Russian court's declaration of Yukos Oil bankruptcy not recognised in the Netherlands - final judgment

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Den Haag, 18 januari 2019

The Dutch Supreme Court has ruled in a final judgment that the 2006 Russian judgment declaring Yukos Oil bankrupt in the Russian Federation will not be recognised in the Netherlands. The Supreme Court today dismissed the appeal in cassation lodged against Amsterdam Court of Appeal’s decision. One key consequence of the judgment is that the Netherlands does not recognise the authority of Yukos Oil’s liquidator to perform legal transactions. This means it has been established definitively that the liquidator was not authorised to transfer shares in Yukos Finance to the Russian company OOO Promneftstroy and that Promneftstroy therefore did not become the owner of shares in Yukos Finance.

Case summary: sale of shares in Yukos Finance B.V.

In 2006, the Russian company OAO Yukos Oil Company (‘Yukos Oil’) was declared bankrupt by Moscow City Arbitrazh Court. At that time a liquidator was appointed. On 10 September 2007, following a public auction in Moscow, Yukos Oil’s shares in the Dutch company Yukos Finance B.V. were transferred to the Russian company Promneftstroy, which paid US$307 million for them. The central issue in the proceedings was whether the liquidator’s transfer of shares to Promneftstroy was legally valid and therefore whether Promneftstroy had become a shareholder in Yukos Finance.

Judgment of Amsterdam Court of Appeal: recognition contrary to public policy
On 9 May 2017 Amsterdam Court of Appeal held that the bankruptcy declaration would not be recognised in the Netherlands. This meant that the liquidator was not authorised to transfer shares in Yukos Finance to Promneftstroy. For this reason, Promneftstroy did not become the owner of the shares in question.

According to the appeal court, recognition of the bankruptcy was not warranted because the Russian authorities had purposely engineered the bankruptcy. In doing so, they violated fundamental legal principles. Extremely high, non-legitimate VAT levies with fines were imposed on Yukos Oil, which the company had to pay within a short time. In the ensuing tax proceedings, Yukos Oil was given no opportunity to present a proper defence. On various points, these proceedings did not meet the requirements of due process. Yukos Oil received no response to its requests for any kind of settlement arrangement. The auctioning of Yuganskneftegaz, a large oil-production business owned by Yukos Oil, was also not conducted properly. This led the appeal court to conclude that recognition of the Russian judgment declaring bankruptcy was contrary to Dutch public policy. Within the Dutch legal order, therefore, the bankruptcy judgment has no legal effect.

The Supreme Court's judgment: Court of Appeal's decision upheld

According to the Supreme Court, the Court of Appeal was aware that refusal to recognise a foreign judgment on the ground of incompatibility with Dutch public policy is an extreme measure. It was right to conclude that there had been a violation of principles and values that are fundamental to the Dutch legal order. That violation exceeded the boundaries within which the bankruptcy judgment can be given legal effect. The Supreme Court dismissed the challenges to the appeal court's judgment that the Russian authorities had engineered the payment difficulties and ultimate bankruptcy of Yukos Oil.

The Supreme Court’s final judgment establishes that Promneftstroy did not become the owner of the shares in Yukos Finance.

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