Case Study: Yukos Oil Company in Two US Bankruptcy Cases

Evidence before the Bankruptcy Court in Houston showed that the Russian Government had assessed a baseless $7 billion tax claim against Yukos and scheduled a tax foreclosure sale of its primary oil and gas assets in Siberia that were worth much more than $7 billion. The only meaningful bidder was to be Russian government-owned Gasprom, financed by a group of major Western banks.

Zack Clement represented Yukos in two US bankruptcy cases seeking to protect its assets from this uncompensated taking, and to continue as a going concern. Events occurring in those US cases were later cited as the primary basis for a more than $50 billion arbitral award against the Russian government for its inappropriate taking of Yukos’ assets.

Yukos US Chapter 11 Case in Houston

Yukos’ Houston Chapter 11 case stayed the financing for the sale to Gasprom, but the Russian government proceeded with a sale anyway to a company created overnight, headquartered in a shopping center and financed by the Russian treasury. A major Russian government-owned oil company then promptly acquired this shell company.

The Houston bankruptcy judge ultimately dismissed Yukos’ Chapter 11 case saying that (i) the Russian government would not cooperate with reorganizing Yukos as a going concern, and (ii) Yukos had other ways to pursue compensation for what was taken from it.

Yukos US Chapter 15 Case in New York

The Russian government promised Yukos’ Western banks greater payment if they would force Yukos into an involuntary bankruptcy in Russia. The Trustee from that Russian bankruptcy then came to New York to start a US Chapter 15 bankruptcy case seeking to control over $2 billion of assets outside of Russia, over which Russian bankruptcy law could not assert jurisdiction but US bankruptcy law could. The Russian Trustee obtained a preliminary injunction of a billion dollar sale of Yukos’ refinery in Lithuania.

Yukos’ officers were able to persuade the New York Chapter 15 judge to require as a condition for continuation of this preliminary injunction that the Trustee permit them to present a plan of reorganization at the meeting of creditors in the Russian bankruptcy case.

They presented a plan that would preserve Yukos as a going concern, pay the contested Russian tax claim in full by sale of ancillary assets, and still leave over $10 billion of value for Yukos’ shareholders.

Upon hearing this proposal, the Trustee adjourned the meeting of creditors, then came back after a week and ordered a liquidation of Yukos anyway.

At the subsequent final injunction hearing, the US bankruptcy court permitted the injunction to expire and the sale of the refinery closed.

Yukos Shareholder Arbitral Award and ECHR Judgment

Yukos’ shareholders later obtained an arbitral award for over $50 billion for expropriation of their assets and destruction of their going concern. Their lawyers described that the primary bases for this award were that the Russian government (i) had taken Yukos’ major asset in an inappropriate foreclosure sale and (ii) had liquidated Yukos when a reorganization plan was available that would have paid its debts and preserved it as a going concern.

In addition, Yukos obtained a judgment from the European Court of Human Rights for recompense from Russia for what it took improperly from Yukos.

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