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Monday, 08.02.2016, 05:56
Rudolf Meroni’s official letter to Latvian Minister of Justice concerning criminal seizing of control over Ventbunkers
Dear Mr. Gaidis Bērziņš,
The indifference, with which the Latvian state reacts to raiderism and its devastating effects on taxpayers and on the international reputation of the Latvian Republic, is surprising.
On 18 December 2009 an attempt was made to hold an illegal shareholders’ meeting of AS Ventbunkers to have a new Supervisory Board and Management Board registered with the Commercial Register and thus to criminally seize control over AS Ventbunkers.
Despite the protests of the majority shareholders, changes in the composition of the officers of AS Ventbunkers were registered with the Register of Enterprises. Only in 2012 the Register annulled its earlier decisions of 2009, but the majority shareholders litigated for years to achieve it, and the legal battle still continues.
In 2010 similar criminal activities were committed against the two Ventspils port companies AS KALIJA PARKSand AS VENTSPILS COMMERCIAL PORT and, again, it required lengthy litigation to have the Register of Enterprises annul its earlier decisions.
Illegalities have been established by judgments, but even then the police saw no grounds to evaluate what has happened from the perspective of criminal law. It is not a surprise that similar criminal activities have been carried out again against AS Ventbunkers in December 2011, when in secret from the Management Board, Supervisory Board and the majority of the shareholders a new attempt was made to hold a shareholders’ meeting, which was (1) not convoked by anybody, not to mention the sending of the convocation notices to the shareholders and (2) holding the gathering in the absence of the majority of the Shareholders. However, just as at the end of 2009, also in December 2011 the Register of Enterprises registered changes in the composition of the officers of AS Ventbunkers, registering the Ventspils minioligarch Olafs Berkis as the Chairman of the Supervisory Board of AS Ventbunkers.
The registration was made, simply because the submitted documents alleged that a shareholders’ meeting had been convoked by the Management Board (which is not true), convocation notices had also been sent (which is not true) out and the majority shareholders had participated in this meeting which in fact could be called the gathering of Ventspils millionaires or their legal representatives.
The controlling 70% majority of the Shareholders have submitted complaints to the Register of Enterprises, the police, the General Prosecutor’s Office and KNAB, but absolutely no reaction has followed. The Register of Enterprises pleads that it does not verify the factual circumstances. The General Prosecutor sees a civil dispute and has announced that he would not intervene. The police have limited themselves to taking notice of the submitted information. KNAB indicates that corruption suspicions are not enough to take action. It resembles a coordinated action of the governmental institutions not to do anything in order to protect the state's potential interest in AS Ventbunkers as an attached asset, which has been entrusted to me as the custodian under the arrest order of the General Prosecutor's Office.
The situation with raiderism in Latvia shades a doubtful light on Latvia as a legitimate EU Member State in the view of the Western European business world. This critical situation cannot be changed with some minor cosmetic improvements of the applicable legislation. It is not normal that it is enough to submit to the Register of Enterprises documents with the right properties (although false) to have the Register of Enterprises as a blind registration machine register changes, inviting the abused foreign shareholders to raise their objections against the registration in courts and litigation taking years. It is this “registration first, litigation later” approach that feeds raiderism in Latvia, because there is not a single legal protection tool for any fast relief in Latvia.
While foreign investors and shareholders are forced to litigate for years against raiders and the Register of Enterprises, the raiders deal with the property and money of the illegally seized companies, cause costly litigations or end litigations disturbing to them and enjoy the situation that third parties (such as banks or even state organizations and courts) recognize them as the rightful managers of the criminally seized company because of their registration with the Register of Enterprises. The Register of Enterprises does not verify the legality of the convocation nor the legal conducting of a shareholders’ meeting, but an entry in the Commercial Register is of such effect that only persons registered with the Commercial Register as the managers of a company are accepted as such even by Latvian courts.
It is no longer possible to pretend that Latvia follows the principle that an entry in the Commercial Register is only declaratory and not constitutive, because it has proven in
practice that in dealings with business partners and even courts an entry in the Register of Enterprises is constitutive. An entry in the Register is constitutive even in relationships with the Main State Notary of the Register of Enterprises who finds it perfectly normal to invite the criminal raiders registered with the Commercial Register to reflect on the legalities of their own false registration on behalf of the seized company. And, the submissions of the legitimate representative of the company are disregarded by the Register, because they are not any more registered with the Register of Enterprises.
