The Board of the SCA gave to the minority shareholders of the OJSC “Kirovsky Zavod” a chance to punish the head of the venture

The Board of the SCA gave to the minority shareholders of the OJSC “Kirovsky Zavod” a chance to punish Georgy Semenenko, General Director of the OJSC, for dubious transactions. The claimants believe that these transactions resulted in the purchase of the assets of the top manager’s family by the venture’s subsidiary for an overstated price. The case has been referred for new consideration, and it is unlikely that the respondent will be able to resort to such “procedural means of defense” as failure to submit documents.

Georgy Semenenko headed the OJSC “Kirovsky Zavod” in 2005, after the death of his father Piotr. At first he managed the venture as acting General Director, and in 2006 his candidacy was approved by the general shareholders’ meeting. And in 2007 he executed a transaction, which the minority shareholders did not like at all: “Kirovsky Zavod” established a subsidiary – “Putilovsky Liteyny Zavod” LLC, contributed with 580 million roubles to its capital. After that, this subsidiary purchased, through a chain of off-shores, the 66% share of “Sigma-Invest” LLC, which belonged to Georgy Semenenko and his mother Larisa. 612,8 million roubles were paid for the venture.

The minority shareholders believed that, first, the transactions, which resulted in the transfer of the Semenenko family’s share of “Sigma-Invest” to “Putilovsky Liteyny Zavod”, had been executed between related companies, and second, that the value of the transactions had been overstated. In January 2010, CJSC “Doroga” filed with the Court of Arbitration of Saint Petersburg and Leningrad Region a claim against Semenenko (case A56-1486/2010). The claimant attempted to confirm the argument of related companies (besides the above-mentioned participants of the transactions, British Virgin Inslands companies Fraxinius Holdings Limited and Baylight Holdings Limited were among them) by pointing out that the transactions had been executed in a short time – two months, their object was the same, and the end links of the chain were affiliated. As for the value of the transaction, “Doroga” submitted an opinion letter, according to which the Semenenko family’s share of “Sigma-Invest” had been valued at 229,5 million roubles.

Marina Bilyk, Lawyer at the Firm, believes that the situation is complicated for the following reason. In such conditions, it is extremely difficult for the shareholders to prove the existence of all circumstances to be proven, especially if the loss inflicted on the company was the result of execution by the General Director of several transactions with the participation of off-shore companies, the information on the ownership structure of which is restricted. She told Pravo.Ru: “Minority shareholders, who have no access to the documents containing the details of financial and economic activity of the company, face even more difficulties in proving anything”.

So that is what happened: the courts dismissed the minority shareholder’s claim alleging failure to prove the totality of the circumstances presented by him. But the Board of the Judges of the Supreme Court of Arbitration did not find these arguments satisfactory. The judges Ivan Razumov, Nina Ivannikova and Yury Kireev concluded that the evidence submitted by the claimant were “sufficiently serious”, his arguments “persuasive”, and that the courts had erroneously distributed the burden of proof: Semenenko had to bear it. The judges alleged part 1 of Article 9 and Article 65 of the APCRF and pointed out that a court may regard failure to present counter-arguments as a refusal to disprove the shareholder’s arguments. The judges believe: “The respondent had a real possibility to disclose the information [on the transactions]”.

Besides, the three judges, in their resolution to submit the case to the Board of the SCA, raised another important question – on the director’s obligation to act reasonably. They claimed clause 3.1.1 of the Corporate Behaviour Code (approved by the instruction No. 421/p, dated April 04, 2002, of the Federal Committee on Securities’ Market), which charges general directors with “conducting actions, which are expected from a good manager in similar circumstances” – in particular, with showing special thought for terms and conditions of an agreement of sale and purchase of property by a subsidiary. The Board treated the opposite situation as “deliberate non-performance by the General Director of “Kirovsky Zavod” and conscious neglect for them”. Furthermore, the Board suggested its own model of conduct of “an abstract general director”: to disclose the information on the conditions of interrelated transactions to the shareholders.

The three judges also paid attention to the price of the transaction. The SCA judges are of the opinion that the lower instance courts erred, when they did not take into consideration the estimation of the 66% charter capital share value submitted by the claimant.

After a short consultation, the Board of SCA revoked all court acts on the case on March 6, 2012. The case will be considered anew by the Court of Arbitration of Saint Petersburg and Leningrad Region

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