Kyiv 14 May 2021

On 20 April 2021, the Supreme Court of Ukraine put an end to several years of legal wrangling over defaulted debts of Ukraine Railways (“UZ”). The state-owned company was ordered to pay VR Global Partners, L.P. (“VRGP”) in full.

Following this ruling, and in strict accordance with the law, the State Enforcement Service opened enforcement proceedings against UZ and arrested its bank accounts up to the amounts owed to VRGP.  This should have been the end of the matter.

However, VRGP became aware that the Pechersk District Court issued an injunction dated 9 March 2021 in an unpublished ruling under the case No. 757/10733/21-k, purporting to prohibit the garnishment of funds from accounts of UZ in satisfaction of any claims of VRGP.  The proceedings before the Perchersk court took place without any notice to VRGP.

The basis for the Pechersk District Court proceeding is incomprehensible.  UZ has asserted that the sale of its debts to VRGP was invalid as VRGP is not licensed in Ukraine to engage in factoring.  In reality, the sale process was approved by the NBU, the transaction itself was a sale of loan which is clearly distinct from the legal definition of a factoring transaction and VRGP is anyway under its charter permitted to engage in factoring.  Indeed, a recent decision of the Supreme Court in a separate case fully supports VRGP’s position in this regard.

Commenting on the decision of the Pechersky District Court, Richard Deitz, President of VR Capital Group Ltd. said: “The anomaly of a court of first instance purporting to overrule or render unenforceable a forthcoming judgment of the Supreme Court is a clear and flagrant abuse of judicial authority.  That such an effort to make a mockery of the judicial system in Ukraine could be initiated by its largest state-owned enterprise is yet another display of the failure of corporate governance that has deterred investment in the country. Unfortunately, the fight for the rule of law in Ukraine is yet to be won."

VR Global Partners, L.P. (“VRGP”), is an investment fund managed by VR Advisory Services Ltd (“VRASL”). VRASL is registered as an investment adviser with the U.S. Securities and Exchange Commission and VR Advisory Services (UK) LLP, a sub-investment adviser for VRGP and certain other funds, is authorized by the UK Financial Conduct Authority.  VRGP launched in May 1999 and has been the recipient of over 15 industry awards in New York and London for its performance over the years, including, most recently, EuroHedge’s 2020 award for Long Term Performance (20 Years) among global macro, fixed income and relative value funds.

VR Capital is an international asset management firm serving an institutional investor client base with approximately $5 billion in investor assets under management via pooled fund structures.  VR Capital is one of the largest western investors in Ukraine with a portfolio of holdings in excess of $1 billion.  With a proven track record of over 22 years, VR Capital focuses on investments in emerging and developed markets.  The firm operates via its principal offices in New York and London, and over 98% of its assets under management stem from investor relationships in the United States and Western Europe.

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