#6 - JRL 2006-174 - JRL Home
August 2, 2006
Court Declares Yukos Bankrupt
By Valeria Korchagina
The Moscow Arbitration Court ordered the bankruptcy and liquidation of Yukos on Tuesday, putting the last nail in the coffin of the country's one-time biggest oil major.
The ruling brought to an end the 1,139-day saga that started with the arrest of Yukos security chief Alexei Pichugin on murder charges on June 19, 2003. The arrest was the start of a legal onslaught that destroyed Yukos and sent its CEO and majority shareholder, Mikhail Khodorkovsky, to jail.
Tuesday's ruling also begins the official carve-up of the fallen oil giant as state-controlled energy firms Rosneft and Gazprom vie for what remains of Khodorkovsky's former empire.
Moscow Arbitration Court Judge Pavel Markov ruled Tuesday evening that Yukos' remaining assets were to be sold off within a year. He also appointed Eduard Rebgun, until Tuesday the court-appointed temporary manager, to oversee the sell-off.
"It is the death sentence for the company," Yukos lawyer Drew Holiner told reporters after the hearing.
Yukos is likely to appeal the decision, he said.
Holiner also lamented that Rebgun, in his new capacity of liquidation manager, would unlikely be able to ensure that the assets fetched the best price.
"The liquidation manager's task is to sell assets as fast as possible to pay off the debt. He will not have the opportunity to wait for favorable market conditions," Holiner said, Interfax reported.
Yukos has one month to appeal.
The decision was widely expected, given that since 2003 Yukos has not had much luck in persuading Russian courts to take its side.
"This is not the end, this is the funeral," Yevgeny Yasin, the founder of the Higher School of Economics and a long-time supporter of Khodorkovsky's, told Ekho Moskvy radio on Tuesday. Khodorkovsky is serving an eight-year jail sentence in Siberia after he was found guilty on tax evasion and fraud charges last year. He has maintained throughout that the authorities' attacks on him and his company were political.
Khodorkovsky's lawyer Anton Drel said Tuesday that he could not immediately reach his client for comment.
In a sign that the bankruptcy was seen as inevitable, Moody's Investors Service earlier Tuesday withdrew the Ca issuer and corporate family ratings of Yukos.
The ruling was delivered after trading closed on RTS, the dollar-denominated trading floor where Yukos shares are still listed.
Stephen Theede, Yukos CEO since 2004, resigned his post in mid-July ahead of the creditors' meeting that recommended the company be declared bankrupt, and called the proceedings a sham.
Yukos lawyers on Tuesday tried to postpone the ruling, citing a variety of technical and legal reasons. Among the arguments employed in favor of a delay were: that not enough time had passed since the July 25 creditors' meeting recommended bankruptcy; that another court had yet to rule on a tax demand; and that the European Court of Justice had yet to hear Yukos' complaint in which the company objects to the state's entire back tax legal onslaught.
Rebgun rejected all the company's arguments, as did Markov, Interfax reported.
"All claims that have been included into the creditors' claims list have been approved by the courts," a representative of the creditors said during the hearing, adding that since no date had been set for a hearing in the European Court of Justice, the delay could "stretch out up to a year," Interfax reported.
Representatives of Rosneft also followed suit, arguing against any delay in the bankruptcy proceedings.
Burdened by billions of dollars in back tax claims, Yukos has put up a long but not particularly successful rear-guard fight. It has tried to dispute claims totaling more than $30 billion in Russian courts and attempted to fight back by seeking justice abroad.
Yukos has proposed a number of restructuring plans, including most recently at the July 25 creditors' meeting, where the company promised to pay off $18.2 billion of outstanding debts within 18 months.
Creditors rejected the plan, however, and instead voted to bankrupt and dismantle the oil firm. While Yukos management valued the company at $38 billion, Rebgun told the meeting that the company's assets were worth $17.7 billion, or less than the firm's liabilities, and called for the company to be liquidated.
Claims against Yukos backed by Russian courts total 491 billion rubles ($18.2 billion).
The Federal Tax Service tops the creditors' list, claiming 354 billion rubles ($13.1 billion). Next in line is Yuganskneftegaz, Yukos' former main production unit that is now owned by Rosneft, claiming 109 billion rubles ($4 billion).
Further down the list are two Yukos subsidiaries Tomskneft and Samaraneftegaz, claiming 12.3 billion rubles ($460 million) and 1.85 billion rubles ($69 million), respectively.
Tomskneft and Samaraneftgaz are also among the choicest assets likely to be sought by Rosneft, which would overtake LUKoil as Russia's biggest oil firm if it acquired them.
Among other Yukos assets, Gazprom had been seeking to buy Yukos' 20 percent stake in Gazprom Neft, formerly Sibneft, for which Yukos was asking $4 billion.
Al Breach, head of research at UBS investment bank, said Tuesday's ruling was "a very finite end to what has been an unhappy story."
Beyond the ruling, however, the way the Yukos assets sales are handled is still important, Breach said.
A worrisome sign is the valuation of Yukos assets at $17.7 billion, or some 40 percent less than most observers consider their real value, he said.
Breach also noted that, while the Yukos case in general had helped the state to introduce better tax discipline, it had hurt the judicial process and the rule of law.
"So it does matter how the sales are done now," he said.