This May, in the midst of the COVID-19 quarantine, representatives of the Geely International Corporation suddenly learned that in a criminal case pending before the Dniprovskyi District Court of Kyiv, the latter had confiscated over 60 real property assets mortgaged to the Geely Corporation. In doing so, the court neither examined any evidence nor summoned Geely's representatives. The court did not even inform them that the property had a new owner.
The Chinese automobile corporation Geely has long been delivering automobiles to Ukraine. Following the global economic crisis of 2008, the Ukrainian distributor – AIS Group has indebted several dozens of millions of dollars to the Geely Corporation for the automobiles delivered. When Ukraine's economy started recovering, debtors began to repay their debts and mortgaged over 60 commercial property assets to Geely: an automobile assembly plant, industrial warehouses, car showrooms and car repair shops, etc.
This covert confiscation turned out to be part of a long-lasting corporate conflict between the AIS Group and the DCH Business Group.
Invisible Hand in Criminal Proceedings
In the Dniprovskyi District Court of Kyiv, two men admitted that in 2010 they had handed over their documents to unidentified persons for registration of companies in exchange for several thousand hryvnias.
However, in court the two men agreed to be convicted of fraudulent misappropriation of funds totaling UAH 1.1 billion, which were received as a loan by the AIS Group from UkrSibbank JSC. They also agreed to the special confiscation, for the benefit of the State, of several hundred real property assets belonging to companies they had nothing to do with.
Adding to the absurdity of this situation is the fact that the victim of the crime, to which the two convicts “confessed”, was found by public prosecutors and judges to be not a bank whose loan funds were allegedly stolen, but a third-party company – Ukrainian Metallurgical Company LLC. The company is part of Oleksandr Yaroslavskyi’s DCH Business Group and has nothing to do with granting or obtaining these loans.
This company acquired from the bank its claims under overdue loan agreements, knowing for sure that loan repayment period had expired eight years ago.
In addition to admitting their guilt and agreeing to the confiscation of the property that never belonged to the two convicts, they also pleaded no defense in a civil action worth over UAH 2.2 billion that was brought by the “victim”, i.e. Ukrainian Metallurgical Company LLC.
However, pleading no defense in the civil action against themselves was no more difficult for the two convicts than agreeing to the confiscation of other companies’ property because the two convicts knew that they would not have to pay a single hryvnia out of this amount.
Judges of the Dniprovskyi District Court of Kyiv decided that, as the convicts had no possessions, the State should pay UAH 2.2 billion for them by selling confiscated real property that belonged to other companies.
In other words, the two men agree to the confiscation, for the benefit of the State, of several hundred real property assets belonging to other companies. At the same time, knowing immediately that they cannot pay even one percent of this amount, they agree to the recovery from themselves of over UAH 2 billion for the benefit of a company that had simply purchased overdue debts from the bank. And then the court decides that, instead of confiscating other companies’ property for the benefit of the State, such property will be sold to pay the debt of the two convicts.
It is the ARMA1 who must sell such property through an auction. Ukrainian Metallurgical Company LLC, who got for itself the status of a victim, appears to intend not only to participate in such auction, but counts on purchasing the property so confiscated at less than the market price.
Consequently, the legal owners of the property and foreign investors suffer a tremendous loss, the government destroys its image and agrees to pay potential compensations at the taxpayers’ expense, while a private company wins billions as a compensation for non-existing losses with help of public prosecutors and judges.
All that is necessary to make such a “success story” is to make use of instruments of state coercion by finding the “right” public prosecutors and judges.
Qui prodest
A long-standing corporate and personal conflict has been existing between the businessman Oleksandr Yaroslavskyi, on the one hand, and the founders of the AIS Group Dmytro Sviatash and Vasyl Poliakov, on the other hand, since 2011 due to a loan not repaid in a timely manner. Some companies associated with Mr. Sviatash and Mr. Poliakov received loans of almost UAH 1 billion in 2008 from UkrSibbank, a bank then owned by Oleksandr Yaroslavskyi.
For certain reasons, these companies failed to repay the loans timely and fully, so that Mr. Yaroslavskyi initiated in 2013 criminal prosecutions against the corporate borrowers not alone, but personally against Mr. Sviatash and Mr. Poliakov as well.
As the case developed, notices of suspicion were served on Mr. Sviatash and Mr. Poliakov in 2019.
However, it seems like in this case no one was interested in a full-fledged investigation and evaluation of collected evidence by court. Therefore, the initiators of these proceedings decided to do it in much shorter and easier way, notwithstanding that this was contrary to the legal procedure.
Elon Musk Would Cry
The entire world watched not so long ago the SpaceX first crewed launch into the Earth’s orbit, which marked a new era of space travels and space exploration by private companies. This became possible as the NASA abandoned the independent space program in favor of outsourcing its flights through private business projects.
Ukrainian authorities are instead testing a way to outsource to private companies' instruments of state coercion to resolve corporate conflicts.
If this practice turns into a well-established one, no investor or business owner will be safe in Ukraine against such infringements on its property. It would suffice for those who will follow the example of Ukrainian Metallurgical Company LLC to find “appropriate” public prosecutors and judges and few homeless persons who will readily point out to anyone's property and easily agree to its confiscation.
If this worst-case scenario continues, it may soon turn out that, while Elon Musk will go up to the skies, Ukraine's investment attractiveness and Doing Business rating will go down to nothing.
Ground Control to Major Tom
You're off your course,
Direction's wrong…
Published: Lexology
Authors: Nazar Kulchytskyy, Andrii Sliusar