LCIA rules against the interests of Kolomoisky

According to the website of Naftfogaz Ukraine, on 27th April 2018, the London Court of International Arbitration (LCIA) has concluded that parts of a particularly biased Ukrnafta contract reached in 2010, significantly in favour of Ihor Kolomoisky (via his companies holding minority shares – Privat Group, Littop Enterprises Ltd, Bridgemont Ventures Ltd, Bordo Managament Ltd, Balliotti Enterprises Ltd, Renalda Investments Ltd) are “not enforceable”.

Mr Kolomoisky via various corporate vehicles controls approximately 43% of Ukrnafta shares.  The State 50 +1% of shares.

Nevertheless, the LCIA found that the contract as a whole was valid, despite some key provisions specifically relating to corporate management being “not subject to execution, as it contradicts the imperative norms of corporate legislation of Ukraine.”

According to Naftogaz, in particular the LCIA took a dim view of part of Article 9 within the contract – “part of Article 9 of the Share Agreement is not enforceable, which stipulates among other things that 6 members of the Supervisory Board of Ukrnafta are selected from among the candidates proposed by Naftogaz, while the Chairman of the Board of Ukrnafta and the other 5 members of the Supervisory Board of Ukrnafta are among the candidates proposed by the companies of I. Kolomoisky, which are minority shareholders of Ukrnafta. Article 9 also stipulates that the personal membership of the Ukrnafta Management Board should be approved by the Supervisory Board of Ukrnafta on the proposal of the Chairman of the Board.”

It was also contractually stated that for effective and binding decisions to occur, a minimum of 8 Board Members were required at a board meeting.

In short, the 2010 contract with which the LCIA took issue relates to the corporate governance of Ukrnafta, a Naftogaz subsidiary of which Mr Kolomoisky is a significant minority shareholder, and who effectively had control over the entire corporate management simply by controlling sufficient numbers of the Supervisory Board to prevent any and all management meetings occurring and making any legal decisions, by instructing those he controlled not to attend – ergo repeatedly insuring that the management quorum contractually required was not met.

Decisions therefore made only upon the terms of Mr Kolomoisky.

Such corporate management nonsense was not limited to Mr Kolomoisky, nor this particular Ukrnafta contract.  Such terms were actively pursued by the oligarchy with their minority stakes in numerous State owned enterprises.

In March 2015, Ukrainian statute was amended providing that simple majorities were sufficient to qualify as a legitimate quorum for management decisions.

Mr Kolomoisky therefore appealed to the LCIA in relation to this particular contract, presumably arguing that the amended Ukrainian statute of 2015, should not be applied retrospectively to the 2010 contract that effectively handed him control of Ukrnaft.

It is as a result of his appeal to the LCIA that this ruling has been reached – although it is perhaps a battle he expected to loose.  The battles within the Ukrnafta Boardroom however, are still there to be won (or perhaps better stated, not lost).