Yukos brings in Freshfields as the plot thickens in Moscow
21 June 2004
Freshfields Bruckhaus Deringer has become the latest firm to score instructions from embattled Russian oil giant Yukos. But if you think the firm is gloating about its newest Russian client, think again.
Lawyers in the Russian market have remained remarkably tight-lipped about the Yukos saga, and questions about the beleaguered oil company are invariably met with a stern but apologetic “sorry, no comment”.
So, although Freshfields’ Moscow office has refused to confirm the instruction, it is understood that the firm has joined the raft of international and Russian law firms advising Yukos on what might yet be the largest bankruptcy Russia has ever seen.
Freshfields joins a battalion of law firms already involved in the many civil and criminal actions facing Yukos and its former executives, including the Russian firms advising on the company’s bitter tax dispute with the Russian authorities. Specialist tax litigation firm Pepeliaev Goltsblat & Partners is representing Yukos in court hearings and arbitration cases against the Russian tax authorities, as is Padva & Partners, another of Russia’s tax boutiques.
Of the international firms, LeBoeuf Lamb Greene & MacRae, the firm that advised Yukos on last year’s $14bn (£7.67bn) share exchange with Sibneft, continues to advise the company on certain issues.
Sibneft’s advisers, Skadden Arps Slate Meagher & Flom, also look set to benefit from the saga.
Meanwhile, Squire Sanders & Dempsey, whose partner Sarah Carey sits on the Yukos board, has been instructed to advise the Yukos board of directors. White & Case, Yukos’s traditional adviser, is also understood to be working for the company.
The plot thickened further in February this year, when Yukos announced that it had retained Cleary Gottlieb Steen & Hamilton as a legal consultant, although it is understood that the firm is yet to receive formal instructions.
Last month, Nicholas Keeling, a partner at Denton Wilde Sapte, and Tim Osborne, a partner at Cheltenham-based Wiggin Osborne Fullerlove, were appointed to the board of Menatep, the group of core shareholders behind Yukos.
It could really only happen in Russia, but Yukos, the country’s largest oil producer and the sixth largest oil company in the world, might be facing bankruptcy after months of attacks from the Russian government.
With a market value of around $20bn (£11bn), Yukos employs more than 100,000 people and was regarded as one of Russia’s brightest post-communist success stories. After the 1998 crisis, under its chief executive officer (CEO) Mikhail Khodorkovsky, the company adopted Western-style transparency, corporate governance standards and corporate charity, becoming a darling of the West. But with various liquid assets frozen and the company’s oil revenues insufficient to meet the government’s demands, the company warned last month that it could face bankruptcy by the end of this year if the Russian tax ministry continues to pursue its £1.9bn tax claim against the company.
Last week, the oil giant had a reprieve when the Swiss Federal Court upheld an appeal by Khodorkovsky’s lawyers, and ordered the Swiss authorities to free a further $1.7bn (£931m) of assets. The released assets make up the bulk of the $5bn (£2.74bn) of assets that were frozen at the request of the Russian authorities this year.
Last Wednesday, the trials of Khordorkovsky and fellow ex-Yukos executive Platon Lebedev began in the Meshchansky Court in Moscow. Both are accused of fraud and tax evasion and, if convicted, Khodorkovsky faces 10 years in a labour camp. In an astonishing display of public humiliation, Khodorkovsky was paraded before the judges handcuffed.
Robert Amsterdam, the Canadian human rights expert representing the pair, has detailed a campaign of intimidation and harassment by the Russian authorities against defence lawyers working on the case.
One Russian lawyer advising Khodorkovsky is understood to have been threatened with disbarment, while Lebedev’s lawyer Anton Drel has had his office ransacked, allegedly by Kremlin agents. Being a foreign national, Amsterdam is not allowed to represent his client in Russian courts or visit him in prison.
Earlier this month, a judge was dramatically removed from hearing the tax case against Yukos on the grounds that she was biased towards the oil company.
If Yukos is forced into bankruptcy, the result may be a bonanza for law firms. One partner said: “Obviously, if you break it up, somebody has to pick up the pieces.” Already the vultures are circling.
Roman Abramovich is reportedly keen to extract himself from Sibneft. Earlier this year, French oil giant Total was said to have received a nod from the Kremlin to acquire Abramovich’s stake in the company if it extracts itself from Yukos. Gazprom, the Russian gas company that instructs Cleary Gottlieb and most recently Linklaters, has also expressed interest in Yukos and a host of US oil companies are also said to be homing in.
The saga has exposed the fragility of Russia’s rule of law. According to Amsterdam: “The political has effective control over the courts in Russia, violating the independence of the judiciary.”
Few commercial lawyers would disagree with him. One partner from an international firm said: “Everybody in Russia understands that this is way out of the norm.”
“It’s quite striking and unusual and most people in the Russian market think it’s politically motivated,” said another.
Lawyers in the Russian market agree that the country is more stable than ever. But in the absence of any tradition of the rule of law, and battling against the almost inescapable perception that President Vladimir Putin’s crusade against Yukos is politically motivated, Russia’s stability is fragile indeed.
Talking about the potential for Yukos to sink into bankruptcy, one foreign lawyer said: “We’re all hoping it doesn’t happen. There’s nothing inherently wrong with this company. It would be a terrible shame for Russia if its largest private company was pushed to bankruptcy by the government.”
One bankruptcy specialist concluded: “It does shake our faith in the Russian system. It seems that if there’s a political will, notwithstanding the facts, that decision will prevail. And if at such a high level a decision has been made, it will be enforced.”