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.


Ihor Kolomoisky (left) and Aran Mayberg are counting on powerful Ukrainian lobbies to support their case / source: private

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. 

Mayberg gained control over UIA under rather dubious circumstances.
Mayberg gained control over UIA under rather dubious circumstances.

UIA diluted Swissport’s shares
The court appeal hearings at the Highest Economic Court were postponed several times based on dubious reasons. In the meantime, UIA had unilaterally taken the decision to increase the share capital in Interavia with the obvious goal to dilute Swissport. By doing so UIA did the very thing, for which it sued Swissport when the company falsely alleged Swissport of a dilution attempt. The Ukrainian Government and Anti-Raider-Commission were long in coming with their promised support for foreign investors and companies that lost their business through hostile takeovers. This all happened before the political situation in the Ukraine started to change. 

 

Contradictory jurisdiction
In the third instance, the Highest Economic Court of Ukraine on 2nd October 2013 cancelled the decisions of the first and second instance court and referred the case back to the first instance court. Shortly after, on 6th November 2013, court proceedings in the first instance court, the Economic Court of Kiev, started again. On 29th May 2014 the first instance court decided in favor of Swissport and dismissed UIA’s claim against SPI. UIA appealed against this court decision. Finally, on 25 September 2014, the second instance (Court of Appeal) ruled against SPI.
That’s today’s situation.

Swissport pushes the reset button
According to Swissport, the company will appeal against this latest court ruling, which means that the case will again be dealt with by the third instance, the Highest Economic Court of Ukraine. In the light of this judicial roller coaster ride and the ongoing legal uncertainty the upcoming decision of Ukraine’s Highest Economic Court will surely be closely watched by EU politicians and by potential foreign private investors. It will clearly showcase the world how successful or futile the anti corruption campaign of the Poroshenko government practically is. 
So a further chapter will be added to this scandalous story.
Please stay tuned.

Heiner Siegmund 

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