By Dietrich Knauth

(Reuters.) – Foreign companies are looking to get out of Russia in the wake of the Ukraine war. Russian bankruptcy law may be used against them to seize their assets, and possibly even result in criminal punishments.

Let’s see how it might work.

HOW DOES RUSSIA’S BANKRUPTCY LAW DIFFER FROM BANKRUPTCY LAW IN THE UNITED STATES?

United States bankruptcy laws were created to help indebted businesses get a fresh start.

The majority of US companies that are in distress go bankrupt willingly. However, the law allows them to retain their existing management and assets.

Russia’s law prioritizes the interests of any creditors who are owed money. Russian creditors can also force companies into voluntary bankruptcy, thereby removing their management.

According to some legal professionals, foreign corporations may be concerned about Russian creditors using the opportunity to purchase assets or to align themselves with Russian leaders.

Paul Stephan is a post-Soviet expert and professor at University of Virginia School of Law. He said that “in the late 1990s and the early aughts this was frequently used as the device for raiding companies”.

CAN A BANKRUPT COMPANY SUFFER CRIMINAL PENALTIES in RUSSIA

Yes. The bankruptcy process in America is strictly civil. Russia’s bankruptcy law, however, carries some criminal sanctions for certain offenses related to bankruptcy.

British American Tobacco Plc (NYSE:) expressed concern about the possibility that Camel and Lucky Strike’s withdrawal from Russia may be considered a criminal act, leading to charges of local management.

Russian officials have threatened criminal bankruptcy against foreign investors and companies before. Russia asked Interpol repeatedly to have Bill Browder arrested by Interpol, charging him with tax evasion and deliberate bankruptcy.

Browder claimed that Russian corrupt officials are using “bogus warrants”. Interpol did not comply with Russia’s demand for arrest warrants.

HAS RUSSIAN BANKRUPTCY LAW BEEN USED IN THE PAST FOR PUNISHING COMPANIES FOR POLITICAL REASONS?

Yes. According to international arbitration courts, tax debt was used in Russia to force companies to bankruptcy.

Yukos Oil filed for bankruptcy in 2006, after Mikhail Khodorkovsky (its former chief) fell out of favor with Vladimir Putin. Russia demanded that Yukos Oil pay billions in back taxes.

Rosneft the Kremlin is the largest oil producer and absorbed most of Yukos’ assets. But international shareholders believed that Russian tax demands weren’t legitimate. The Permanent Court of Arbitration in The Hague agreed and found in 2014 that Khodorkovsky had been bankrupted by the Kremlin.

Experts said that the Russian government has major oil companies and could therefore use taxes as well as energy bills to make a company bankrupt.

Jason Kilborn from the University of Illinois Chicago, said that if the government were to use that power strategically it could have the ability influence local courts and local managers to force the sale of the company.

IS IT SAFE FOR COMPANIES to LEAVE RUSSIA IN A SECURE WAY?

Russian officials suggest a fast-track bankruptcy process for companies looking to exit Russia. This would allow local managers to take control of assets and operations.

Experts said that some companies are still concerned about Russian bankruptcy laws being used as a retaliation against those who are leaving.

Stephan stated, “If it really does come down, you can just hope you get as many people out of this country as possible, and that your assets risk is minimized in this country.”

Russia’s ruling party recently introduced legislation to allow government assets to be nationalized by certain businesses that are leaving Russia.

Experts said that this proposal could build upon the bankruptcy law’s process for court-appointed outside management. However, it could also be used against companies without debt.