Russia’s famously creaky legal system will be put to the test on July 17 with an asset recovery case – and according to A1, the specialist distressed asset firm that is part of Alfa Group, it will pass.
The case smacks of poacher turned gamekeeper: A1 is the M&A arm of Alfa Group (and as Alfa Ekho, was the first company the founders of the group, who include oligarch Mikhail Fridman, set up). Suffice to say, Alfa Group didn’t cover itself in corporate governance glory in the 1990s.
However, in April A1 went into a joint venture with the Irish Bank Resolution Corporation (IBRC), which has been trying, so far unsuccessfully, to recover 12 assets in Eastern Europe (mostly buildings and some companies) that used to belong to the bankrupt developer, Quinn Group.
Sean Quinn, the founder of the group, defaulted on loans worth €2.8bn from the Anglo Irish Bank, which went bust and its assets were taken over by IBRC, which has since been trying to convert them back into cash.
The trouble is that Quinn has not been playing ball. The ownership of most of the assets has been transferred to a number of shell companies and the IBRC has been struggling to make much headway through the Russian legal system. So earlier this year it turned to A1, which is run by one of the three original founders of Alfa Group, Alexei Kuzmichyov.
On July 17, the courts in the regional capital of Kazan will decide in a key case in A1’s campaign in a dispute involving the $60m state-of-the-art logistics park Q-Park, which the Quinn Group built in Kazan, the capital of the Republic of Tatarstan, Russia.
The problem is that the ownership of the park passed from a Quinn Group holding company called Demesne (held via a subsidiary called Logistika), which now belongs to IBRC, to several shell companies that A1 believes are still under the control of Sean Quinn, putting the park out of the reach of creditors.
A1 said in a statement: “It later turned out that on May 11, 2011 the shares of ZAO ‘Logistica’ have been sold to Sean Quinn, Jr.; on June 3, 2011 shares were resold to ZAO ‘Vneshkonsalt’ and in fall of 2011 sold to two Panama companies – Forvar Overseas S.A. and Lockerbie Investments S.A. These acts were allegedly committed in order to eliminate the [IBRC] from the corporate control of ZAO ‘Logistica’ and foreclosure on the assets of ZAO ‘Logistica’.”
Two shell companies – Vneshkonsalt and another creditor to many of the disputed assets, Stroitelnie Tekhnologii – are names that have come up again and again as the owners of almost all of the disputed assets, including Q-Park, according to A1.
A1 says that it doesn’t know who is behind them, but believes they are answering to Sean Quinn. Indeed, both Sean Quinn and his son were arrested last year in Ireland for attempts to receive rental payments for the disputed properties in Russia and Ukraine in violation of the bankruptcy proceedings. “The holdings and properties have been moving in mysterious ways,” says Andrei Polyakovsky, spokesperson for A1. “What we are certain of is that a misappropriation of funds by an unknown group is taking place”.
A1 is trying to prove that Q-Park still owes Demesne $60m from credits for construction and working capital loans, then it can take back control of the park, put its own administrator in and start preparing the company for sale.
All in all, IBRC and A1 are trying to recover 12 assets in Eastern Europe (11 in Russia and the Ukraina shopping mall in Kyiv) collectively worth some $500m. Q-Park is the second most valuable, but the most expensive is the Kutuzov Towers in central Moscow that is worth up to $200m by current estimates. Work on recovering that has already begun, but will take up some time to complete, says Polyakovsky.
And A1 is supremely confident that it will win, because it never loses a fight as a point of principle. This sounds boastful, but it is not an idle boast. Alfa Group was schooled in the ways of business during the chaos of the 1990s and emerged from that time as one of the most powerful conglomerates in the country with a reputation for playing hard and sometimes rough against its rivals. “A1 doesn’t lose in corporate standoffs,” says Polyakovsky. “It’s a principle in the company and part of our strength. Even if we end up losing money on the investment, we will fight within the legal field as long as we have to reach our goal. ”
This was why IBRC came to A1 for help in the first place. A1 contributed $18m to the joint venture as running-about money, plus it is spending about $1m a month on the work, according to Polyakovsky. IBRC contributed all the titles and deeds to all the assets. According to sources familiar with the deal, the proceeds from the recovery and sale of the initial property will be used to compensate A1 costs. After that, the proceeds will be shared with A1 one getting approximately 30% and IBRC getting the larger part.
Under the deal, the investment arm of the Alfa Group, A1, will keep up to $200 million (€155 million) of property formerly owned by the family of Seán Quinn and now held by other Russian interests and offshore firms, in return for helping to recover property.
The move by the IBRC comes as the former billionaire, Seán Quinn (66), is starting a nine-week sentence in Mountjoy Jail for contempt of court. It was approved by Minister for Finance Michael Noonan and is linked to the bank’s view that such a deal is the only option left open to it given the stance being adopted by the Quinn family.
IBRC has been trying for more than a year to seize an international property group worth up to $500 million and over which it says it has legal security linked to loans to the Quinns. The family has told the High Court that it set in train a scheme to put the assets beyond the bank’s reach but that it is now no longer in control of the asset-stripping scheme and cannot retrieve the assets. The bank says it does not believe the family.
Mr Quinn was jailed yesterday for nine weeks by Ms Justice Elizabeth Dunne as punishment for an “outrageous” contempt of court in relation to persisting with the asset-stripping after being ordered last year to desist. She referred to Mr Quinn’s statement in an affidavit that his dispute with IBRC had “negatively consumed” his life and that of his family. “In my view, he has only himself to blame.”
She said Mr Quinn’s contempt was a serious one and that it was important that court orders were complied with and the integrity of the court system was “not set at naught”.
The family is disputing the legality of the security, which, it claims, is linked to loans issued by Anglo as part of an effort to shore up its share price. Its claim has not yet been heard by the courts.
However, members of the family have admitted they initiated a scheme to put the secured assets beyond the reach of the bank.
Mr Quinn will be moved today to the semi-open training unit in Mountjoy, having spent last night in the committal unit. His son, Seán jnr, has already served a three-month sentence for contempt in Mountjoy.
In an extraordinary day in the High Court Mr Quinn was sentenced, but offered the opportunity to have the sentence stayed pending an appeal. The court rose to allow him consult with his legal team, which he did before going to the bar in the Four Courts to drink a pint in the company of supporters.
When he returned to court it was announced that he wanted to start his sentence forthwith. When he knew a decision had been made, he liked to get on with it, he told reporters, before being led away by a uniformed garda.
The former billionaire, who is now a bankrupt, looked tearful after a female supporter gave him a hug as he was exiting the courtroom.
In July IBRC succeeded in having an administrator appointed to a valuable property in Moscow, but last month that gain was reversed by the Russian courts.
The bank has now decided to do a deal with one of the largest privately owned conglomerates in Russia, the Alfa Group, as it believes its chances of recovering valuable property in Russia and the Ukraine are poor without the involvement of an experienced local partner.
Taoiseach Enda Kenny would not comment directly on the sentencing of Mr Quinn, though he said it behoved every citizen to co-operate with bank inquiries. The North’s Deputy First Minister Martin McGuinness said he couldn’t comment on a court the case “other than to say that I think that the banks have an awful lot to answer for”.