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As foreign companies seek to exit Russia over the war in Ukraine, they face the prospect that Russian bankruptcy law could be used to seize assets and even lead to criminal penalties.

Here is how that could work:

In the United States, bankruptcy laws are meant to give indebted companies a fresh start.

Distressed companies in the United States usually enter bankruptcy willingly and the law lets them retain existing management and control over assets.

Russia’s law, however, generally prioritizes the needs of creditors who are owed money. This means creditors, including the Russian government, can force a company into involuntary bankruptcy and oust its management.

Some legal experts said foreign companies fear Russian creditors could abuse that process to install leaders willing to sell their assets to business rivals or companies aligned with the Russian government.

“In the late 90s and early aughts, this was often used as the device to raid companies” in post-Soviet Russia, said Paul Stephan, a professor at the University of Virginia School of Law and expert in the Soviet and post-Soviet legal systems.

CAN A BANKRUPT COMPANY FACE CRIMINAL PENALTIES IN RUSSIA?

Yes. In the United States, bankruptcy is primarily civil. But Russian courts have been more willing to pursue criminal penalties for some bankruptcy-related offenses, such as hiding assets.

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