On January 23, 2024, the High Anti-Corruption Court (HACC) issued a judgment in Case No. 991/8725/23, which imposed a sanction in the form of recovery (confiscation) of assets belonging to Russian oligarch Eduard Khudainatov. 

In its lawsuit, the Ministry of Justice claimed, among other things, the recovery of a 49% share in Alliance Holding LLC’s authorized capital, which owns the Shell gas station chain, for government revenue. The court dismissed the claims in this part.

First, HACC found that Shell Overseas Investments B.V., based on an agreement with Cicerone Holding B.V., contributed additional funds to the latter’s authorized capital in exchange for additionally issued shares. As a result, Todwick Holdings Ltd’s share decreased from 49% to 2.56%. The Enterprise Chamber of the Amsterdam Court of Appeal decision authorized the transaction.

Second, Alliance Holding LLC was 100% owned by Cicerone Holding BV, which in turn was owned by Shell Overseas Investments B.V. and Todwick Holdings Ltd. Only the latter was controlled by Khudainatov. In this regard, recovering the share in Alliance Holding LLC for government revenue would violate the property rights of Shell Overseas Investments B.V., which is not subject to sanctions. 

HACC’s judgment was analyzed in more detail in the article prepared for this purpose.

On April 2, 2024, the HACC Appeals Chamber upheld the appeal of the Ministry of Justice of Ukraine, reversed the HACC judgment of January 23, 2024, in part dismissing the claim for the recovery of a share in Alliance Holding LLC for government revenue, and issued a new judgment to satisfy the claim in this part.

The HACC Appeals Chamber recovered for the government revenue a 49% share in the authorized capital of Alliance Holding LLC, which E.Y. Khudainatov indirectly owned through Cicerone Holding B.V. and Todwick Holdings Ltd.

So, the HACC Appeals Chamber did not consider the change in the size of Todwick Holdings Ltd’s share from 49% to 2.56% following the Enterprise Chamber of the Amsterdam Court of Appeal decision. It is now difficult to say how the HACC Appeals Chamber circumvented the Amsterdam court’s decision and recovered the share in Alliance Holding LLC, which currently belongs to Cicerone Holding B.V. The full text of the decision needs to be analyzed. 

However, the most exciting aspect of the HACC Appeals Chamber’s judgment is the mechanism of recovering the share in Alliance Holding LLC. According to the Ministry of Justice website, the Appeals Chamber determined the following way to enforce its judgment: to register changes in the information on the size of shares in the authorized capital of Alliance Holding LLC: 

• ● to register a 49% share in the authorized capital of Alliance Holding LLC as held by Ukraine;
• ● to register a 51% share in Alliance Holding LLC’s authorized capital as held by Shell Overseas Investments B.V. upon the company’s application to the state registration authority.

The Appeals Chamber apparently bypassed the direct owner of Alliance Holding LLC, Cicerone Holding B.V., and transferred the company’s shares to non-resident companies higher up in the corporate structure. This was the first time the courts applied such a move. 

Regardless of other aspects of the judgment, the Appellate Chamber has unusually resolved the issue of respecting the rights of third parties in cases involving the recovery of corporate rights for government revenue. 

Generally, the sanctioned oligarchs do not directly own shares in Ukrainian assets. As in the above case, such shares are owned by one or more non-resident companies, which both sanctioned and non-sanctioned co-owners may own. Ukrainian courts cannot recover assets (shares in companies) in foreign jurisdictions. 

The HACC Appeals Chamber’s mechanism circumvents this problem and ensures the effective operation of the sanction mechanism.

Author: Markiyan Bem, Partner at Nazar Kulchytskyy & Partners

Published:  Dnistrianskyi Centre, April 2024