In the past, raiders were called sea pirates. Today, the word “raider” has a new meaning, referring to people who specialize in hostile takeovers of businesses. As a rule, after a takeover the raider resells the company, reaping profits of up to 1,000 percent. Lately, hostile takeovers have become so widespread that during an extraordinary conference of the Ukrainian Union of Industrialists and Entrepreneurs, convened this summer in Kyiv, the participants asked the government and parliament to pass bills designed to lessen the risk of hostile takeovers. Andrii OSYPOV, head of the Committee to Counteract Corruption and Organized Crime, says that the absence of laws is an obstacle in the struggle against hostile takeovers. Like an octopus, raiding is gradually spreading its tentacles throughout Ukraine’s economy, medicine, art, and culture. Below is The Day’s interview with this anti-corruption official
Mr. Osypov, in recent days the media have been writing a lot about hostile takeovers. There is no such crime defined by the Criminal Code of Ukraine, so what is all this about?
“We have studied this subject and arrived at the conclusion that hostile takeovers are acts that run contrary to the existing legislation. Some people also regard the situation in which stocks are resold as another kind of raiding, but here I disagree with them. No one forbids the sales of stocks. Whether someone likes it or not, the owner of securities is authorized to dispose of them the way he chooses and to sell them to the highest bidder. I would describe this as an unfriendly business takeover, but there is nothing illegal about such a transaction. We know what raiders are all about in Ukraine: hostile takeovers. They go about their dirty business by forging minutes of stockholders’ or “work collectives’” meetings, even by stealing such documents. Afterwards, corrupt judges on their payroll use such fake documents as evidence and pass rulings that are quickly executed with the aid of corrupt officers of the court. As a rule, law enforcement officials become involved in these proceedings; they help seize the premises and, above all, the safe with the legal papers. In other words, there is a whole network designed to bribe government officials; it is actually an organized crime unit in which everyone is assigned a clearly defined role. It has reached the point that raiders are included among the lists of services provided by certain law firms, so that if you want to take over a certain business, you just pay and you will get it.”
But a business can hardly be seized without support from high-ranking officials?
“That’s right. Hostile takeovers are based on collusion with local authorities, above all on the absence of an adequate legal framework that could, for example, punish judges for passing unlawful rulings. We are now witnessing numerous cases where court rulings are made on the basis of forged documents, and they get away with it. In the time the owner of a business spends years trying to obtain justice, there will be nothing left of his business except the statute, because all of his assets will have been sold. One example is the Darnytsia Pharmaceutical Company. In this case, the corrupt court ruling ordered the confiscation from the registration clerk of some of the most important documents pertaining to the system of registering the owners of bearer securities and their transference to another registration clerk. As a result, the managers of this company have been knocking on the doors of countless law enforcement and government offices, seeking justice and finding none.”
“A similar situation developed at Zhytomyrkhlib, which was the target of a hostile takeover. This case has been in the courts for the last year and a half. There are a lot of discussions around the Chornomorsky Shipyard. After it was seized in a hostile takeover, the new management ordered the construction of a metal fence to protect the premises and hired armed security guards. Experts believe all this was done to prevent officers of the court from serving papers ordering the reinstatement of the former management. All told, more than 3,000 Ukrainian businesses have fallen prey to hostile takeovers in the past couple of years.”
What is the situation in Kyiv? Under Mayor Leonid Chernovetsky, raiding has even reared its head in government institutions, medicine, culture, even the media.
“In Kyiv, land is the tastiest morsel. Here raiders are not after businesses but the land on which businesses are located. There is a big hunt for real estate here because if it’s a government institution, its management is quickly replaced under the guise of introducing “fresh blood,” and then the whole institution is moved somewhere away from downtown. Some businesses’ leases are not renewed, as in the case of the artists on Andriivsky uzviz, where their premises are taken over by companies that eventually buy out the premises for token sums. The same scheme is at work here: corrupt judges and law enforcerment officers. No one gives a damn about the destruction of cultural values - for example, a trade-and-entertainment center appearing in place of artists’ studios or art galleries on Andriivsky uzviz.”
The Association of Ukrainian Pharmaceutical Producers recently issued a statement about hostile takeovers. Are raiders zeroing in on businesses or land?
“I think that raiding only applies to the Darnytsia Pharmaceutical Company. As for other the firms, I think that corporate conflicts are the problem there: pharmacists are buying stocks from each other. This is lawful and has nothing to do with raiding.”
How can businessmen protect their rights when they are faced with the threat of a hostile takeover?
“There is no concept of raiding in Ukrainian legislation, just as there are no lists of actions that characterize it. Our legal base is formulated in such a way that judges that hand down unlawful rulings are held responsible only when they are found to have done so deliberately. In other words, deliberate intent can be established only when a judge admits to having acted this way.”
“Today, unfortunately, there is only one way to protect a business against a hostile takeover: force, similar to the methods used by raiders. This method is being used by certain businessmen.”
The situation may soon get so out of hand that people will be evicted from their apartments on the basis of forged court rulings. Someone takes a fancy to someone else’s apartment and has the owner evicted, and then the owner will have to spend years trying to prove it was his.
“That’s a definite possibility, especially when a person owes utility bills. Here is a recent example. A dormitory located at 14 Studentska Street in Kyiv was sold, with its tenants still living in the building. It is now private property and its owner is initiating eviction proceedings. Here, again, the court ruling was instrumental. So, I believe that first and foremost we must change the judicial system. We must also introduce legislative levers that envisage responsibility for hostile takeovers. We can only hope that our parliament will finally see this problem in society and outline ways of solving it.”
