DECEMBER 3rd 2021 – Capping a fifteen year campaign of intimidation, fraud and corruption, Russian corporate raiders, with close ties to and support from government authorities and officials, including the Russian Special Police Force, OMON, seized control over the physical plant of the Russian chemical giant TogliattiAzot (‘ToAZ’). During an illegally orchestrated Extraordinary General Meeting (EGM) held early morning on Saturday November 27th, proxies for corporate raider Dmitry Mazepin and his company Uralchem replaced the Board of Directors with their own representatives, effectively seizing full control over the multi-billion dollar enterprise from the rightful majority owners, four companies known together as the “BKITs”.
Chemical producer ToAZ was one of the last remaining major independently-owned companies in Russia. An immense company with over 5,000 employees, it is the world’s largest ammonia producer – most of which is used as fertilizer in agriculture to grow food in dozens of countries on five continents. ToAZ has been designated as being of “strategic economic importance” by the Russian government. ToAZ is worth billions of dollars.
The raid against ToAZ is one of the most prominent examples of corporate raiding, or reiderstvo, which has become an endemic issue in Russia. For the past fifteen years, ToAZ and its current and former management, Board of Directors, shareholders, employees and their families have born the full brunt of reiderstvo: an unrelenting campaign of intimidation, false accusations and baseless investigations most recently instigated by a group of business rivals headed by corporate raider Dmitry Mazepin. Mazepin and his co-conspirators have used all the illegal tricks in the reiderstvo playbook to seize control of ToAZ, from fabricating civil and criminal court cases with the help of corrupt law enforcement and judicial officials to intimidating witnesses and procuring false evidence, falsifying evidence, and running an aggressive black PR campaign to smear the reputations of anyone standing against them.
On Saturday November 27th, attorneys representing the legitimate majority shareholders in ToAZ, the BKITs, arrived at ToAZ for the EGM – the ToAZ plant is in Samara about one thousand kilometers South East of Moscow and the EGM was due to take place at Tomet, the methanol facility, which is part of the same piece of land. The ToAZ plant was surrounded by armed guards including members of the Russian Special Police Force, OMON. The BKITs’ attorneys were blocked from entering and attending the shareholders’ meeting and voting their majority shareholding in ToAZ by Uralchem. Proxies for the conspirators then replaced the legitimate ToAZ Board of Directors with nominees of Dmitry Mazepin’s company Uralchem, thereby effectively placing control of ToAZ in the raider’s hands.
Back in 2016, the four companies holding the majority stake in ToAZ, the BKITs, brought proceedings against the conspirators in Ireland because an Irish company named Eurotoaz, controlled by Mazepin, played a central part in the illegal scheme. In their civil proceedings against the raiders in the Irish courts, the BKITs are claiming $2 billion in damages and seeking an injunction to stop the illegal raider attacks. In 2019 and 2021, Uralchem promised the Irish Court in so-called “Undertakings” that it would take certain steps to maintain the status quo while the matter was under the Court’s consideration. With last Saturday’s raid, those promises have been broken.
Mazepin and his co-conspirators carefully set the stage for the takeover. First, the raiders convinced a Russian Court to improperly declare ToAZ’s former Chairman, Mr Sergei Makhlai, bankrupt. Next, Mr Makhlai’s Bankruptcy Administrator – nominated by Uralchem – seized control over Mr. Makhlai’s bank, TogliattiKhimBank (THB), which acts as the share depositary for the BKITs’ shares in ToAZ. The raiders then secured a court ruling effectively moving a planned EGM up from December 4th to November 27th and, critically, gave Mazepin’s company Uralchem control of convening the EGM, which is highly irregular.
Speeding up the timetable had a dual effect. First, it enabled the takeover of ToAZ to be completed just days before a Russian Cassation Court hearing scheduled for November 30th where the BKIT companies hoped for relief from the raiders. With the raiders now in control over ToAZ, they can easily withdraw ToAZ’s claim to the Cassation Court challenging the raid. Second, the haste with which the EGM was arranged meant that the BKITs were not given anything near the proper notice under Russian law and there was no time for the BKITs to challenge what was done, either in Russia or in Ireland. On the eve of the EGM, November 26th, the General Director of ToAZ was suddenly arrested and detained by the Russian authorities in suspicious circumstances. He was thereafter released without any charge on Sunday 28th, once Uralchem and Mazepin had completed their takeover of ToAZ.
Last but not least, it appears that in the days leading up to the EGM, the depositary records held by THB were illegally amended to record Mr. Makhlai or his Bankruptcy Administrator as the owner of the majority shareholding instead of the BKIT companies. This illegal change also appears to have been accepted by the share registrar, the Moscow Funds Center, without any basis and without requiring Uralchem to provide any evidence or basis for depriving the BKITs of their fundamental rights. That scheme allowed Mr. Makhlai’s Bankruptcy Administrator to exercise the voting rights attached to the BKITs’ shares, unlawfully depriving them of all of their rights attached to those shares. Critically, this allowed Uralchem to force through its board changes and to take control of ToAZ, which it otherwise could not have done with its own holding of just more than 10% of the ToAZ shares.
The BKITs will pursue every means of challenging this unjust and illegal takeover.
