The Russian Supreme Court has issued its full ruling in the high-profile Sovcombank v. Citibank case (No. А40-167352/2023), providing critical guidance on when subsidiaries may be held liable for parent company obligations. By remanding the case to lower courts, the Court has taken a procedurally cautious approach that nevertheless carries substantial implications for foreign investors operating in Russia's evolving legal environment.
Legal Context
The dispute stems from Citibank N.A.'s inability to fulfill USD 24 million in derivative obligations to Sovcombank due to U.S. sanctions. Sovcombank's novel legal theory — seeking to hold Citibank's Russian subsidiary jointly liable — initially succeeded in lower courts through an expansive interpretation of corporate group liability under Article 105.1 of the Russian Civil Code.
In 2024, the Supreme Court recognized the merits of Russian Citibank's arguments and accepted the cassation appeal for consideration.
Ruling of the Supreme Court
On 23 April 2025, a second hearing was held in the Supreme Court of Russia, resulted in:
- Annulment of prior judicial acts,
- Remand to the court of first instance for reconsideration
The ruling demonstrates the Court's measured recalibration of the “reverse piercing of the corporate veil” doctrine. Key developments are as follows:
- No Automatic Liability
The court did not explicitly state that Russian companies affiliated with foreign companies cannot, in principle, be jointly and severally liable for the debts of foreign companies. However, the notion that Russian subsidiaries are automatically liable for foreign parents’ debts was rejected, stating that "corporate affiliation alone is insufficient" for joint liability.
- Strict Conditions for "Reverse Piercing"
Liability may arise if the subsidiary is proven to be controlled by the parent in a manner that disregards its separate legal identity (e.g., asset commingling, unified management), and the parent’s abusive conduct (e.g., sanctions evasion) is imputed to the subsidiary. Mere corporate affiliation is insufficient — the claimant must show that the subsidiary’s assets or operations were involved in the harm.
- Sanctions Context Matters
The Court ruled that sanctions alone do not justify joint liability, requiring creditors to demonstrate both the impossibility of recovery under US procedures and specific wrongful conduct by the subsidiary (e.g., abuse of corporate form) to hold it liable under Russian law.
- Procedural Safeguards
Lower court must now assess parent's and subsidiary's separate roles in alleged damages and distinguish between joint liability claims and asset recovery actions.
Implications for Foreign Investors
- Shifting Precedent: The Supreme Court’s reluctance to explicitly endorse subsidiary's liability suggests a potential shift from earlier lower-court trends.
- Unresolved Questions: The court did not rule out liability but set a higher bar for “reverse piercing of the corporate veil”. The remand leaves open whether the subsidiary could face liability if the claimant provides new evidence (e.g., proof of asset commingling or bad-faith control by the parent).
- Broader Impact: Over RUB 150 billion in similar disputes involving international firms were on hold, awaiting the Sovcombank v. Citibank case’s outcome.
The Supreme Court’s ruling provides clearer boundaries for subsidiary liability in Russia — but navigating these precedents requires careful legal strategy. Whether you’re:
- Assessing risks for your Russian subsidiaries
- Pursuing claims against corporate groups
- Restructuring operations to align with new case law
— our cross-border dispute team can help you act with confidence.
Contact us to discuss how this ruling impacts your specific situation.