Raider Schemes leading to the Takeover of ToAZ
Corporate raiding Russia style – or reiderstvo as it is known in Russia – is a practice that is well-established in the Russian Federation and strikes fear into the hearts of every Russian businessman.
It refers to a host of illegal tactics ranging from bribery, forgery, corruption, intimidation, and violence employed by raiders to steal companies from their owners, making massive rapid profits by selling off assets and laundering the proceeds. This type of raiding is not limited to publicly-traded corporations. In Russia, these tactics have been used to seize assets from companies of all sizes, most notably TogliattiAzot (ToAZ).
Raider attacks against ToAZ, its Board of Directors, management, shareholders, employees and their families have been ongoing since 2005. This is known as the TogliattiAzot affair. The first attack was orchestrated by oligarch Viktor Vekselberg, who purchased a minority stake in 2005 and tried to gain control over its Board of Directors.
After his attempts failed, in 2008 Vekselberg sold his shares in ToAZ to Dmitry Mazepin, the principal shareholder and Chairman of rival company Uralchem.
Since then, Mazepin and his co-conspirators have used all the illegal tricks in the reiderstvo playbook to seize control of ToAZ. These tactics include fabricating civil and criminal court cases with the help of corrupt law enforcement and judicial officials to intimidating witnesses, falsifying evidence, and running an aggressive campaign to smear the reputations of anyone standing against them.
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 Extraordinary General Meeting (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 BKIT Companies will pursue every means of challenging this unjust and illegal takeover of ToAZ.