UMMC to file for bankruptcy of Petropavlovsk's Russian subsidiaries
MOSCOW. July 15 (Interfax) - UMMC Invest, an affiliate of Ural Mining and Metallurgical Company (UMMC), intends to file a court petition for the bankruptcy of the key Russian subsidiaries of gold miner Petropavlovsk : the Pokrovsky, Malomir and Albyn mines and the firm Temi, notices on the Fedresurs website said.
UMMC Invest is the largest creditor of Petropavlovsk's parent company, and the loans are secured by cross guarantees, including with the participation of Petropavlovsk production assets in Russia, the miner told Interfax.
Until recently Petropavlovsk's largest creditor and gold buyer was Gazprombank . The imposition of UK sanctions on the bank made it difficult for the company to sell its gold and service its debt, and Petropavlovsk began to miss interest payments. In April, Gazprombank demanded the early repayment of $201 million with interest on a loan to the parent company and $87.1 million on credit lines to subsidiaries. Soon after this, the bank transferred the claim rights against the parent company to UMMC Invest and those against the subsidiaries to a firm called Nordik, but this did not free Petropavlovsk from having to pay off the debt early.
Unable to pay UMMC Invest, Petropavlovsk filed a court petition for the appointment of external administrators, essentially launching insolvency proceedings under British law.
"The grounds for the bankruptcy of the subsidiaries are probably their guarantees on the loan to the parent company," Savina Legal managing partner Olga Savina said.
"The subsidiaries' bankruptcy in Russian jurisdiction has advantages over the bankruptcy of the parent company in the UK, since it requires far less time and money. Furthermore, the assets of the subsidiaries will be sold in the bankruptcy and UMMC Invest, which will probably be the main creditor, will be able to claim the proceeds. Also, in the bankruptcy of the subsidiaries the parent company could face subsidiary liability. Accordingly, everything that is not repaid in the bankruptcy of the subsidiaries will be claimed in the bankruptcy of the parent company," Savina said.
"The subsidiaries are probably the guarantors for the borrower, the parent company. A distinctive feature of the claims from the loan contract is that these claims, as a rule, are confirmed by standard means of proof. Therefore, the process of verifying their legitimacy is not very complicated and in that case lenders have the right to initiate the process of the debtor's insolvency under the loan contract without filing a court order on the collection of the debt in adversary proceedings that has gone into force to the court considering the bankruptcy case. This also applies to legal successors who acquired such claims from the lender," the head of law firm Olevinsky, Buyukyan & Partners, Eduard Olevinsky said.
"We believe that the creditor, taking into account the fact that the rulings of foreign courts are not binding in Russia due to amendments made to the Russian Constitution in 2020, is counting on a victory in Russian arbitration, which will enable them to carry out the proceedings of the debtor's bankruptcy in Russia, enter the registry of creditors' claims and receive the funds they are due," the head of AVG Legal, Alexei Gavrishev said.
Legal practice for the bankruptcy of foreign companies in Russia has begun to be established, S&K Vertical project director Alina Khammatova said, citing the example of the bankruptcy case of Nevis-based Pandora Consulting LC in the Chelyabinsk Region Arbitration Court.
Amid the difficulties servicing its debt and selling gold, Petropavlovsk engaged consultants to study options for getting the company out of its predicament, including the possible sale of its stakes in production divisions. National daily Kommersant reported that UMMC and Petropavlovsk's largest shareholder, Konstantin Strukov, are interested in acquiring these assets.
Petropavlovsk, which mines gold deposits in Amur Region, is one of Russia's top five gold producers. Strukov remains the company's largest shareholder with about 29%.