In Latvia foreign investors face frustration even in the most obvious situations. For example, in the case of AS Ventbunkers it has been established that the shareholder Yelverton Investment B.V. has been stricken out from the Register of Shareholders without any decision of the Management Board, without knowledge and consent of Yelverton Investment B.V. and without endorsing its share certificates. The whole Management Board of AS Ventbunkers have confirmed in witness statements that they have not convoked a shareholders’ meeting for 23 December 2011 and that they have also not sent any convocation notices for 23 December 2011, and yet there are minutes of a shareholders’ meeting submitted to the Register of Enterprises where it is alleged that the Management Board had convoked the shareholders’ meeting and that the convocation notices had also been sent out by the Management Board. A recent ruling of the Senate of the Supreme Court has demonstrated that there are no provisional measures available in Latvia for any fast relief against such abuse. In the meantime the raiders registered with the Commercial Register deal with the property and money of AS Ventbunkers, and the sudden return of Einars Repse to political life with the support of Olafs Berkis is no surprise.
However, foreign investors are not the only ones who suffer from raiderism in Latvia. The recent case with AS Ventbunkers is a good example how raiderism can potentially backfire on the Latvian state itself. Moreover, it is ironic that such harm to the Latvian state may arise from the actions of the Register of Enterprises as a governmental institution. It is not about the fact that foreign investors will seek a fair solution against the Latvian state in international litigation due to lack of adequate protection of foreign investment. If the situation does not improve sharply such litigations are inevitable. This time it is more about the potential interests of the Latvian state that follow from the criminal process in the case against the Mayor of Ventspils Aivars Lembergs and others that is being adjudicated in the Riga Regional Court. The undersigned has been appointed the custodian of the arrested assets in this criminal process, and it is my duty to care for the preservation of their value. The arrested assets involve the ultimate beneficial ownership rights and a number of shares that establish a beneficial interest worth millions in the companies like AS Ventbunkers, AS Latvijas Naftas Tranzits, AS KALIJA PARKS, AS VENTSPILS COMMERCIAL PORT. In respect of AS Ventbunkers the arrested assets relate to the controlling stake, which allows to control the commercial activity of this company and hence is particularly valuable. In case of a possible conviction it may turn out that the arrested assets are transferred to the Latvian state, thus establishing a beneficial interest in the value of millions for the Latvian state in a number of companies based in Ventspils. In the person of the General Prosecutor’s Office the Latvian state has demonstrated serious expectations of a conviction, causing the arrest over the assets of Aivars Lembergs and others.
The most recent criminal seizing of control of AS Ventbunkers at the end of 2011 means that the arrested assets have been illegally pushed out from the controlling stake of AS Ventbunkers. The assets have been put out of business. It has been established already before that at the cost of the shareholders so pushed out the raiders wish to restructure the commercial operations of AS Ventbunkers in such a way that only they benefit from it. Neither taxpaying, nor caring for the value of the arrested assets is their priority. Creaming off profits offshore and no taxpaying is their priority.
The only thing that the Latvian state and its institutions facilitate with their passive attitude in this raiderism matter is the decrease of the value of the arrested assets. It should not leave the Latvian state indifferent because the outcome of the criminal process will be either complaints of the accused for the wrongful arrest of the assets and their value decrease during the arrest or a transfer of the arrested assets to the Latvian state with a much lower value than it could have been. Not far away is the moment when a credible explanation for the present situation will become the prognosis expressed in the media that with the settlement reached between Aivars Lembergs and Olafs Berkis the criminal process against Aivars Lembergs will fail, making the prosecution a scapegoat.
The current situation, when the Latvian and English-speaking media have voiced founded suspicions of the involved officials’ corrupt or politically motivated unwillingness to intervene, is hardly helpful to serve the purpose of attracting foreign investment, which was highlighted during the Prime Minister's recent visit to Qatar and the United Arab Emirates. Similarly, the study on business environment of the Baltic States called The Pulse of Economy 2012, which was recently conducted by KPMG, has confirmed that Latvia is the most unattractive place for investment among the Baltic States.
Therefore, I invite you, Mr. Minister, to take action and oust the flourishing raiderism in Latvia once and for all.
There are a number of reasonable mechanisms operating abroad that the Latvian state could consider taking over. For example, following the practice in the Netherlands it could also be provided in Latvia that paper form name shares in a company could be transferred only in a notarial deed, thus ensuring that the notary establishes the free will of the previous shareholder to end his participation in the company. Following the practice in Switzerland, Latvia could also abandon the existing 24-hour fast registration proceedings in the Commercial Register providing for a grace period instead, during which no changes are registered, and in case objections to registration are received the dispute is heard by court in accelerated proceedings, in a matter of a few months, and the court is also given competence to order suitable provisional measures. Then better nobody is registered with the Commercial Register as an officer of a company pending litigation than the current situation, which simply stimulates raiderism.
Dr. Rudolf Meroni