razina Senior Lawyer, Practice Lead — IP Enforcement, Vetrov & Partners vetrovpartners.com/razina/