British Sibir Energy Defeated Sibneft In The Struggle For Control Over Yugraneft

British company Sibir Energy is trying to regain a 50% stake in Sibneft-Yugra, a joint venture with Sibneft. The joint venture was established on a parity basis in 2000. The British company contributed to it a 99.34% stake in its Yugraneft subsidiary, which owned licenses for three oil fields in the Khanty-Mansiysk Autonomous Area with reserves of 180 million tons of oil.

Sibneft undertook to invest in development of the fields. In April 2004, it turned out that back between 2002 and 2003, the stake of Sibir Energy in Sibneft-Yugra was diluted from 50% to 0.98% as a result of additional issue of shares. Along with this, management of Sibneft officially recognized increase of its interest in the joint venture only in June 2004.

Because Yugraneft was actually not working but was burdened with debts (according to agreements Sibneft issued loans to it for development of the fields and the licenses were reassigned to Sibneft-Yugra) Sibneft tried to liquidate the company through introduction of external management. According to Sibir Energy, thus the company of Roman Abramovich was trying "to wipe out tracks."

Dmitry Afanasyev, lawyer of EPAM lawyer bureau representing the interests of Sibir Energy, explains, "An honest creditor would not demand liquidation of a company that has practically no property left to meet the creditor's claims."

General Director of Sibir Energy Henry Cameron speaks about these events even harsher, "Sibneft tries to evade liability for illegal dilution of the stake of Yugraneft in Sibneft-Yugra trying to liquidate the company instead of letting the external manager to carry out financial readjustment."

In turn, the British company initiated bankruptcy of Yugraneft. In April 2005, external management was introduced in Yugraneft. On June 23, Sibneft appealed against introduction of external management to the court.

According to a source close to Sibneft, initiating the bankruptcy of Yugraneft representatives of Sibir Energy were convinced that they were the main creditors of Yugraneft and expected to receive preemption right to demand return of the company's debts after the bankruptcy. However, Sibneft accumulated 65% of the debts of Yugraneft. On August 9, the federal arbitration court confirmed legality of introduction of external management in Yugraneft and stated that there were no grounds for sale of property and liquidation of the company.

Sibneft is not going to surrender. Representatives of the company say that Sibneft will continue the struggle taking into account the latest court verdict. A spokesperson for the company said, "We are working on changing the external manager. He should act so as not to infringe on the interests of Sibneft. We believe that the incumbent external manager does not comply with these requirements."

Valery Tutykhin, of John Tainer and Partners, is convinced that the latest court verdict is an important victory in the struggle of Sibir Energy for regaining of its asset. Tutykhin adds, "In corporate wars liquidation of a legal entity, Sibneft is obviously struggling for this insisting on liquidation, is a usual method aimed at deprivation of the opponent of a possibility to regain the asset."

The lawyer adds, "An intermediate link is usually removed to avoid return of the asset. When a company is liquidated, it cannot be a participant of legal actions. For example, it is impossible to sue such a company. Invalidation of liquidation of a company is a very difficult procedure and almost no one in Russia has managed to succeed in it." Tutykhin is convinced that now Sibir Energy left a door open for further legal actions for regaining of assets. As long as there is a legal entity even in condition of bankruptcy, it can file a suit and be a defendant under a lawsuit, regain assets, terminate deals and protest against issue of shares. Thus, the lawyer concludes that the point of no return is not passed for Sibneft.