The games being played with stockholders’ registers have not only become part of the Nikopol Ferroalloy Works scandal, but also a key component of the conflict that has erupted around regional electricity distributors, which may prove equally tense. Lviv’s electricity distributor stockholders’ meeting did not take place on Oct. 5 as scheduled. During the previous week fruitless attempts were made to convene the stockholders of Ternopiloblenerho and Sumyoblenerho. The reason is the same everywhere: foreign minority shareholders are not being registered. The main problem remains the artificial discussion of the registrar’s legitimacy. Why is this happening?
To answer this question, a little digression into latter-day history is in order. Until 2002 electricity distributor registers were maintained by the Unified Fund Registrar (OFR). Then a court ruling nullified it, and the task was taken over by Inter Service Register (ISR), a well-known company with an unblemished reputation, which has operated as an independent registrar since 1996. In March 2005 ISR was the winner of a competition held by the State Property Fund to select the best registrar authorized to service enterprises with a 50-percent government interest in the statutory fund.
However, the struggle for control over regional electricity distributors led to problems in the ISR. On May 19, the Securities and Funds Market State Commission accused the registrar of losing the registers of several electricity distributors. However, the public corporations Prykarpattiaoblenerho, Poltavaoblenerho, Lvivoblenerho, and Chernihivoblenerho stated in an official letter that their registers were not lost and that relations between stockholders and registrar are in order. Meanwhile, a search is underway at the Kyiv branch of a company to locate registers held in the Dnipropetrovsk office, and so on. Problems with the registers emerged after one of the “funds officials” unilaterally (not collegially) approved a decision concerning the loss of energy companies’ registers by ISR’s Kyiv branch, whereas the registers were at the Dnipropetrovsk and head offices. Company lawyers believe that such actions on the part of the commissioners should be properly assessed by the head of the commission and law enforcement agencies.
The registrar suffered another misfortune in early September, when the Pechersk District Court of Kyiv, ruling in favor of a private individual concerning the invalidation of a securities market operator’s license, declared the ISR “professionally inadequate.” On the strength of this ruling the Securities and Funds Market State Commission annulled ISR’s license, with the result that the company can no longer maintain registers of securities owners. But this did not prevent state officials at subsequent shareholders’ meetings from registering with ISR. The state thus confirmed the legality of this registrar.
In general, ISR’s legitimacy is recognized by a number of court rulings, including one issued by Kyiv’s Economic Appellate Court, and it is not disputed, since it was indirectly confirmed in the course of all five meetings that never took place. The state was registered during all those meetings, using the register supplied by ISR. We now have a curious situation. While the Securities and Funds Market Commission revokes a registrar’s license challenged in court by a private individual, the state registers by using this company’s register.
So what are ISR’s problems? The answer to this question contains two subtexts. In the strategic sense, problems are arising from the desire of individual business groups to regain control over regional electricity distributors. In the tactical sense, the problems are linked to these groups’ desire to replace IRS with their beloved Unified Funds Registrar.
In essence, all the fuss around the register and the replacement of registrars sounds like an attempt to steal “the key from the apartment where the money is hidden” (in this situation the registers are the money). In other words, a struggle is being waged to document the right of ownership of shares in regional electricity distribution companies. It is perfectly clear why those who tried but failed to gain control by force in February have now switched to “positional warfare” on the registration front.
Of course, foreign monitors could not have been happy with this situation, and they decided to keep clear of the fight. Perhaps some “well-wishers” advised them simply to ignore the stockholders’ meeting in order to avoid problems with influential people. There is nothing good about this situation. The fact that the foreign minority stockholders refused to register at the meetings is damaging to Ukraine’s international image. After the series of high- profile corruption scandals here, foreign business circles already think that legal procedures are completely absent in our country. It is entirely understandable why no investments in the Ukrainian economy are forthcoming: on the contrary, they are leaving. This is the subject of two open letters by foreign minority shareholders in regional electricity distributors, which were sent to the Ukrainian political leadership.
The management of the regional electricity distribution companies mentioned above also sent an open letter to the head of the Securities and Funds Market State Commission on the need to introduce order and halt the development of corruption schemes.
