Yukos Bankruptcy Appeal Rejected

by Tatiana Smolenskaya, for LawAndTax-News.com, Moscow

25 August 2006

The Moscow Court of Arbitration has, somewhat predictably, rejected an appeal by the beleaguered Russian oil company Yukos against an earlier bankruptcy ruling.

The ruling seemingly seals the fate of Russia's once-largest private oil company, which was feted for its western standards of corporate governance, but which got on the wrong side of a government keen to consolidate the company's energy infrastructure under its own wing.

The politically charged affair began with the arrest of former chief executive Mikhail Khodorkovsky on what many consider to have been trumped-up charges of tax evasion, fraud and embezzlement. Khodorkovsky had been a vocal critic of President Putin's energy policy and had also harboured political aspirations of his own. He is now serving an eight-year sentence in a Siberian jail. The company itself was then run into the ground following a series of back tax claims totalling about $28.5 billion. By June 2006, Yukos had paid about $14.5 billion of this tax bill.

The Commercial Court has also approved the Tax Service's additional claims against Yukos from 2000 to 2003, which exceed US$11 billion.

Other companies on the list of Yukos creditors include the Siberian Service Company with a claim of US$8.4 billion, Yukos-RM (US$4.8 billion), Yukos-EP (US$4 billion), and Sibintek-leasing (US$2.1 billion).

Rosneft, Yukos's state-owned rival, currently holds about $4.5 billion worth of claims in the company, and next month will reportedly seek to add an additional $8.5 billion to these claims, making it Yukos's largest creditor.

After a rescue plan was rejected by the company's creditors last month, 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.

Rosneft and state gas monopoly Gazprom appear poised to acquire Yukos's remaining production assets in Russia.

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