Law firms, trust companies and companies cannot simply break with sanctioned Russian parties. This is evident from a recent verdict of the court in Amsterdam in a case brought by the Russian state-owned company SberBank.
SberBank is the largest shareholder in a Croatian food group, which is based in the Netherlands, among other things, for tax reasons. The Russian bank was recently rejected at a shareholders’ meeting at the law firm Houthoff in Amsterdam, because it was on the European sanctions list. The SberBank went to court. It has now ruled that the Russian state bank may not be refused at shareholders’ meetings.
As far as we know, it is the first time that a Dutch court is examining the position of Russian sanctioned parties. The invasion of Ukraine this spring has made SberBank’s position in the Croatian company extra sensitive. On Wednesday, the bank called on employees with combat experience to report to the Russian military after the “partial mobilization” announced by President Vladimir Putin.
The Croatian concern Fortenova is one of the largest companies in Southeastern Europe with a turnover of more than 5 billion euros per year and more than 47,000 employees. Turnover makes up one tenth of Croatia’s gross national product. The company was about to go bankrupt in 2018, but was then saved from bankruptcy when creditors exchanged their debts for shares. The rescue operation was supervised by the Dutch law firm Houthoff.
With the operation, the Russian state-owned banks SberBank and VTB Bank became the largest shareholders of the company, whose holding company was established in the Netherlands. The holding company is managed by the trust company TMF Netherlands. According to analysts, the rescue operation was sensitive, because Russia expanded its sphere of influence in the Balkans in one fell swoop.
‘Red Flag’
During the trial, Fortenova, represented by Houthoff, argued that SberBank regularly “takes pro-Russian stances” on the war in Ukraine and that “banks, accountants and trading partners” are now withdrawing their hands from the company because of the role of Russian state-owned banks . For example, no auditor has yet been appointed for the audit of the 2022 financial year and a large IT company has stopped providing services to Fortenova. The presence of the Russians is, according to the director, ‘a red flag’ for financial institutions.
The ruling shows how complex it is to say goodbye to Russian-sanctioned parties
The problem for Fortenova is that important decisions can only be taken together with the Russian parties. The articles of association state that a qualified majority of the holders of depositary receipts for the shares must be approved for decisions. Without SberBank, which owns 41.82 percent of the shares, there are not enough shareholders to make valid decisions. The company’s articles of association do provide an opportunity to circumvent that provision. If the majority is not obtained at two consecutive meetings, a decision can be made at the next meeting with 75 percent of the votes present.
In line with this, SberBank was refused at two meetings in August, so that the other shareholders could change the articles of association at the next meeting without the consent of SberBank. After that change, a majority of depositary receipt holders would no longer be required to make decisions that would sideline SberBank.
Rejected on the spot
NRC previously reported on this meeting of the shareholders of Fortenova at the Houthoff office, to which all shareholders were invited. Contrary to the previous report, SberBank ultimately did not attend that meeting. A spokesperson for Houthoff then confirmed after questions from NRC that the meeting had taken place, but did not say that SberBank had been refused at the door. That state of affairs is now apparent from the judgment. When asked, Houthoff’s spokesperson said that he could not share this information earlier in connection with the “legal duty of confidentiality”.
The court in Amsterdam has now ruled that SberBank’s refusal was unlawful. “All in all, it has not become plausible that in the case of frozen depositary receipts, by definition, the associated meeting and voting rights with regard to corporate governance should also be frozen.” The SberBank must therefore be admitted again to the shareholders’ meetings, at least until the end of 2022. Fortenova will appeal against the ruling.
The role of law firm Houthoff in this matter is remarkable. In 2018, this office supervised the rescue of the Croatian food group – then still called Agrokor. The Dutch structure was set up by Houthoff, with SberBank becoming the largest shareholder. A top executive of the Russian bank at Houthoff’s office was also appointed director of Fortenova. The SberBank had been on the European sanctions list for years, which was instituted in 2014 because of the annexation of Crimea by Russia.
In the case that had now been brought by SberBank, Houthoff’s lawyers argued on behalf of Fortenova that “the depositary receipts for shares” and the associated voting rights – the construction that the Dutch office set up itself in 2018 – fall under sanction law. According to Houthoff, admitting SberBank to the shareholders’ meeting would “even constitute a criminal offense”.
According to the spokesman, Houthoff now looks at SberBank’s involvement differently, because the current sanctions go further than those from 2014. “At that time, SberBank could not raise capital on the capital markets in the EU, but lending money was not prohibited. The sanctions are now different and amount to a total freezing of goods, including depositary receipts for shares. That is a very big difference.”
Russian clientele
Houthoff was in the news at the beginning of this year because of its important Russian customers. The firm has assisted the Russian state in legal proceedings in recent years and also had clients such as Gazprom, Rosneft and Russian state banks. The office had several Russian-speaking lawyers available for the Russian clientele. The office, nicknamed the Kremlin office among colleagues, was regularly criticized for this. In March, after publicity pressure, Houthoff announced that it would say goodbye to the Russian state and associated individuals and companies.
Also read: Despite sanction rules, law firm Houthoff is still active for Russian banks
Lawyer Heleen over de Linden, who specializes in sanction law and is conducting a PhD research on this subject, calls the judge’s decision a remarkable one. “I find it strange, for example, that the judge actually disconnects the certificate of shares and the associated voting rights. So the certificate is frozen under the sanctions, but the judge finds that the owner can exercise his voting rights.”
According to the lawyer, the ruling shows how “complex” it is to say goodbye to Russian sanctioned parties. “That was already very difficult, because how should you settle things if shares or bank accounts are frozen? Now the judge is making it even more difficult.”
SberBank is currently trying to sell its 41.82 percent stake in Fortenova to a Hungarian investment fund. That takeover only needs to be approved by the Dutch authorities, according to the court decision. Croatian media reported three weeks ago that the Croatian government is trying to block the sale because the Hungarian investment fund is said to be affiliated with Hungarian Prime Minister Viktor Orbán.
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