In late 2017, a transaction for sale of Krasnobrodski Yuzhny LLC, a coal mining company in the Kemerovo Region (Russia), took place. The transaction purpose and structure implied obtaining of 100% control of the enterprise by a new sole participant, and Krasnobrodski Yuzhny LLC was to buy out the majority share in the charter capital of its own sole participant. The transaction was financed by Alfa Bank JSC who provided the enterprise with funds for leverage buyout (LBO) of the majority share in the charter capital of its participant. The complicated transaction structure required several share purchase agreements.
A year after completion of the transaction, the purchaser of the minority share, who was under control of Alfa Bank JSC, and Krasnobrodski Yuzhny LLC brought to the Arbitrazh Court of Moscow an action against the seller (AGP client) for invalidation of all the share purchase agreements and for recovery of the full amount paid under the agreements from the seller. The total claimed amount was over USD 153 mln.
The purchaser and the enterprise attempted to show to the court that during preparation, execution and closing of the transaction the seller allegedly assured them that Krasnobrodski Yuzhny LLC was able to efficiently produce coal and yield income sufficient for maintaining both normal business operations and the loan agreement with Alfa Bank JSC, while in reality the enterprise was running business inefficiently and with gross violation of regulatory requirements and the open-cast mine was in a deplorable condition, which information was kept by the purchaser from them, as alleged by the claimants, and therefore the purchaser deceived them.
In the trial and appellate courts, AGP attorneys successfully showed that the seller had been acting bona fide during preparation and implementation of the transaction, that the transaction had been prepared and made in accordance with standards and regulations applicable to such transactions and the seller had not done anything to deceive the purchaser, and that the difficulties the enterprise was facing had nothing to do with the seller.
On September 20, 2019 the Arbitrazh Court of Moscow fully dismissed the claims against the AGP client. One December 16, 2019 the Ninth Appellate Arbitrazh Court upheld the decision of the Arbitrazh Court of Moscow and dismissed the purchasers’ appeal.
* As per the official USD/RUB rate of the Central Bank of Russia as of the date of rendering the operative part of the award of the Arbitrazh Court of Moscow