7 March 2022
Tapestry
Alert: Ukraine, Russia, Belarus
Potential
Impact on Incentive Plans
Dear Client
As a result of the invasion of Ukraine, Russia and Belarus are
now subject to sanctions imposed from across the world, including
by the US, EU, Japan, Australia and the UK. As a
consequence, Russia has also introduced measures which include
local currency controls and restrictions on transactions involving
securities.
These restrictions impact the operation of any incentive plans
which have a link to Russia or Belarus, such as:
- plans operated by Russian or
Belarusian-headquartered businesses;
- plans operated by non-Russian or
non-Belarusian businesses with a Russian or Belarusian
subsidiary / branch, or that are offered to Russian or
Belarusian employees; and
- plans that involve sanctioned entities, or
that are offered to sanctioned individuals.
The individuals and entities
subject to the restrictions from all countries is under constant
review and is subject to ongoing changes. They currently include:
- Russian banks - the Russian
Central Bank has been targeted and many Russian banks have had
their assets frozen and have been excluded from international
exchange markets. They have, in most cases, lost their
access to the SWIFT system (a messaging system which enables
international transfers between banks).
- Russian and
Belarusian companies and individuals - certain
individuals and businesses have had their assets frozen and
have been prohibited from raising finance in the relevant
jurisdictions. Limits have also been imposed in some
jurisdictions on the value of bank deposits that Russian
individuals are permitted to make.
- Non-Russian
companies - restrictions are in place relating to
the products that companies are permitted to export into
Russia (for example the UK has banned exports of certain
high-tech items).
- Russian controls - Russia has
imposed economic measures in response to the sanctions. These
measures affect the ability of employees in Russia to
participate in incentive plans, limiting transfers of funds
and transactions involving securities between Russian
residents and foreign persons connected with countries which
commit ‘unfriendly’ actions towards Russia. A permit from the
Government Commission for Control over Foreign Investments in
the Russian Federation would be required to carry out such
transactions, which may also specify conditions.
Where your business has any link
to Russia or Belarus, you should review the extent to which the
restrictions will impact the operation of your incentive plans. The
impact of the crisis on Ukrainian participants will also mean that
their ability to participate in incentive plans will be affected.
You may want to consider the following:
- How will each of your existing and, if any,
future awards be impacted?
- Do you have participants (whether located
inside or outside of Russia / Belarus) who may be individually
subject to sanctions?
- Can you, and should you, consider
delaying or cancelling future grants of awards / plan
invitations?
- Can you, and should you, freeze / suspend /
cancel the vesting or delivery of existing awards, and what
are the accounting implications?
- Will participants be permitted to, and can
they practically, take ownership of shares and, if so,
how will this work? In Russia, this is currently unlikely to
be possible.
- Would it be appropriate to cash-settle
existing awards locally in Russia and Belarus, do you have the
contractual powers to allow you to do this, and what are the
wider financing and accounting implications?
- What actions do your Ukrainian
employees and colleagues need to take in relation to your
incentive plans and any outstanding awards, and what can you
do if these are not possible?
- What cross-border transfers of money will
be affected (e.g. contributions for purchase plans, exercise
payments for options, recharges of administration and share
costs), and what can your administrator and bank currently
support?
- Are there any alternative ways in which
affected currency transfers could be implemented or structured
to enable plans to continue to be operated?
- What grant price should you use to
calculate the number of shares under new awards - is it
reasonable to use the current share price if it has been
affected by the crisis?
- How will the sanctions and restrictions
affect performance targets, including e.g. for broader
corporate performance targets?
- Do you need to send communications to
participants to offer explanation, guidance and
reassurance?
Tapestry
comment
The
situation in Ukraine is highly volatile, and it is not possible to
say with any certainty for how long any restrictions may be in
place, and whether additional restrictions may be imposed. The impact
of the current situation on companies’ incentive plans will be
case-specific, but all companies with participants in these
jurisdictions should consider how the above points impact the
practical operation of their plan events.
We recognise
that these are difficult and challenging issues to address. We have
been in touch with our Ukrainian counsel who are currently
safe, but obtaining advice that will accurately reflect the current
(and near-future) position is likely to be difficult at this time.
The crisis also means that we may be limited in our ability to
source any further Russian or Belarussian advice directly from
these countries.
We send our thoughts to all the people affected by the
conflict.
Team
Tapestry
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