On 13 January 2023, the Netherlands Enterprise Chamber at the Amsterdam Court of Appeal (Ondernemingskamer) refused the request of Moscow based SBK Art Limited Liability Company (SBK Art), an indirect affiliate of Russian state bank Sberbank of Russia (Sberbank), to initiate inquiry proceedings (enquêteprocedure) into the business operations of Fortenova.
Background
Fortenova is a Croatian food conglomerate with an annual revenue of more than EUR 5 billion, employing more than 47,000 employees and with its head office being registered in Amsterdam, after being saved from bankruptcy in a restructuring deal which took place in 2018.
Sberbank, through its indirect affiliate SBK Art, holds approximately 42% of the depositary receipts (certificaten) and voting rights in the Dutch foundation (stichting) Fortenova Group STAK Stichting (Foundation). The Foundation in its turn the sole shareholder of Fortenova Group TopCo B.V.
Due to the Russian invasion of Ukraine in February 2022, the European Union included Sberbank and VTB (see further below) on the list of sanctioned entities, as a result of which, among others, they cannot (indirectly) exercise their voting rights on the depository receipts held.
Sberbank indicates to have sold its interest in SBK Art to Mr. Saif Alketbi on 31 October 2022. Mr. Saif Alketbi is currently subject to further KYC research by the Foundation. Furthermore, given Sberbank is a sanctioned entity, approval from the relevant Dutch and Croatian authorities should have been received for the sale and transfer of this interest. At the request of the Republic of Croatia, the EU Council has added SBK Art to the sanctions list on 16 December 2022.
Aside from Sberbank, the Russian VTB Bank holds approximately 7% of the depositary receipts (certificaten) and voting rights in the Foundation through its affiliate VTB Bank (Europe) SE (VTB).
Business challenges Fortenova
Fortenova is currently faced with the challenges of refinancing Fortenova's existing debt and addressing various financial liabilities. With no auditors willing to sign off on the company's financial statements due to the (deemed) influence of Sberbank and VTB, and as ICT-service provider SAP is considering to terminate its cooperation with Fortenova due to the (deemed) influence of these banks, these are some of the most material examples in the manner in which the EU sanctions applicable to Sberbank and VTB impact Fortenova's business.
Changes in governance structure Foundation
In light of the above, a non-sanctioned depository receipts holder, Open Pass Limited (Open Pass), proposed several resolutions concerning amendments to the articles of association and administration conditions of the Foundation. Aim of these amendments is confirming the absence of SBK Art's and VTB's (indirect) influence in Fortenova in the corporate governance structure. Further, these amendments aim to provide clarification and comfort to its business partners and (future) third party finance providers thereon and provide for a more efficient decision making progress within the Foundation.
These resolutions were adopted on 12 January 2023, with 78% voting in favor of the resolutions and 22% against the resolutions. Relevant to note is that when carving out the votes made by Open Pass on these resolutions, only 30% of the votes made were in favor of these proposed changes, and 70% of the votes were made against these changes by the other non-sanctioned depositary receipt holders.
Position SBK Art
At the core of their argumentation, SBK Art states that there are well founded reasons to doubt a proper course of action at Fortenova. Main reason is that the amendment of the articles of association and administration conditions of the Foundation would result in an unacceptable permanent change in the governance of the group. As such, amendments exceed any measures that may be deemed necessary as a precaution against impediments on the decision-making process caused by the (temporary) EU sanctions imposed on Sberbank, VTB and SBK Art. The changes also may adversely affect the position of non-sanctioned holders of a minority interest in the Foundation. For example, Sandglass Capital Advisors LLC confirmed SBK Art's concerns regarding Open Pass' increased influence from its own perspective as holder of a minority interest in the Foundation.
Court decision
The Netherlands Enterprise Court at the Amsterdam Court of Appeal finds the extent to which the influence of Open Pass increases due to the changes in the articles of association and administration conditions of the Foundation to be questionable. As these amendments lead to permanent changes in the corporate governance structure, and, for the duration of applicability of the sanctions, lead to Open Pass having a decisive vote on key decisions, the court follows SBK Art's reasoning. However, despite of these adverse effects to holders of minority interests of these changes, the court acknowledges that these resolutions have been approved based on the "old" governance structure in which SBK Art and VTB were not allowed to participate in meetings and vote on their interest.
The court further notes that in the interest of continuity of Fortenova (and also emphasizing the fact Fortenova employs more than 47,000 employees), it needs to be abundantly clear that sanctioned persons and entities cannot exercise influence over Fortenova. In case the court would rule to initiate inquiry proceedings on the Foundation's acts as shareholder of Fortenova Group TopCo B.V. , this may be perceived as sanctioned entities/persons still having influence over Fortenova. This could seriously threaten the continuation and existence of Fortenova's business according to the court. As such, SBK Art's request is denied.
This decision provides insight into the reasoning of Dutch courts when sanctions are applicable to one or more persons or entities involved in the business concerned, and the decision should be carefully considered by non-sanctioned (minority) interest holders when sanctioned entities or persons are involved in the same business.
Further background on the Fortenova case and legal consequences of the Ukraine war
For more background on this case we also refer to the decision of the court in summary relief proceedings dated 6 September 2022 and the court decision in appeal by the Amsterdam Court of Appeal dated 29 December 2022.
More information on the legal consequences of the Ukraine War can be found on our website, or by contacting your CMS advisor.
Legal consequences of war in the Ukraine & sanctions on Russia (cms.law)
Social Media cookies collect information about you sharing information from our website via social media tools, or analytics to understand your browsing between social media tools or our Social Media campaigns and our own websites. We do this to optimise the mix of channels to provide you with our content. Details concerning the tools in use are in our privacy policy.