YUKOS Surrenders to the Allies

Company Decides to Go Bankrupt under American Law

The Maneuver

Yesterday morning YUKOS filed an application in a bankruptcy court in Houston, Texas for restructuring according to American laws. After familiarizing himself with the case yesterday evening, the judge set a hearing for Thursday. YUKOS is asking the court to issue an injunction to halt the auction for the sale of Yuganskneftegaz planned for December 19 and is counting on Russian state structures to execute it. Meanwhile, three foreign members of YUKOS's board of directors submitted their resignations yesterday “owing to the impossibility of fulfilling their duties any longer”. There was no one to comply with their request: yesterday, YUKOS's board of directors canceled the shareholders' meeting at which the question of a change in the board's membership was to have been considered.


YUKOS's application states that: “The company has filed an application in the bankruptcy court of the Southern District of the State of Texas (city of Houston) for restructuring according to the bankruptcy code of the United States. The company asks the court to conduct an emergency hearing on the matter of issuing an injunction on the holding of an auction planned for December 19 for the sale of its main asset, OAO Yuganskneftegaz. If the sale of Yuganskneftegaz takes place, it will cause YUKOS irreparable damage.”

YUKOS justifies the venue for filing the suit thus: “Bankruptcy acts of American courts are valid with respect to a debtor's property around the world, including assets belonging to subsidiaries. Houston is a major international center of the oil and gas industry, in which the company has assets and conducts activity. In addition, YUKOS's chief financial officer (Bruce Misamore – Kommersant) is forced to carry out his duties as an executive officer of the company in Houston.” YUKOS also quoted Steven Theede, the president of OOO YUKOS-Moscow: “The steps taken today are the last resource for protecting the rights of our shareholders, employees, and customers. The actions of the Russian authorities are none other than “21st century expropriation”.

According to news agency reports, the main hearings in the YUKOS case will begin tomorrow at 17.30 Moscow time. The court will probably accept YUKOS's arguments and issue an injunction on holding the auction to sell Yuganskneftegaz's shares. However, this decision will not be of much help to YUKOS.

According to chapter 11, title 11 of the United States Bankruptcy Code, which YUKOS cites, the protection it is requesting from the American court makes provision for imposing a moratorium on fulfillment of the company's debt obligations, as well as staying executive proceedings for collecting debts under court decisions that have entered into legal force. The moratorium is in effect for the restructuring period; the restructuring plan is worked out by the company's management and is submitted to the court for approval. Many American companies experiencing financial difficulties go through a similar procedure, and it does not always end in bankruptcy for them.

However, in practice, the procedure will apply only to the company's property in Texas (YUKOS's Houston office, Mr. Misamore's reception room, etc.). During the moratorium period, no one will be able to take recourse against him for YUKOS's debts. However, the moratorium will not be valid with respect to company property located in Russia (Yuganskneftegaz shares in particular). The fact is that no American court decision has validity in Russia, since there is no bilateral agreement on mutual recognition of court orders between Russia and the United States.

But if YUKOS can prove that Russian bureaucrats violated the ruling of an American court and carried out the sale of Yuganskneftegaz illegally, criminal proceedings could be instituted against them on US territory. Similar proceedings could also be instituted against the management of companies that acquire YUKOS's property at an auction that is illegal in the view of the American court. If Gazprom subsidiary Gazpromneft wins it, Gazprom CEO Aleksey Miller and Sergey Bogdanchikov, the general manager of Gazpromneft, could be forced to give up trips to the US. YUKOS may also contest a property sale transaction if the buyer turns out to be an American resident or if this property is on US territory. Oil produced by Yuganskneftegaz may also be considered such property.

Furthermore, Michael Lake, executive director of the Houston office of Burson-Marsteller (involved in PR support for YUKOS in the US), told Kommersant: “The companies against which claims may be laid include J.P. Morgan Bank, which, as reported earlier, has agreed together with other banks to grant Gazprom credit to buy Yuganskneftegaz. If this bank lends to Gazprom, it must understand the legal consequences of its actions.” Viktor Gerashchenko, the chairman of YUKOS's board of directors, is of the same opinion: “The decision of the American court could have a definite impact on the syndicate of Western banks planning to grant credit for Yuganskneftegaz. All of them have branches in the United States.”

