The Yukos Case Moves Beyond Russia
By early 2004, before the bankruptcy proceedings detailed above had commenced, it was becoming increasingly clear that the Russian authorities were intent on destroying Yukos and expropriating its assets. The Russian courts were, as has been shown, incapable of providing an independent assessment of the situation, free from political interference.
Having found themselves in this unenviable position, the management of Yukos realised that practical legal and commercial steps had to be taken to ensure that, so far as was possible, the rights and assets of Yukos were protected. Attempting to do so within Russia itself was increasingly futile.
The decision was made, therefore, to act to protect Yukos’:
- Rights in an international forum, the European Court of Human Rights; and
- Non-Russian assets from the Russian expropriation process.
To carry out these acts, some preliminary steps were required. These are detailed below.
The European Court of Human Rights
As it became increasingly clear that the Russian courts were being influenced by political pressure, and that the Russian authorities were committed to the wholesale destruction of the company, Yukos submitted an application to the European Court of Human Rights (ECtHR). This took place on 23 April 2004, a few days after the imposition of the 2000 retrospective tax assessment.
As the very existence of Yukos was at stake, additional steps were taken to ensure that the application to the ECtHR could continue even if the company was destroyed. This was achieved through the use of non-Russian Yukos subsidiaries.
Yukos owned three direct, first tier, wholly owned subsidiaries registered outside Russia:
- Yukos UK Limited;
- Yukos CIS Investments Limited (based in Armenia); and
- Yukos Finance BV (based in the Netherlands).
Shortly after submitting the first ECtHR application, but before Yukos was declared bankrupt under Russian law, an application was lodged with the ECtHR to continue support and protect Yukos’ existing application. (Application No 37165/06: the July Application). The July Application was made by Yukos, its CEO Steven Theede, its deputy CEO Yuri Beilin and the three first-tier subsidiaries listed above.
This decision proved prescient. In the event, as part of the admissibility process for the ECtHR, the Russian authorities argued in 2008 that the court no longer had jurisdiction because Yukos, as a consequence of the bankruptcy, no longer existed. The court however rejected this defence and said:
The court notes that the various alleged breaches … in the present case concern the tax assessment and enforcement proceedings in respect of the applicant company which eventually resulted in its bankruptcy and ceasing to exist as a legal person. Striking the applicant out of the list under such circumstances would undermine the very essence of the right of individual applications by legal persons, as it would encourage governments to deprive such entities of the possibility to pursue an application lodged at a time when they enjoyed legal personality.
Protecting Non-Russian Assets: Restructuring in the Netherlands
As stated previously, Yukos owned three direct, first tier, wholly owned subsidiaries registered outside Russia: Yukos UK Limited, Yukos CIS Investments Limited and Yukos Finance BV. Of these subsidiaries, Yukos Finance BV (“Yukos Finance”), a Dutch subsidiary, is of particular importance.
Yukos Finance BV
Yukos held 100% of the shares in Yukos Finance. Yukos Finance in turn held most of Yukos’ non-Russian assets, this included Transpetrol, the owner of pipelines in Slovakia, and a share in Mazeikiu Nafta, an oil refinery in Lithuania. The Mazeikiu refinery was a particularly significant asset.
Yukos Finance also held 100% of the shares in a further Dutch subsidiary, Yukos International (UK) BV, (“Yukos International”). This structure is illustrated in Figure 1.
As a first step toward protecting its non-Russian assets, on 19 April 2005 Yukos Finance transferred its shareholdings in the non-Russian companies to Yukos International. This is illustrated in Figure 2.
Previous to this, on 14 April 2005, the management of Yukos had founded a stichting (a Dutch protective foundation), called Stichting Administratiekantoor Yukos International ("Stichting I").
The final step, which also took place on 19 April 2005, was for Yukos Finance to transfer its shares in Yukos International to Stichting I, against the issue of depository receipts. The final structure thus put in place is illustrated in Figure 3.
One of the companies held under Stichting I is Yukos Capital SARL, a Luxembourg-based finance company. Details of the issues surrounding Yukos Capital, and the enforcement of loan agreements against Rosneft, are covered in the Netherlands section, below.
The Purpose of the Dutch Stichtings
The Dutch Stichting was created with the object of, in summary:
- The payment of creditors of Yukos;
- The representation and protection of the interests of Yukos; and
- The maintenance of proceedings, including before the ECtHR, with a view to striving for distribution of any funds received by it and to be received through a scheme to shareholders of Yukos Oil Company in accordance with applicable law and principles of reasonableness and fairness.