Supreme Court of Russia Clarifies Liability of Subsidiaries for Parent Companies' Debts in Sanction Cases
On 12 May 2025, the Supreme Court of the Russian Federation considered a highly significant and impactful issue for legal practice regarding the joint liability of Russian subsidiaries of foreign legal entities that fail to fulfill their obligations due to sanctions restrictions.
We have prepared for you an overview of the Supreme Court's new position and analyzed the current enforcement and judicial practice on this issue.
Background of the Case
In recent years, the question of whether subsidiaries in Russia could be held liable for the obligations of their foreign parent companies has become increasingly relevant. This topic gained particular urgency amid growing sanctions pressure and legal disputes involving international corporate groups.
The recent high-profile dispute involving Sovcombank and Citibank became a notable example. Sovcombank initiated legal proceedings (case No. А40-167352/2023) to recover approximately $24 million from the Russian entity AO "Citibank" in connection with obligations belonging to its U.S. parent, Citibank N.A. Sovcombank argued that the Russian subsidiary should bear joint liability due to its inclusion within the broader Citibank corporate structure.
Initially, lower courts supported Sovcombank’s claim, highlighting the integration within Citibank’s global management system and implying a unified operational approach. This stance caused significant concern among multinational corporations operating in Russia, raising uncertainties about the autonomy and legal independence of subsidiaries.
Analysis of Prior Judicial Practice
Previously, Russian courts have occasionally allowed claims against subsidiaries for obligations of parent companies, primarily relying on the concept of "corporate unity" or "economic dependence". These cases, however, typically required explicit evidence of misuse of corporate structures or asset shifting.
In this specific dispute, lower courts deviated from this standard, holding Citibank's Russian subsidiary liable without clear proof of corporate abuse or asset concealment. Such an expansive interpretation created potential risks for foreign businesses operating subsidiaries in Russia.
Supreme Court Decision and Key Findings
On reviewing the case, the Supreme Court of the Russian Federation overturned the rulings of the lower courts (see Supreme Court Determination). In its decision dated 12 May 2025, the Supreme Court emphasized:
Neither the Civil Code of the Russian Federation nor the Federal Law "On Joint Stock Companies" provide for automatic or presumed joint and several liability of subsidiaries for the debts of their parent companies.
Russian counter-sanction regulations do not contain provisions that would justify imposing such liability on subsidiaries merely due to corporate affiliation or global management practices.
The Supreme Court underscored the necessity for clear, substantiated evidence of abusive practices or asset concealment for imposing joint liability.
The decision sends a strong message reinforcing the principle of corporate independence, significantly clarifying and restricting the circumstances under which subsidiaries can be held liable for parent company obligations.
Expert Commentary by Managing Partner Dr. Sergey Milutin
“Joint and several liability must have a serious legal basis established by law or agreement (Article 322, paragraph 1 of the Civil Code of the Russian Federation). In the context of sanction disputes, attempts to recover debts from Russian subsidiaries due to foreign parent companies’ refusal to fulfill obligations citing mandatory restrictive measures (so-called "sanctions" justified by foreign law) aimed to protect legitimate interests of Russian entities unable to receive due payments by other means. However, this practice contradicts the fundamental civil law principle of corporate autonomy and independence of legal persons (the fiction theory), as, generally, a legal entity cannot be liable for its participants' debts (Article 56 of the Civil Code of the Russian Federation). The complexity arises from the legal nature of such claims, as the foreign companies' non-performance is mandated by their public law norms. In the Citibank case, the Supreme Court emphasized adherence to fundamental corporate principles but did not articulate a clear legal stance prohibiting the imposition of liability on companies within a single corporate group. While undoubtedly significant given the ongoing sanctions and pressures on international businesses in Russia, this ruling lacks universal applicability. The Supreme Court also identified procedural and substantive law violations, including failure to involve the Bank of Russia in accordance with Article 51 of the Arbitration Procedure Code, prompting the remand for reconsideration.”
Implications for Foreign Businesses
This ruling is particularly critical for foreign companies with subsidiaries in Russia, reassuring them of the integrity of corporate separateness in their operations. It reduces potential liability risks for subsidiaries arising from their parents' obligations and delineates clear guidelines that lower courts must adhere to in similar cases.
Companies should remain vigilant, however, as the Supreme Court remanded the case for reconsideration. Future judgments will likely further detail standards for proving abuse of corporate form or asset manipulation.
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Milutin & Partners Law Firm has extensive experience advising international clients on sanctions compliance, corporate structuring, and dispute resolution in Russia and Europe. We help businesses navigate complex legal challenges and protect their interests amid shifting regulatory landscapes.
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