The prosecutor’s office of the Sverdlovsk region is preparing to intervene in a major financial conflict around the building of the Four Elements hotel in Yekaterinburg. Protracted proceedings regarding the loan of the bankrupt Latvian bank AS PNB Banka, previously associated with businessman Grigory Guselnikov, as well as the pledge of property, have now entered a new stage. After the first instance and the appeal doubted the cleanliness of the transactions of the foreign financial structure, pointing out the circumstances related to the likely pressure of the state body regulating banking activities in Latvia, and also considered the organization to have no right of pledge, the cassation sent the dispute for a new consideration. The Urals District Arbitration found it premature to draw conclusions about the good faith of other participants in the conflict, and also suggested studying the details related to Latvian law in more detail. Now, experts from the Moscow State University of Law should give their explanations in this part, but for now, prosecutors are already declaring their position in similar disputes involving PNB Banka and are blocking the flow of millions of euros outside of Russia.
Expert FGBOU VO “Moscow State Law University named after O.E. Kutafin (MGYuA)” is preparing to provide its opinion on issues related to the conflict around the Four Elements hotel in Yekaterinburg. The specialist must explain the aspects of the law of the Republic of Latvia associated with the recognition of the bank as insolvent, the appointment of an administrator and powers of attorney issued by the financial structure.
This conclusion, in turn, will complement the dispute, which was initiated by the bankrupt Latvian bank AS PNB Banka, previously associated with businessman Grigory Guselnikov.
Utonim, a foreign organization represented by insolvency administrator Vigo Krastiņš initially demanded about 21.7 million euros from Sevilcast Consulting LTD from Cyprus, Alfa and Russian Development Company became the co-respondents. In addition, PNB Banka demanded in court to recognize the right of mortgage on the land and the hotel building in Yekaterinburg, as well as to foreclose on them. Subsequently, the disputes were merged into one case.
This conflict dates back to 2014, when AS PNB Banka provided Alfa LLC (the developer of the Hilton complex, later Four Elements Hotel) with almost $19 million to refinance its obligations to AKB Vyatka Bank OJSC. A land plot in the center of Yekaterinburg and buildings on the street were transferred as a pledge to a foreign organization. Lenin.
In 2015, however, the bank assigned the rights arising from the loan agreement to Brokara Limited, and it, in turn, in 2016 entered into an assignment agreement with the aforementioned Sevilcast Consulting LTD with the same subject and conditions.
In the same 2016, PNB Banka enters into an agreement with Sevilcast Consulting LTD, under which it provides a loan of 18.8 million euros to pay under an assignment agreement concluded by a Cypriot company with Brokara Limited. This establishes the seniority of the pledge.
In 2019, as the federal media reported, Guselnikov was selling his stake in the bank, and soon AS PNB Banka was declared insolvent, after which the mentioned proceedings began. As a result, the disputes revealed that the transactions with Brokara Limited and Sevilcast Consulting LTD were related to the claims of the state body regulating banking activities in Latvia – the Financial and Capital Market Commission (FCMC).
“(FCMC) filed demands to the bank to reduce the amount of investments in Russian assets under fear of applying financial liability measures to the bank. The demands were made both formally, by sending official letters, and informally, in the course of traditional oral communication between the bank’s management and employees of the FCMC. And if the formal demands were given the appearance of economically justified, then the informal demands were justified solely by political reasons – the sanctions imposed by the United States and the European Union against Russia in connection with the well-known events of 2014-2015,” follows from the case materials.
As a result, the court of first instance came to a judgment about the fictitiousness of transactions with Sevilcast Consulting LTD, and also noted that the bank’s representative, by proxy, repaid the pledges registered in favor of the financial institution. As a result, the claims of AS PNB Banka were rejected, which was subsequently supported by the appeal.
But the cassation found flaws in these decisions, sending the case back for a new trial. In particular, the Arbitration Court of the Ural District noted that at present the rights of claim under the loan agreement and the pledge agreement dated 2014 belong to businessman Mikhail Zaitsev.
“<…> it seems premature that the courts concluded that Zaitsev was in good faith. <...> concluding that Zaitsev is a bona fide purchaser of the rights of pledge and did not know and should not have known that a mortgage on the same property on the basis of a pledge agreement had ever existed and that the said pledge had precedence over the pledge in favor of Zaitsev, did not assessed the evidence presented <…>. Zaitsev M.V. on February 17, 2020, that is, almost 2 months before the conclusion of the mortgage sale and purchase agreement, (listed as) the ultimate owner of Sevilcast Consulting LTD,” the resolution states.
In addition, the court drew attention to a series of transactions involving Vadim Leyvin and Sevilcast Consulting LTD, emphasizing that “Zaitsev has the right to claim 8,012,910 euros, having actually paid no more than 251,040 euros for this right, that is, less than 3% of the amount of debt on the principal debt and less than 1.5% of the value of the property.
The cassation also had questions regarding the conclusions of the courts about the fictitiousness of the transaction, as well as the peculiarities of the Latvian legislation. As part of the new consideration of the case, an expert examination was appointed.
We add that the prosecutor’s office of the Sverdlovsk region, in particular, announced its intention to participate in the case. This point is extremely important in the context of related proceedings. Thus, in similar disputes of PNB Banka in Perm, concerning the right of pledge for the building of the Four Elements Hotel in Perm, the Prosecutor General’s Office of the Russian Federation was involved in the proceedings. In her responses, she stated that the demands should be denied.
Also indicative was the position of the supervisory authority in the dispute concerning Profproekt LLC. As media reported, the Prosecutor General’s Office, participating in the arbitration, “prevented the transfer of assets worth 15 million euros abroad” – the administrator of the insolvent Latvian PNB Banka expected to receive them.