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Andrey Mikonin on the cassation decision holding that the approval of the sale of the Kirov Plant’s assets was unlawful 21 April 2014 The court of cassation sustained the decision taken in December 2013 by the Thirteenth Appellate Arbitration Court

21 April 2014


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The court of cassation sustained the decision taken in December 2013 by the Thirteenth Appellate Arbitration Court in which it found unlawful the approval given by General Manager of OJSC Kirovsky Zavod Georgy Semenenko of the sale of the 35 per cent stock in of the plant through its subsidiaries in 2005. Minority shareholders hope to return the shares in the plant and indemnify the losses incurred as a result of the unlawful possession over them. Lawyers note that to have success with such a suit would have been effectively impossible before, but since the middle of 2013 courts have become stricter towards the heads of joint stock companies, and therefore minority shareholders are getting an opportunity to challenge transactions and obtain compensation if certain conditions are met.

This case was considered twice. Initially the Arbitration Court for St. Petersburg and Leningrad Region and the Thirteenth Appellate Arbitration Court both ruled against the minority shareholders, but in February of the previous year the Federal Arbitration Court of for the North-West Circuit reversed and returned the case to the first instance for rehearing. The first instance court took the same decision as in the first time, but the appellate court took another decision and that decision was sustained by the cassation on 14 April 2014.

CJSC Registroniks and OJSC Baltiysky Emissionny Soyuz, together with Olga Rodina and OJSC Poligrafoformleniye, holding in aggregate around 15 per cent of the plant, allege that the challenged decisions were taken by Georgy Semenenko in secret manner and in favor of his relatives and business partners; as a result he has concentrated approximately 60 per cent of the plant’s stock in his hands. Moreover they assert that the plant’s subsidiaries (OJSC Tetramet, CJSC Metallurgichesky Zavod Petrostal and OJSC PTZ) sold the shares for the price not corresponding to their market value. Consequently, the other shareholders and the Kirov plant itself suffered multi-billion damages, says the representative of the minority shareholders Pyotr Frolov, the decisions in this case are the basis, on which the shareholders will be acting to return the shares.

Lawyers note that Georgy Semenenko still has an opportunity to approach the highest court as a supervision instance. “This however does not mean that the application will be automatically accepted. As opposed to appeals and cassation, the Higher Arbitration Court does not have an obligation to take up every claim submitted. In order to do that, someone of the senior rank of the court (the President or any of his or her deputies) is to find a ground for reconsideration of a decision on supervision stage. This happens quite rarely, maybe three or four cases out of one hundred”, says Artyom Zhavoronkov, partner of the St. Petersburg Office of Dentons.

The official representative of OJSC Kirovsky Zavod, answering the request of Ъ, stated that the General Director of the plant Georgy Semenenko will be defending his position within the procedures established by law.

Courts are getting stricter to managers. Artyom Zhavoronkov gives as an example Resolution N 62 “On certain issues of indemnification for damages by persons appointed in the bodies of a legal entity”. In the light of this resolution, the lawyer thinks, the minority shareholders will get an opportunity to sue Georgy Semenenko for damages, provided that they did not miss the limitation period and that there is evidence that the general director acted against the interests of the Kirov plant and that the sale price was substantially lower that the market value. “This is very long and hard, since there no unified method of assessment” – he notes.

"It is notable that the founding document in this case – the appeals resolution – barely says anything on the issues of bad faith, buyers’ affiliation or seller’s intentions. This gap must be filled up in the future cases – says partner of S&K Vertical Law Offices Andrey Mikonin. As to the liability of the director of the plant, the cassation court said directly that the resolution did not touch the rights and obligations of the director signing the approval of challenged transactions.” Referring to the general procedural principle that everyone shall be provided with an opportunity to exercise his or her procedural rights as broadly as possible, he doubts that in a possible damages case (if the shares will not be returned in rem) the court will only cite the said resolution. “this will require full-scale investigation to ascertain the guilt in the director’s actions taking into account all accompanying circumstances” – he concluded.

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