Ukraine Court Decision Shocks Swissport

The Court of Appeal ruled against the ground handler in its battle to declare the result of a raider attack by Ukraine International Airlines (UIA) null and void. Due to the expropriation of its property, based on flimsy reasons, Swissport lost its controlling majority in its Kiev-based subsidiary. The latest ruling against the Swiss company sends a strong signal to foreign investors not to engage in the tumbling Ukrainian economy.

The ruling of Kiev’s Appealing Court in the case Swissport versus UIA’s owners Ihor Kolomoyski and Aron Mayberg comes unexpectedly and must be interpreted as foul play by the country’s judicial system. In the light of this judgment it can be assumed that potential investors will think twice before spending a euro or dollar in the economy of the beleaguered state. The unequivocal message resulting from the court’s decision is: rightful private ownership is easily sliding into reverse in case of raider attacks by Ukrainian nationals, seemingly backed by judges and courts. 
To put it in a nutshell: The Swissport case is a classic example of corruption and judges that turn illegal activities into formal legality.

Here is what has happened
In 2006 Swissport entered the Ukrainian market by acquiring shares in a joint venture named Interavia LLC. In the following years, Swissport increased its share in the JV from previously 51% to finally 70.6% with the remaining 29.4% held by UIA. Until 2011, when UIA’s ownership was sold to private investors with Ihor Kolomoyski and Aron Mayberg at the forefront, Swissport had a very good partnership with UIA. 

UIA owners start their hostile takeover attack
As Swissport Ukraine was successfully growing double-digit every year, investments into the company became necessary to support further growth. UIA struggled from the beginning with the ability to meet their pro rata share obligations. Swissport was ready to finance the growth and was expressing its will to further invest in the company’s future and to ensure continuous growth by financing the company even beyond obligations. Based on mere discussion during a Participants’ Meeting about a potential future capital increase, UIA alleged that Swissport had resolved on a capital increase against the votes of UIA and therefore violated UIA’s minority shareholder’s rights and went to court. 

Ukraine’s courts back UIA
The capital increase has to date never been resolved by Swissport and UIA. So Kolomoyski and Mayberg were never able to give evidence to their allegation.
So far so bad. Now the country’s justice comes into the game.
In the first instance, the Court of Appeal ruled against Swissport. Based on this decision, the ground handler lost its 70.6% shares in Swissport Ukraine and hence the control over the company. UIA became the sole owner, which, at that time, had an estimated value of $25 Mio. Moreover, Kolomoyski and Aron Mayberg managed to convince the court that the 70.6% share in Swissport Ukraine would only be worth $400,000. This was one of the reasons why Swissport decided to keep on fighting for its business and went to the highest court in the Ukraine, the Highest Economic Court of Ukraine.