Moscow Bankruptcy Ruling Signals End Of The Road For Yukos

by Tatiana Smolenskaya, Tax-News.com, Moscow

04 August 2006

The Yukos saga looks to have finally drawn to a conclusion after a Moscow court decalred the company bankrupt and ordered that its remaining assets be sold off.

On Tuesday, a panel of three judges at the Moscow Court of Arbitration assigned Yukos assets in Russia to a court-appointed manager who has a year to auction them to pay creditors, which include the tax service and state-owned rival, Rosneft.

Once Russia's largest private company, Yukos was seemingly doomed as soon as its former chief executive, Mikhail Khodorkovsky, provoked the ire of President Vladimir Puitn by criticising his energy polices and donating money to opposition political groups.

Khodorkovsky was arrested in 2003 on charges of fraud, tax evasion and embezzlement. He now languishes in a Siberian jail serving a nine-year prison sentence.

Subsequently, Yukos was served with a series of multi-billion claims for back taxes that in the final reckoning totalled some US$28 billion. To pay its crippling debts, the company was forced to auction off its main production unit, Yuganskneftegaz, at a knock down price to state-owned rival Rosneft. Some say that this was engineered by the Kremlin to bring more of the country's key energy production infrastructure under state control.

Before yesterday's hearing the company had argued it could restructure itself and pay off its debts without going into receivership by benefiting from the current high energy price, but the rescue plan was rejected by creditors after a court-appointed administrator warned them that the company was insolvent. The company's debts were estimated at US$18.3 billion, while its assets stood at $17.7 billion.

The company also argued that it had been given insufficient time to present its case.

“There are a number of decisions that the company feels are a violation of its right to a fair trial,” Yukos lawyer Drew P. Holiner was quoted as stating after the hearing.

However, Yukos's overseas operations and assets, which are run from offices in London and elsewhere in Europe, could continue to function as a result of a seperate ruling in a US federal court in July.

Meanwhile, the company intends to prolong its slow death by planning to appeal against Tuesday's Russian bankruptcy ruling.

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