ARMA May Independently Appoint Director in Morshynska Case. What’s Wrong with That?

Due to gaps in the law, judges grant the Asset Recovery and Management Agency uncharacteristic powers. For example, we see this in recent decisions regarding the ARMA’s ability to change the director of Morshynska. This problem should be solved by parliamentarians, not through court decisions.

What is the problem here? 

After the seizure of the property of the scandalous owner of Alfa Bank, Mikhail Fridman, there were many problems with the management of these assets. In particular, this also related to the corporate rights of the Morshin Mineral Water Factory Oskar. 

After all, corporate rights are managed, for example, by changing the director of the enterprise, making decisions on the distribution of profits, etc. Due to the provisions of the law, the manager chosen by the Agency is not entitled to independently resolve these issues, but must seek the consent of the owner of the assets. 

Due to the fact that personal sanctions were applied to the owners of Alfa-Group, who are Russians, it was unclear to the BES detective how the court decision on the transfer of these corporate rights to the ARMA should be enforced. The investigating judge of the Shevchenkivskyi Court in Kyiv explained to the BES detective that the ARMA, managing the corporate rights of Morshynska, has the right to individually exercise the powers of the supreme management body of PJSC Morshin Mineral Water Factory Oskar. The same applies to the issue of electing and appointing the general director of the enterprise or terminating their powers. 

The court proceeded from the fact that before concluding an agreement with the manager, the ARMA is obliged to ensure the preservation of assets, since it is the Agency that, until that moment, manages assets through the law. After all, the obligation to coordinate their actions with the asset owner applies only to the manager, and ARMA officials are not managers, although they perform this function. 

This position of the court is extremely debatable. The fact is that the ARMA by law does not exercise the authority to directly manage seized movable and immovable property, securities, property and other rights. The Agency must sell the relevant assets, if authorized by the court, or transfer them for management.  

That is, the position formulated by the Shevchenkivskyi Court is a vivid example of judicial lawmaking, which arose due to a stalemate. After all, even the application of sanctions to the owners of seized assets does not relieve managers from the obligation to coordinate their actions with them in the supreme management bodies. This, in turn, makes it impossible to actually manage the seized property. 

If the ARMA is guided by such explanations and independently performs actions in the management bodies of companies, then its actions are highly likely to be challenged by the owners of companies. Thus, effective management can be blocked because courts can cease actions to manage seized assets due to the Agency’s violation of the law. In addition, the owner can claim compensation for damages caused by such a violation. 

That is why this problem should be solved not by making such decisions, but by changes to the current legislation. Thus, at a meeting of the anti-corruption committee on July 13, 2023, the head of ARMA, Olena Duma, recognized the complexity of managing corporate rights. Therefore, we expect that the ARMA will initiate the solution of this problem with the engagement of parliamentarians through existing legislative initiatives or the development of new ones.  

We at Transparency International Ukraine have repeatedly written about the problematic nature of the management of seized corporate rights with a Russian and Belarusian trace. After all, in order to change the company’s director or take other legally significant actions, one needs to contact the owner of the assets for their consent. Law enforcement officers faced the same problems in the scandalous Morshynska case. Therefore, the way to solve them causes significant reservations. 

For reference

On November 11, 2022, the Shevchenkivskyi District Court of Kyiv transferred 100% of the authorized capital of PJSC Morshin Mineral Water Factory Oskar to the ARMA.  

The criminal proceeding concerns the fact that the owners of JSC Alfa Bank developed a criminal plan for the fictitious withdrawal of assets located on the territory of Ukraine from their property, including structures that were engaged in the production and sale of drinking water and were part of IDS Borjomi International. Investigative bodies believe that this was done to avoid the nationalization of such assets by Ukraine as a result of the full-scale war.