ALL-ROUND DEFENCE OF TOGLIATTIAZOT

The details of the Federal Arbitration Court of Povolzhsky Territory related to the case of privatization of 6.1% shares of TogliattiAzot (ToAz), the largest world producer of ammonia were made public.

The Court has passed the previously nullified case concerning the privatisation of ToAz shares by OOO Tafco for a retrial at the Samara Region Arbitration Court. The Povolzhsky Court has commented on its decision and explained that the conclusions drawn by the previous courts had not complied with the factual background and evidence. The Federal Arbitration Court of Povolzhsky Territory has also pointed out the numerous defects in the procedural law, which were made with respect to the appealed court decisions.

Earlier ToAz representatives expressed their satisfaction with the court decision made on November 27 and even called it “a small victory over raiders”. From the judgment the ToAz representatives concluded that justice triumphed. the decision of the Povolzhsky Arbitration Court contained conclusions, which are very important for the judicial proceeding as a whole.

The appellate court judges especially pointed out the numerous errors made by the previous courts and they explained that the errors were caused by the fact that the examination of the case documents “had been conducted without consideration to all the relevant circumstances which were of great importance to the case”. The main claims of the Federal Agency on Federal Property Management (Rosimushchestvo) were filed in connection with a failure to execute an investment program by a buyer of ToAz shares and with an abuse of authority committed by the Samara Region Property Fund when making a bargain. Rosimushchestvo insisted that the Samara Region Property Fund had no right to sign an agreement of sale and purchase of ToAz shares on behalf of the government, as the Fund was engaged in independent activity. As for OOO Tafco, it had infringed the agreement when a third party, i.e. TogliattiAzot, had been attracted to the execution of the investment program.

The Samara Region Arbitration Court, which had heard this case in the very beginning back in 2004, had then dismissed Rosimushchestvo claims. Yet in the same year the Povolzhsky Arbitration Court, following an appeal by Rosimushchestvo; had declared that the agreement of sale and purchase was void as it had contravened the law and the previous court decisions were subsequently repealed . In response Tafco filed an appeal to the Supreme Arbitration Court of the Russian Federation which then passed the case for review. Moreover, the Supreme Arbitration Court underlined that competitive sale of shares at investment tenders had been performed in full compliance with law and the Samara Region Property Fund had acted in accordance with the Russian Federation President Decree of 29 November1992.

A retrial of the case in the Samara Region Arbitration Court turned into a real failure for Tafco. The same court, which had earlier rejected the claimant’s arguments, went on to completely agree with Rosimushchestvo and obligated the company to return all ToAz shares to the government. The holder of shareholders' register was ordered to make alterations in the register of the company’s securities. As for Rosimushchestvo, it merely paid Tafco the nominal value of shares without taking their current market value into consideration. The Court did not take in account that the defendant had completely carried out its investment obligations and invested $7 million in the development of Transammiak, a related ToAz’s enterprise.

A further appeal confirmed the Samara Region Arbitration Court decision, Tafco had to file an appeal against this decision to the Federal Arbitration Court of Povolzhsky Territory. In late November of this year, this Court made a decision to review the case of the privatisation of 6.1% of TogliattiAzot shares for the third time. The Court had taken into consideration all documentary evidence submitted by Tafco acting as a third party of TogliattiAzot, Transammiak and the Samara Region Property Fund: report on execution of investment program in full, report on each stage of investment program fulfilment and audit report of investment obligations. On the basis of these documents the Povolzhsky Arbitration Court declared that the investment terms of competition with respect to purchase of the share holding under question had been completely fulfilled. The Court confirmed that fulfilment of the investment program by a third party, i.e. TogliattiAzot, not by Tafco had not contradicted the existing law including the agreement signed by Tafco and the Samara Region Property Fund.

Following the decision of the Supreme Arbitration Court the Povolzhsky Arbitration Court confirmed that the Samara Region Property Fund had not gone beyond its commission related to the sale of 6.1% of TogliattiAzot shares.

In spite of the fact that ToAz’s lawyers managed to achieve some success in the case of the privatisation of ToAz shares, they are still convinced that the next hearing will bring new surprises. For example, not long ago the company has been notified that for the tax audit purposes, OAO TogliattiAzot will be administered by the Inter-Regional Inspection of the Russian Federal Tax Authority No.3 in Moscow, which is dealing with the largest Russian tax payers. ToAz’s representatives believe that this decision is unreasonable both from an organizational and economical point of view as the company is expected to provide permanent residence for their employees in Moscow therefore ToAz’s expenses will be considerably increased and the taxable base will be reduced as a result. ToAz intends to appeal the tax authority’s decision in court.

According to the lawyers involved, endless legal proceedings and tax claims are character features of raider’s struggle for someone’s property. ToAz’s representatives are firmly convinced that their longstanding conflict can be resolved only with the help of the government authorities.

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