Meanwhile, yesterday three members of YUKOS's board of directors – Sarah Carey, Raj Gupta, and Jacques Kosciusko-Morizet – announced they were quitting the battle for YUKOS. According to a statement released yesterday by Group MENATEP, YUKOS's largest shareholder, they submitted their resignations from the board “owing to the impossibility of fulfilling their duties any longer”. The group quoted Ms. Carey, who announced on behalf of the all three directors: “It has been an honor to work with the company's shareholders and managers; the directors with great regret are forced to resign”. A source in the US close to YUKOS's Western management and familiar with the situation in Group MENATEP told Kommersant that Sarah Carey submitted her resignation because she did not want to be liable for the actions of YUKOS's board of directors headed by Viktor Gerashchenko. However, the source did not say what her complaints against the present chairman of the board were.

We note that according to Article 71 of the law on corporations, members of the board of directors, along with company management, “incur liability for culpable actions (failure) entailing infliction of loss on the corporation”. At the same time, “members of the board of directors who did not vote or who voted against such actions (or opposed the failure to act) are released from liability”. However, only a meeting of the company's shareholders can release them from liability. Furthermore, if they were elected by cumulative vote, as occurred at YUKOS, the shareholders' meeting may only terminate the commissions of all board members, not just some of them.

This was expected to happen at a meeting of YUKOS's shareholders scheduled for January 13. However, as Viktor Geashchenko told Kommersant, it was decided at yesterday's board meeting to cancel the shareholders' meeting, because none of YUKOS's shareholders had proposed candidates for the new board membership. “I moved that we return to this subject at the board meeting on December 20,” Mr. Gerashchenko told Kommersant. “It will take place after the Yuganskneftegaz auction but before the shareholders' meeting at which the question of its liquidation or bankruptcy will be considered. The motion was passed.”

Kommersant will be following the development of events.

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YUKOS's Property Being Discussed in Lithuania

News agencies reported from Lithuania on Tuesday that the republic's government, which owns 40.6% of the shares of Mazeikiu Nafta (MN), intends to acquire 10% of MN's shares from YUKOS (YUKOS owns 53.7% of the Lithuanian company's shares). Saulis Specius, an advisor to the prime minister, told Kommersant yesterday that he knew of the idea to buy MN's shares; it was proposed by Lithuania's minister of agriculture, Viktor Uspaskich. Tomas Gijas, YUKOS's representative in Lithuania, in turn told Kommersant that MN was and remained a priority property for the oil company and there were no plans to sell it. Former Lithuanian minister of agriculture Petras Cesna noted that regardless of how many MN shares the Lithuanian government had, YUKOS retained control over the company. Lithuanian prime minister Algirdas Brazauskas gave the following answer to Kommersant's question: “There's no plan. When we discuss it, then it will appear.”

Seizure of YUKOS's Property Declared Legal

The court of appeals of the Moscow City Court has upheld the legality of the seizure of the real assets of YUKOS subsidiaries Tomskneft and Samaraneftegaz. The property was seized within the framework of the criminal case against Irina Golub, the general manager of YUKOS's accounting company, OOO YUKOS-FBC. Citing the Prosecutor General's Office, RIA Novosti reported that over the period 2000-2003, Ms. Golub and a group of still-unidentified people underpaid significant amounts of tax deductions to the federal budget. According to the Prosecutor General's Office: “They worked out a plan whereby YUKOS, with the help of dummy companies located in concessional taxation zones and not engaging in any activity, avoided paying taxes to the budget.” According to the prosecutor's information, the amount of unpaid taxes under this scheme was 48 billion rubles in 2000 and 28.9 billion rubles in 2001.

(From Kommersant, 12.17.2004)