State Property Fund Wants to Allay “Unjust Lawsuits”
The State Property Fund (SPF) has requested the Cabinet of Ministers draw up amendments to the laws that govern court disputes over privatization. The SPF suggests curtailing the right of individuals to take legal action with a view to suspending tenders for the sale of state run enterprises.
Most individuals who have sued the State Property Fund did so for violation of their rights as shareholders. In court, such individuals usually demand cancellation of the privatization tender results or revising the conditions of sales. Going to court, such plaintiffs use the services of expensive lawyers, so that SPF legal advisors find it rather difficult to prove the absurdity of demands. “Behind these totally unknown people always stand large companies with millions worth of turnover. They pay individuals to foil a tender,” Fund acting chairman Mykhailo Chechetov is convinced. He is afraid that new tenders, to be held in the immediate future to sell large businesses, will be foiled or dragged out through court action.
Civil courts that accept a suit against the State Property Fund can suspend the privatization of one enterprise or another pending their ruling. As an ordinary district court judge is seldom an expert in arbitration law, it takes him or her quite a long time — sometimes several months — to look into the subtleties of a case. More often than not, this is exactly what those who really stand behind this kind of suit want. “Sometimes a bidder is out of funds at the moment the tender was announced, but he hopes to get the money some time later. He will in such case do his utmost to delay the summing-up of the tender,” the SPF acting chief says.
What became the most vivid example of court litigation on the part of “hurt” shareholders was recent privatization of the Khartsyzsk Pipe Mill (KPM), one of this country’s largest industrial enterprises. The tender to sell this giant was won by the Industrial Union of Donbas Corporation which offered 126 million hryvnias for the 76% state-owned stake. The Poltava Ore-Dressing Mill (PODM) was barred from the tender, for it failed to meet the industrial investor’s requirements. Although the PODM’s output included a limited number of water-supply pipes, the SPF decided it was insufficient to contest the purchase of the CIS’s large-diameter pipe monopolist. The process was blocked by a civil court at the time when the tender winner was being given its stake. The suit against the SPF was filed by a PODM shareholder Nelia Vershynina who thought the fund was wrong to debar the PODM from the KPM privatization. Ms. Vershynina thus considered that her interests as a shareholder had been infringed upon. Tellingly, the interests of a modest individual were defended in court by the lawyers of a Kyiv bank. After several court sessions, Nelia Vershynina, famous nationwide by then, suddenly withdrew her suit. Before that, Ms. Vershynina’s lawyers tried to get the court hearing transferred to the Radiansky court of Kyiv.
But, immediately thereafter, the Radiansky court of Kyiv began to try a new case over the KPM sales tender. This time, the suit came from the PODM and Stanislav Prudnikov, another PODM shareholder. He also wanted the court to dismiss the SPF tender commission’s decision to recognize the Industrial Union of Donbas Corporation as winner. Oddly enough, it is not the SPF itself but four of its employees and members of the tender commission, who were defendants in this case. In other words, an ordinary civil court tries ordinary Ukrainian citizens, while in reality this is a question of huge money and the sale of one of the largest enterprises by the state.
In the interval between the suits the State Property Fund managed to hand over the KPM state- owned stake in the Industrial Union of Donbas disposal and to receive budget revenue. Yet, the situation over the past tender remains tense. Instances of this kind have become a rule rather than an exception in SPF practice. Every tender over a relatively large enterprise leaves some shareholders disgruntled. This occurred when an attempt was made to privatize Rivneazot, the Balakliyiv Cement Works, and Zaporizhstal. What complicates the matter is that the suits have been filed to an ordinary civil, rather than economic, court. Judges are first of all guided by the law that governs the relations of natural persons, i.e., that which clearly defends the individual, although in reality most cases deal with the rights of a legal entity that has lost a tender.
The State Property Fund requests the cabinet draft legal amendments that will debar civil courts from handling privatization cases. “All that deals with complaints about tenders should be heard in economic courts, where judges know the subtleties of arbitration law,” Mr. Chechetov believes. The SPF request will be discussed at one of the immediately forthcoming Cabinet sessions. Yet, currently on the eve of the large-scale regional electric company and Ukrtelekom privatization tenders, the sale of these giants can be suspended by any individual, even not necessarily a shareholder of such companies, and the threat of new scandals looms quite large.
