Agriculture, Baltic States – CIS, Funds, Latvia, Legislation, Markets and Companies, Ukraine

Step 1: Find someone who is ready to invest in a business with you, but keep a minimal majority of shareholding the holding company (at least 50%+1 vote). In exchange, offer something in return, e.g. a shareholders’ agreement allowing the minority shareholder to nominate the CEO of the holding company.

Step 2: Create a structure of the business so that the most valuable assets of the holding company would be distributed between the subsidiaries of the holding company and the business would generally be carried out by these subsidiaries. According to the terms and conditions of the shareholders’ agreement, the CEO’s of each of the subsidiaries should be persons chosen by you, of course.

Step 3: Agree with the minority shareholder that instead of credit institutions, the group should be financed by shareholder loans issued by you as the majority shareholder, which sounds good for the minority shareholder, of course. Considering the fact that the business is carried out by the subsidiaries, the loans should be issued directly to the subsidiaries and secured by the assets of these subsidiaries.

Step 4: The CEOs chosen by you in each of the subsidiaries should sell the products to the entities indirectly related to you for a price as low as possible with maximally extended payments terms so that the group companies would be forced to take more and more of the shareholder loans in order to be able to carry out it’s daily business activities.

Step 5: Once you have reached a certain amount of the issued loans, you should request repayment of these loans. Considering the fact that the products are not being sold according to fair market terms, the group should not be able to settle its debt, thus you should turn to the court requesting for the collection of the debt. Thankfully, the assets of the group will be seized in your favour and thus you will be able to take them over without the involvement of your business partners in the holding company.

Step 6: Combine the above steps with regular infringements of the group employees human rights, as well as breaches of shareholders’ agreement and other corporate governance principles agreed between the shareholders in order to be considered a genuine corporate raider.

To get the story right, here’s the background of the case - Golden Sunrise (AGRO) is one of the major agricultural holding businesses in Ukraine. Golden Sunrise (AGRO) has several subsidiaries, which forms the group of Golden Sunrise (AGRO). The major shareholder of Golden Sunrise (AGRO) is Unagro Finance Limited, a company registered in Cyprus, which is indirectly owned by the US based private equity fund NCH Capital Inc. Ukraine is one of the principal markets for the investments in agricultural businesses by the NCH Capital, nevertheless, the activities carried out by the fund in Ukraine seem to be rather ambiguous.

Irrespective of the ambitious and far-reaching plans of NCH Capital in Ukraine, the business approach of the representatives of NCH Capital in Ukraine is described not only as unethical but possibly even unlawful.

Not even mentioning the treatment of the employees of the group companies, trading practices which are used for the personal gain of the funds representatives in Ukraine and clear breaches of the corporate governance principles agreed by the shareholders of Golden Sunrise (AGRO), the representatives of the majority shareholder of Golden Sunrise (AGRO) are actively trying to push-out the minority shareholders of the business in Ukraine.

The following example is rather good to explain the situation – the direct shareholder of Unagro Finance Limited is Agroprosperis 1 Limited  (another company under the “umbrella” of NCH Capital in Ukraine). Agroprosperis 1 Limited is a company which actively provides indirect shareholder loans to Golden Sunrise (AGRO) subsidiaries in order to finance the day-to-day business activities of the group as requested by the terms and conditions of the signed shareholders’ agreement. The problem here is that although these loans have clearly been issued as shareholder loans, Agroprosperis 1 Limited is engaging in active lawsuits against the group companies of Golden Sunrise (AGRO) in order to acquire the assets held by the subsidiaries of Golden Sunrise (AGRO) directly, thus pushing out the other investors of Golden Sunrise (AGRO) which started the business together with NCH Capital. Moreover, although, the group of Golden Sunrise (AGRO) has enough liquid assets (agricultural products) to settle the debt towards Agroprosperis 1 Limited, NCH Capital has created internal procedures which does not allow the group companies to sell these agricultural products on fair market conditions. This should be supplemented with the fact that although according to the shareholders’ agreement concluded by the shareholders, the CEO of Golden Sunrise (AGRO) is nominated by the minority shareholder, the representatives of the majority shareholders are ignoring the functions of the CEO in the day-to-day activities.

This example should be seen as a reminder of the problems Ukrainian legal system is facing with regard to the corporate governance which can be used not only by local businessmen which take advantage of the loopholes in the legal framework for the companies in Ukraine, but also large foreign equity funds which should adhere to even higher standards considering the interests of their own investors and their public image.