Why was the Yukos Foundation created?
As the aggressive measures against Yukos Oil Company gathered speed, it became clear that the Russian Federation was determined to destroy the company and seize its assets. The Russian courts were proving incapable of passing judgments on the case as an independent body without political interference. Frustrated by this, the Yukos leadership made the decision to fight to protect the interests of the company and its stakeholders – its creditors, shareholders, and employees. While Yukos was not able to protect assets located in Russia, it could protect its assets located outside of Russia. To this end, the Yukos Foundations was formed in March and September 2005.
The establishment of the Foundations would ensure that the assets of the company that were outside Russia would be placed under the protection of non-Russian courts. The move had the support of the Yukos Board of Directors and its shareholders.
The Foundation’s mission is:
- To ensure that the assets of the Yukos group outside Russia can be protected and distributed fairly to the company’s legitimate creditors and shareholders as soon as litigation regarding the entitlement to such assets is favorably resolved
- To ensure that the interests of Yukos Oil Company can be represented before national and international courts
The two Foundations are each a so-called “Stichting,” a Dutch nonprofit legal entity that does not have shareholders or members but exists for its stated purpose. These are commonly used legal entities and can be used for the protection of assets.
As the Amsterdam District Court ruled in regard to the 2005 establishment of the Foundation’s structure on April 5, 2012: “the court puts first and foremost that there is no dispute that the restructuring in September 2005 took place at the time with the consent of all parties involved and with due observance of all regulations in company law with regard to decision-making and representation. That restructuring led up to the subsequent events around Yukos Oil. These events resulted in a fight for its assets between its (former) owners on the one hand and Rosneft on the other hand.”
Furthermore, in response to an attempt by Rosneft controlled parties to attack the protective Foundation structure, the Amsterdam District Court ruled on May 29, 2013, that Yukos management, in view of the actions of the Russian authorities, “could reasonably deduce the assumption that the Russian State was endeavoring to acquire control of the most important assets of Yukos Oil and that it was doubtful whether Yukos Oil could expect a safeguarded and independent judicial process to assess the legitimacy of the State’s actions and other parties involved in Russia,” and “that the directors of the Yukos group reasonably decided to take and maintain the 2005 measures.”
The continuing mission of the Foundations is to protect all assets so that, when lawfully permitted, they can begin the process of distributing the value of those assets to those creditors and shareholders of Yukos Oil who were harmed by the Russian Federation’s expropriation of the company.
On April 1, 2015, Rosneft gave up its claims to the assets held by one of the Foundations in a settlement with the Yukos parties. This allowed the Foundation to start distribution of the assets it held to the ultimate victims of the Kremlin’s expropriation. To that end, Yukos hired Garden City Group, the leading claims administrator, to identify the thousands of shareholders of Yukos Oil who have been wronged by the Kremlin’s expropriation of Yukos and to determine eligibility for a distribution (www.yukosclaims.com).
Russian company Promneftstroy, a former subsidiary of Rosneft, continued to assert that it was entitled to the assets held by the other Foundation. It purportedly bought shares in Dutch company Yukos Finance BV on a rigged bankruptcy auction from bankruptcy receiver Rebgun.
This did not stand the test of scrutiny of the Amsterdam District Court, which on October 31, 2007, ruled “that the way in which the additional tax assessment owed by Yukos Oil, and the size thereof, was assessed by first the Russian Tax Authorities and subsequently by the tax court cannot stand the test of criticism” and that “the hearing before the tax court and the appeal are a violation of the fundamental principles of due process of law.” The Court concluded “that the Russian bankruptcy order in which Rebgun was appointed receiver in the bankruptcy of Yukos Oil was effected in a manner not in accordance with the Dutch principles of due order of process and is thus in violation of Dutch public order. For that reason, the bankruptcy order cannot be recognized.”
On May 9, 2017, the Amsterdam Court of Appeal upheld the District Court decision, ruling that the Russian Federation unlawfully bankrupted Yukos Oil Company. The appeal court concluded that the Russian authorities “not only violated the Russian (tax) rules but also that this was done with the apparent intent to make Yukos insolvent and ultimately bankrupt Yukos.” The Russian bankruptcy cannot be recognized in The Netherlands, the court ruled, as that would “violate public order.”
On 18 January 2019, the Dutch Supreme Court upheld the judgment of the Amsterdam Court of Appeal. Following that decision, the Yukos Foundations has paid hundreds of millions of dollars in additional funds to former shareholders of Yukos Oil. Combined with the previous payments made to shareholders as a result of the settlement of all legal proceedings between the Yukos Foundations and state-controlled Rosneft, the total payment to shareholders is close to $1 billion thus far.
In December 2020 the Yukos Foundations merged, with one Foundation remaining. The Foundation and the Yukos group companies it controls continue to pursue proceedings against the Russian Federation, in which they seek compensation which, if recovered, could lead to further payments to former shareholders of Yukos Oil.