The Ukrainian subsidiary of Britain's Atlas Ward Building Systems encountered a major setback last week in its struggle to retain control of a potentially lucrative metal fabricating business.
A legal tug of war for control of the manufacturing assets of Zhytomyr’s Atmashbud metal shop erupted earlier this year between Ward Building Systems Ukraine and the Ukrainian company that would have been its partner, Kyiv’s Ukrmetalokonstruktsiya.
In an Oct. 15 decision, Kyiv’s Economic Court ruled that a 2001 agreement with Atmashbud’s creditors that yielded Ward Building Systems Ukraine control over the plant’s assets was invalid. The court ordered the British investor to return the assets to Atmashbud, which is majority controlled by Ukrmetalokonstruktsiya.
The ruling reflects a previous court decision triggered by a complaint from Ukrmetalokonstruktsiya. In an Aug. 11 ruling, citing violations in the bankruptcy process through which Ward Building Systems Ukraine inherited Atmashbud’s facilities, the judge ordered the assets returned.
The rulings are not likely to be enforced in the near future, as Ward Building Systems Ukraine is likely to appeal.
“We have lost another case, and we’ll be appealing this decision,” Ward Building Systems Ukraine Director John Marsh told the Post on Oct. 17.
Ukrmetalokonstruktsiya declined to comment.
The Ukrainian owners of Zhytomyr’s Atmashbud metal shop went to court this spring over what the company said was Ward Building Systems’ breach of an agreement that would have allowed both companies to jointly own and operate Atmashbud’s assets. Ukrmetalokonstruktsiya and Atmashbud filed six different complaints in three courts against Ward Building Systems between May and July of this year.
Ward Building Systems is owned by Britain’s Atlas Ward Building Systems Holdings, the parent company of the Atlas Ward group – a holding of British construction companies that specialize in production and installation of fabricated steel beams and frames.
The British group entered Ukraine in the mid-1990s, after landing contracts to build manufacturing facilities for multinationals including Coca-Cola, Cargill and Gallina Blanca.
The British group originally imported building components, from steelworks to bolts, but gradually began working with local producers. In the process, it established a partnership with Ukrmetalokonstruktsiya, an intermediary that supplied metal goods made by state-owned and newly privatized metal shops across the country.
Atmashbud, the metal shop at the center of the controversy, manufactures steel beams and frames used in the construction of warehouses and factories.
In 2001, Ukrmetalokonstruktsiya and Ward Building Systems Ukraine agreed to revive Atmashbud by creating a joint venture that would put the company back into production.
As part of the agreement, the Atlas Ward group settled Hr 800,000 in Atmashbud debts in return for a 75 percent stake in a proposed joint venture with Ukrmetalokonstruktsiya. The Ukrainian company, which had already invested Hr 500,000 to restart production at Atmashbud, agreed to invest another Hr 11,000 to pay creditors and receive a 25 percent share in the joint venture. Atmashbud’s creditors were paid by early 2002, at which point Ward Building Systems Ukraine inherited Atmashbud’s assets. Although Ward Building Systems Ukraine was to have formed the joint venture by 2001, the company did not do so due to “technicalities” and escalating differences between the partners.
Meanwhile, Ukrmetalokonstruktsiya said Ward Building Systems Ukraine took control of Atmashbud’s assets illegally.
Ukrmetalokonstruktsiya claims the Atlas Ward group cheated it out of a 25 percent stake in the new joint venture that should have been established on the basis of Atmashbud’s metal shop. Atlas Ward Building Sysytems’ subsidiary Ward Building Systems Ukraine has operated the business for 20 months without ceding a share in the venture to Ukrmetalokonstruktsiya. Atlas Ward officials say the company intended to pass on the assets to the joint venture.
Ukrmetalokonstruktsiya Director Oleksandr Chuprov told the Post in August that Ward Building Systems Ukraine violated the law by failing to obtain approval from tax authorities prior to transferring Atmashbud’s assets, and by failing to secure the approval of Atmashbud’s shareholders.
The Pechersk Court ruled that Atmashbud’s assets be returned to Ukrmetalokonstruktsiya, he said.
Marsh said that the Ukrainian company has pulled Ward Building Systems Ukraine into a legal mess involving unfair court rulings against his company.
“We have to appear in court on four occasions next week in Zhytomyr and Kyiv,” he said. “My sympathies are with Ukrainian companies who are subjected to this grind-down system. It is yet again an example of how the big organizations can outmaneuver and wear down [their opponents.]
“I can say that it’s being discussed at the highest level of the Ukrainian Government,” Marsh added.
A statement issued to the Post on Oct. 17 by the British Embassy in Kyiv urged Ukrainian courts to settle the dispute fairly.
“The British Government is concerned that Ward Building Systems Ukraine, like any other investor, be treated fairly,” the statement reads.
“WBSU has invested in a formerly bankrupt factory in Zhytomyr and transformed it into a profitable and successful venture. It provides employment for over 200 workers and brings benefit to the Ukrainian economy. The company is committed to developing its business in Ukraine. We hope the outcome of the court cases will enable it to do so.”
