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Welcome / Blog Archive / English / 2022-10-doc1 Saying goodbye to Russian clients: easier said than done

2022-10-doc1 Saying goodbye to Russian clients: easier said than done

From a recent decision of 6 September 2022 of the District Court Amsterdam (ECLI:NL:RBAMS:2022:5466) it follows that under Dutch rules a law firm (‘Houthoff’) cannot just break with Russian parties, having been placed on sanction lists by the government. The case concerns Russian state-owned company SberBank, the largest shareholder of a Croatian food group (formerly Agrokor, now: ‘Fortenova’), which is based in the Netherlands, among other things, for tax reasons. The Russian bank was recently rejected at a meeting of holders of depositary receipts for shares in Fortanova TopCo at the law firm Houthoff in Amsterdam, because it was on the European sanctions list. The SberBank went to court.

Sberbank has been on the US and European sanctions list since 2014 because of the Russian annexation of Crimea, sanctions that were tightened in 2018. Even stricter sanctions were imposed early this year because of the invasion of Ukraine, which means for instance that Sberbank is no longer connected to the international payment system Swift.

Sberbank became one of the largest shareholders of the Croatian food group Agrokor in 2019, when the company was on the verge of bankruptcy. Under a large restructuring agreement the bank had exchanged its debts for (depositary receipts of) shares. It therefore became a large participant in Agrokor, which business continued under the name of Fortenova. The court on 6 September has now ruled that the Russian state bank (‘Russia incorporated SBK Art Limited Liability Company’) may not be refused at the meeting of holders of depositary receipts.

The problem for Fortenova (‘Fortanova Group STAK Foundation’) is that important decisions can only be taken together with Russian parties. The articles of association (including receipt condition) state that a qualified majority of the holders of depositary receipts for the shares must be approved for decisions. Without SberBank, which owns 41.82 percent of these receipts, there are not enough holders of such receipts to make valid decisions. The company’s articles of association do provide an opportunity to circumvent that provision. If the majority is not obtained at two consecutive meetings, a decision can be made at the next meeting with 75 percent of the votes present. In line with this, SberBank was refused at two meetings in August 2022, so that the other holders of receipts could change the articles of association at the next meeting without the consent of SberBank. After that change, a majority of depositary receipt holders would no longer be required to make decisions that would sideline SberBank.

This meeting of the receipt holders of Fortenova took place at the Houthoff office, to which all holders were invited. Sberbank was refused access at the door, but – the court now rules – that refusal is unlawful: ‘All in all, it has not become plausible that in the case of frozen depositary receipts (‘bevroren certificaten’), the associated meeting and voting rights with regard to the corporate governance should also be frozen.’ The SberBank must therefore be admitted again to the meetings of holders depositary receipts, at least until the end of 2022. Fortenova will appeal against the ruling.

Dutch newspapers use the case to demonstrate how complex it is for lawyers to say goodbye to Russian sanctioned parties. Termination of a relationship will often result in measures of executions of realising its effects. With the court decision, it’s not clear how to solve matters concerning ending or settling matters if shares, bank accounts or ownership of real estate are ‘frozen’.