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A table comparing and summarising the Russian and English legal positions on restrictive covenants in the context of M&A transactions. This is part of a set of resources comparing English and Russian law positions on commonly used terms in international transactions.
In the context of an M&A transaction, restrictive covenants are contractual promises not to enter into competition or similar undertakings given to protect the goodwill of the company or business sold. They are very common on:
Restrictive covenants typically prevent the seller of the business from:
They must be restricted in time and scope to be effective and enforceable and limited to what is genuinely necessary to protect the goodwill of the business sold.
Often the most effective remedy for breach of covenant is to seek a court injunction to prevent a continuing or threatened breach. This is then followed by a financial claim for damages.
For more information, see Practice note, Share purchase agreement: Restrictive covenants (www.practicallaw.com/4-107-3753).
The widely held view is that restrictive covenants are not enforceable on the basis that a party cannot waive or contract out of its right to do something. They would also conflict with the basic right to work under employment law and may also be illegal under anti-monopoly legislation.
Investors sometimes insist on restrictive covenants being given under English law for a Russian business. The general view is that these covenants would be unenforceable for the Russian-based elements of the business, although this has not been tested. Nevertheless, restrictive covenants are often included to apply moral pressure on the covenantor to act in accordance with the spirit of the agreement.
Injunctions are not recognised. The courts have no rights to grant injunctions or to enforce injunction orders granted in other jurisdictions.
For an English and Russian law comparison of other types of covenants, see Practice note, Covenants (including negative covenants and veto rights): a Russian and English law comparison (www.practicallaw.com/0-504-1571).