Author: Markiyan Bem 

Recently, 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 that belonged to Russian oligarch Eduard Khudainatov. 

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

First, HACC found that Shell Overseas Investments B.V., on the basis of 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, the share of Todwick Holdings Ltd decreased from 49% to 2.56%. The transaction was authorized by the decision of the Enterprise Chamber of the Amsterdam Court of Appeal.

Second, Alliance Holding LLC was 100% owned by Cicerone Holding BV. In turn, Cicerone Holding BV was owned by Shell Overseas Investments B.V. and Todwick Holdings Ltd. Only the latter was controlled by Khudainatov. In this regard, the recovery of the share in Alliance Holding LLC for the government revenue would result in a violation of 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 of dismissing the claim for the recovery of a share in Alliance Holding LLC for the 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 was indirectly owned by E.Y. Khudainatov through Cicerone Holding B.V. and Todwick Holdings Ltd.

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

However, the most interesting aspect of the judgment issued by the HACC Appeals Chamber is definitely 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 the authorized capital of Alliance Holding LLC as held by Shell Overseas Investments B.V. upon the company's application to thestate registration authority.

It appears that the Appeals Chamber bypassed the direct owner of Alliance Holding LLC, Cicerone Holding B.V., and transferred the shares in the company to non-resident companies that were 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 in an unusual way resolved the issue of respecting the rights of third parties in cases involving the recovery of corporate rights for the 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 in turn may be owned by both sanctioned and non-sanctioned co-owners. Ukrainian courts cannot recover assets (shares in companies) located in foreign jurisdictions. 

The mechanism used by the HACC Appeals Chamber makes it possible to circumvent this problem and ensure the effective operation of the sanction mechanism.