An upcoming court hearing is placing the drawn-out corporate conflict at Zhytomyrski Lasoshchi confectionary factory back in the spotlight.
Yuri
Leshchynsky, an American citizen born in Ukraine, claims his enterprise was
taken over after a Ukrainian court cancelled a shares emission that took place over 10 years ago involving the company that belonged to him.
Ihor Boyko,
the current chairman of the company’s supervisory board, says the shares were
issued illegally and that Leshchynsky was involved in stripping some of the
plant’s assets.
The Kyiv
Appeal Administrative Court is expected to hear the case on Dec. 6. But experts
say it’s only one of many corporate conflicts that have taken place
in Ukraine over the last few years, enabled by corruption at state bodies,
especially in the courts. Regardless of which side is to blame, basic private
property rights usually are violated, contributing to Ukraine’s poor investment
climate.
“It looks
like there has been a fight for the enterprise,” said Bogdan Borovyk, partner at Beiten Burkhardt, an international law firm. “I don’t
think someone is right in this case and someone is wrong. It’s not black and
white but more likely grey. But of course such cases do not make the country
more attractive for investors,” he added.
Andriy
Semydidko, director at the Antiraider Union of Entrepreneurs of Ukraine, said
that the seven-year-old organization has documented some 1,500 corporate
conflicts. “In this country private property is not protected. In this country
money should not be invested,” Semydidko said.
The
conflict at Zhytomyrski Lasoshchi – one of central Ukraine’s biggest
enterprises, employing over 1,700 – dates back to 1999. That year Leshchynsky
acquired a 45 percent stake in the plant through his company Cobisco Union
Incorporated. After buying raw materials and equipment for the plant, he became
the owner of 5.5 million shares during the company’s third shares emission, for
a total cost of Hr 2.6 million. In 2007, Leshchynsky transferred his shares to
his company, Delta Capital. He also initiated a fourth, fifth and sixth
emissions of shares. As a result, he increased his ownership stake to 95
percent. He held almost 28 million shares worth around Hr 14 million.
As his
stake grew, Leshchynsky said, the plant also benefited from capital
improvements. He said he did not take dividends and instead re-invested all the
income into the enterprise. Leshchynsky insists that in the 10 years he was a
majority shareholder, the plant’s production capacity and profits grew. The
plant subsequently became one of the biggest enterprises and taxpayers in this
part of Ukraine.
However, Leshchynsky
saw his shares in the plant vanish one day in 2010 when the District
Administrative Court of Kyiv cancelled the third through sixth share emissions.
The court also ruled to transfer all the money from his Delta Capital bank
accounts to the account of Zhytomyrski Lasoshchi. Delta Capital was not
informed about the case.
A criminal
case against Leshchynsky was opened soon with charges that he illegally
transferred shares from his one company to another. To avoid trial, the
businessman now stays in the U.S. Leshchynsky placed all the blame onto his
former representative at the plant and current top manager Ihor Boyko.
“There is a
classic scheme according to which the enterprise was taken over,” Leshchynsky
told journalists by Skype. “First Boyko got all information (about the plant).
Then he became friends with the employees. After that he started bribing local
judges and authorities and everything ended up that he intimidated all
management of the plant.”
Boyko, who
now runs the company’s headquarters in Kyiv, has another version of the story.
Boyko was
hired by Leshchynsky and came to the plant in 2006. He realized that by having
a monopoly on the supply of inputs to the plant, Leshchynsky sold cocoa powder
and cocoa butter to it at inflated prices and purchased equipment at
above-market prices. In this way, according to Boyko, he laundered at least $50
million from the enterprise.
“He is a
pseudo-investor,” Boyko said. “Part of the equipment that he said was
‘invested’ we have already thrown away because it was useless. He stole from
the plant. He was destroying it. When I realized this I decided to support the
employees [many of whom were minority shareholders].”
Already
part of the plant’s management, Boyko in 2009 refused to accept raw materials
supplied by Leshchynsky. Unexpected tax inspections that started in 2010 were
organized by Leshchynsky to bring more loyal managers, Boyko alleged. During
the inspections, tax authorities seized original documents and stamps of the
enterprise. The plant’s director, Yevhen Hamov, was detained in a criminal case
that was opened against him and he suffered a heart attack.
Following
these events, two minority shareholders filed a lawsuit claiming that the
emissions of shares owned by Leshchynsky were illegal. They said the shareholders
were not informed about the meeting during which the decision was made to have
a third share emission. They also contended that since Zhytomyrski Lasoshchi
was a joint stock company at the time, shares in the plant could only be sold
to its shareholders, not to other individuals such as Leshchynsky. Moreover,
Boyko said, as a result of this and the successive emissions, the minority
shareholders’ stake decreased to less than five percent.
It now
appears that Boyko and the plant’s current management gained from the court
decision to cancel the four share emissions.
At the next
shareholders meeting held at the end of 2010, a decision was made to change the
form of enterprise ownership into an additional liability company. At that time
there were about 400 shareholders. But when the transformation process ended in
early 2011, the newly formed company had only 47 members. The rest sold their
company stakes. There are currently only 17 members of the company. While the
number of members decreased, Boyko’s stake grew to 70 percent or around Hr 8.4
million.
“This
situation is quite a bright example of the development of corporate conflict at
a Ukrainian enterprise,” said Olena Volyanska, senior associate at LCF Law
Group.
She said the
current environment is conducive for corporate conflicts and takeovers. They
include the lack of corporate management traditions and relations,
contradictory and irregular legislation, abuse of legal protection rights, and
controversial judicial practices.
Borovyk
from Beiten Burkhardt points the finger firmly on corrupt state authorities and
courts a main who he says are the catalyst of corporate conflicts.
“Corruption
in courts became more widespread” in recent years, Borovyk said. “Unfortunately
the courts lost their authority even in the eyes of professionals. They are
viewed as an instrument [in the hands of interested people].”
In the case
of Zhytomyrski Lasoshchi, the lawyer said, a big question looms over the court
decision to cancel the emission of shares after more than 10 years, or beyond
the apparent statute of limitations.
“One should
remember that a (company) share is private property,” Borovyk said, “Cancelling
the share (emission) issue in fact means depriving somebody’s property rights.
And to deprive someone of their private property, very serious reasons are
needed.”
Kyiv Post staff writer Oksana Faryna can be
reached at [email protected].
