Moscow Times 22 May 2012
by Baker & McKenzie
In essence, the main purpose of any M&A transaction is not only the transfer of title to an asset, but the allocation of risks associated with the acquired asset between the seller and the buyer. Various legal tools have been developed throughout the long history of international M&A transactions to properly allocate such risks: the due diligence investigation of target companies, warranties and indemnities, disclosure letters, purchase price adjustments, escrow accounts, etc. Although these risk allocation mechanisms are common practice in foreign jurisdictions, they are not developed in Russian law. Traditionally, most M&A deals involving Russian assets are done under English law. The laws of other jurisdictions, such as New York or Dutch law, also serve as alternatives, albeit less common.
Over the last several years, the number of deals done under Russian law has increased. Russian law is used mainly for smaller deals, when the buyer has an appetite for risks relating to the target. In these cases, the focus is more on transferring title rather than allocating risks in transaction documents. Russian law is also used for local deals when both parties are Russian entities and the use of foreign law is simply not possible.