Exercise of shareholders rights pertaining to Yukos Finance: The 31 October Judgment
Shortly after his appointment in early August 2006, the Russian receiver Eduard Rebgun announced that as the representative of Yukos Oil Company, Yukos Finance's sole shareholder, he intended to adopt a resolution to replace the existing management with individuals of his own choosing.
In response to this, Yukos Finance and its managing directors commenced summary proceedings before the Amsterdam District Court, seeking an injunction prohibiting Rebgun from adopting such a resolution. They argued (amongst other points) that the Russian bankruptcy was spurious and contrary to Dutch public policy, and as such should not be recognized by the Dutch courts.
The Amsterdam District Court held that a determination as to whether the Russian bankruptcy was illegitimate required a factual investigation beyond the scope of summary proceedings. (Under Dutch procedural law, summary proceedings are aimed at providing a provisional measure in urgent cases and not a final determination of the parties’ rights). Therefore the court was unable to determine whether the Russian bankruptcy was illegitimate and on that basis was also unable to enjoin Rebgun from adopting a shareholders' resolution dismissing the management of Yukos Finance.
The District Court's judgment in summary proceedings was rendered on 11 August 2006. On the same day, Rebgun purportedly adopted the envisaged shareholder's resolution, reputedly dismissed the existing Yukos Finance management and appointed two new directors of his own choosing.
In response to this, Yukos Finance (represented by the old managing directors) and the old managing directors themselves commenced regular proceedings before the Amsterdam District Court, against Rebgun and against the Rebgun-appointed directors. The plaintiffs took the position that the dismissals of the old managing directors were void, as were (i) all other shareholders resolutions adopted by Rebgun (such as the appointment of the new managing directors) and (ii) all actions taken by the new, Rebgun-appointed managing directors.
Although the Amsterdam District Court had, in summary proceedings, been unable to enjoin Rebgun from adopting resolutions dismissing the old management and appointing new management, this did not mean that such resolutions were valid; a judgment in summary proceedings does not bind a court deciding the same case in regular proceedings. In addition to this, the Amsterdam District Court in summary proceedings had not rendered a judgment on the validity of those resolutions, because it had refrained from considering the legitimacy of the Russian bankruptcy in view of the factual complexity of this question.
The Amsterdam District Court delivered its decision in favour of the original management of Yukos Finance on 31 October 2007. Except for the requested penalty (which was awarded, but at a lower amount) the court awarded the claim in its entirety.
In the regular proceedings, the District Court held first that in the absence of a relevant treaty, foreign court decisions are eligible for recognition in the Netherlands only if (i) the jurisdiction of the foreign court is based on a ground that is acceptable under international standards, (ii) the foreign proceedings were conducted with due observance of the principles of due process of law and (iii) the foreign judgment is not in violation of Dutch public policy.
The court went on to investigate whether the criteria under (ii) and (iii) had been met in the Yukos case and held (emphasis added):
The District Court is of the opinion that the course of events as represented hereinbefore can only lead to the conclusion that the way in which the additional tax assessment owed by Yukos Oil, and the size thereof, was assessed by first the Russian Tax Authorities and subsequently by the tax court cannot stand the test of criticism. … The … hearing before the tax court and the appeal are a violation of the fundamental principles of due process of law as generally accepted in the Netherlands and laid down in article 6 ECHR, but which also apply outside the scope of applicability of that article of the convention. ... The conclusion must … be that in the course of the determination of the tax it owed to the Russian State and the extent thereof, Yukos Oil was deprived of a fair trial.
The District Court then went on to decide whether there was a causal link between the determination of the tax obligation and the bankruptcy of Yukos Oil Company. It came to the conclusion that there was such a link and also that in the bankruptcy proceedings no substantive, sufficiently safeguarded, judicial review of the manner in which the additional tax
assessments were determined had, or could have, taken place.
The District Court then concluded (emphasis added):
The above leads to the conclusion that the Russian bankruptcy order in which Rebgun was appointed receiver in the bankruptcy of Yukos Oil was effected in a manner not in accordance with the Dutch principles of due order of process and is thus in violation of Dutch public order. For that reason, the bankruptcy order cannot be recognized and the receiver’s powers that ensue from it under Russian law cannot be exercised by Rebgun in the Netherlands. This entails that Rebgun was not authorized to represent Yukos Oil in the Netherlands in regard to exercise of the voting on the shares held by it in Yukos Finance. The shareholders’ resolutions taken by Rebgun on behalf of Yukos Oil, including the resolution to dismiss Godfrey and Misamore of 11 August 2006 and the resolutions to appoint [the Rebgun appointed directors] as directors of Yukos Finance, were not taken by the corporate body designated by law to take them, and were therefore null and void. This also means that [the Rebgun appointed directors] were never appointed directors of Yukos Finance, so that all decisions taken by them are also null and void.
This is a significant victory, with far-reaching consequences. It is further legal reinforcement of the fact that the tax proceedings and subsequent bankruptcy of Yukos were a sham – that, as the Dutch Court stated, they cannot stand the test of criticism.
This victory, although resounding, was nonetheless complicated by the fact that after the final oral hearing but before the October 31 judgment, Rebgun sold the Yukos Finance shares at a bankruptcy auction in Russia to Russian company Promneftstroy and replaced the Rebgun appointed directors with new directors.
Promneftstroy was recognized in several proceedings as an interested party, including in the appeal against the 31 October 2007 judgment, in which appeal it has been allowed as a party to the proceedings.
Promneftstroy argued that, despite the 31 October 2007 judgment, this transfer to them of shares in Yukos Finance was valid. Promneftstroy also joined Rebgun in arguing that the dismissal of David Godfrey and Bruce Misamore, and the appointment of new directors, was legally valid.
As a result of Promneftstroy joining the appeal, the Court of Appeal was explicitly asked to answer the question whether or not Promneftstroy had indeed become a shareholder of Yukos Finance.
On 19 October 2010, the Amsterdam Appeals Court ruled that Promneftstroy is not a shareholder in Yukos Finance, rejecting the Russian bankruptcy trustee’s claim that Promneftstroy had acquired shares in an auction held by the Russian administrator. The court decision categorically rejected that Promneftstroy had any claim whatsoever to Yukos Finance shares. A cassation appeal will be heard by the Supreme Court in 2011. The background and implications of this decision are discussed in the FAQ section.
Further, on 7 January 2011, the Supreme Court, the Netherlands' highest court, overturned a judgment of the Amsterdam Court of Appeals and lifted a freezing order on funds within ABN-AMRO bank accounts held by Yukos International UK in the Netherlands. Promneftstroy attempted to circumvent the Supreme Court ruing to get another freezing order on the Yukos funds held in Holland through a lower Dutch court. However on 18 March 2011, Yukos won its 18th ruling against Promneftstroy in the Netherlands: the Amsterdam District court denied Promneftstroy’s request for a new freezing order on the Yukos funds held in ABN AMRO and has ordered Promneftstroy to allow Yukos International the right to control its funds.