The Russian privatization program of government enterprises that took place under the politician Anatoliy Chubajse, was completed in the mid 1990?s. . Within the past four years, the new law has enabled many ?custom made bankruptcies?.A very good example could be the Tyumen Petroleum Company, who has made the practice into something of an art form.
The Russian privatization program of government enterprises that took place under the politician Anatoliy Chubajse, was completed in the mid 1990?s. However, problems were created by the program, firstly the process did not reach all enterprises, and secondly, the process probably failed to go far enough. The present period, following this privatization process, naturally sees a great deal of industry consolidation within the concerned ex-state sectors. In 1998, following the privatization process, a new law came to pass regarding companies valid for bankruptcy, this law is still valid to this day, although it has proved to be a very controversial law. Within the past four years, the new law has enabled many ?custom made bankruptcies?. The method involves firms entering cheaply and quickly into the management of the firm via taking a minority stake in the firm. Once bankrupted of course, the organization can be bought by the predator at a considerable discount to the real value of the ?troubled? entity. There are many large Russian organisations that take part in the practice. A very good example could be the Tyumen Petroleum Company, who has made the practice into something of an art form.
,A predatory firm is able to approach any joint stock company that is ?(to a degree) put under pressure by its outgoings and only repaying debts within an average payment period.? The aggressor can then, through its stake in the troubled firm, agree with any of interested third parties such as creditors, judges or law enforcement bodies, in saying that the ?troubled? firm is insolvent. From this period onward it is possible to bring forward the process of bankruptcy, with the aggressor taking control of the administration of the enterprise, and the inspector taking control of the plant and machinery. Management can then delete all unnecessary debts sought by creditors.
Tyumen(TNK) began the ?take over? of the oil extracting group Kondpetroleum in September of 1998. Despite clear infringements within the legislation that was submitted to the court, on the 7th of December 1998, Kondpetroleum was found to be bankrupt. The following year, in October, the manager of the ?bankrupt? group, held an auction for the sale of the company. Despite the infringements of the law (that being that the deposit was not purchased), the winner of the auction was announced as one ?TNK-Njagan?. However it turns out that the winner of the auction did not pay the 1 billion 312 million roubles that the auction apparently raised. On the 22nd of October, the day after the successful auction, the account of TNK-Njagan Ostensibly paid the difference between the deposit and the auction price that Kondpetroleum raised, a sum of $26 million dollars. It turns out that TNK however, received the assets of Kondpetroleum for free of charge.
The bankruptcy of the CHernogorneft group passed following similar proceedings, and not with dissimilar law infringements. The external manager of the bankrupt CHernogornneft appointed L. Roketsky as the new head of the group. Mr. Roketsky was simultaneously the Chairman of the Board of Directors at TNK. The auction for the sale of the ?bankrupt? CHernogorneft, went ahead on the 26th of November 1999, where quite as expected " TNK-Nizhnevartovsk " won the auction, with a bid of only $178.8 million, compared to the real total value of approximately $400 million. The starting price was $200 million. No entities that were independent from TNK were admitted to the auction.
TNK since decided to start operating in the gas sector, and had its eye on Rospan, one of the largest gas enterprises in the whole of Russia. However, in this case TNK has decided to spend money and has bought a large part of the company?s debt. Thus the former major shareholder, ?Itera? has been forced into a ?peaceful agreement? with TNK. So at this point, TNK was in a joint management agreement at the enterprise. However JUKOS decided to bypass the Tyumen Petroleum Company, and bought out the Itera stakes (shares and debt) in the firm. Thus the situation at Rospan is likely to rumble on?
TNK continues along on its crusade of crushing perfectly respectable firms. The next target for the organization is the oldest road trust in the Khanty Mansiysk Autonomous Region "Nizhnevartovskneftedorstrojremont" (NNDSR). NNDSR controls 2232 kilometers of motorways and the enterprise is complemented with a team of professional experts. The structure of the road trust includes several different divisions, the largest of which is the road construction and repair section (Nizhnevartovsk and Samotlorskoe DRSU). In May of 2001 the organization emerged with a positive balance sheet, but with some debts in the budget and social funds (similar to many firms). External management entered the firm with the objective of financial improvement. TNK offered Mr. Davtjan as an external manager for the group, and he is ?torn? between improvement of NNDSR and bankruptcy. Methods of improvement for the firm are quite standard and include the sale of property and the mass reduction of the number of specialists that the firm employs. TNK, is through its branch "Samotlorneftegaz ", one of the largest creditors to NNDSR, and it is thought that in such a position it will be easy for the oil group to force the road trust into bankruptcy, and thus gain full control of the enterprise. The interest of diligent creditors, whose only real concern is there own means, will suffer.
,So for how long will this procedure be allowed to continue? This is a question that has long tormented proprietors and lawyers, as well as those of us who are not indifferent to the future prosperity of Russia. However, the political environment within business changes gradually. The legislative base, and legal mechanisms of local authorities are improved over time. New rules on the bankruptcy laws have recently been passed to the Duma (Parliament) for consideration. Despite the fact that these new rules are still likely to be inadequate, we can still expect that the main outcomes of the document will be a termination to the ?business of bankruptcies?, new laws to protect the interests of the proprietor / state, and to try to maintain the growth in the capitalization of the economy. The law enforcement bodies of the state will have to study very carefully the underlying mechanisms that allow custom made bankruptcies to exist.
,The market dictates the conditions, but gradually the reputation of a firm starts to play the determining role. Especially for larger businesses the reputation become far more important than the administrative. In order for a firm to be able to access the financial markets to gain capital, it is vital that along with the necessary financial transparency, the firm has to have a faultless reputation to attract the attention of many investors or partners.
It is probable that in the future all Russian firms will be able to accept new ethical standards, including the ability to be able to voluntarily refuse the unfriendly absorption following bankruptcy. Negative news of a firm generally leads to fall in its market capitalization, and a black mark is normally left against its name. It is time that companies who practice such aggressive expansion tactics learn to clean up their act and reflect upon their actions, as in the process they will strengthen their image a great deal?