12 February 2014
Arbitrazh Court of Moscow orders Maximov to return RUB 7.3 billion to NLMK Group
On 7 February 2014, the Arbitrazh Court of Moscow decided to recover from Nikolai Maximov over RUB 7.3 billion in favor of NLMK, declaring invalid the Agreement of 2007, under which NLMK bought a controlling share (50%+1) in Maxi-Group, as concluded under the influence of fraud on the part of Mr. Maximov.
Moreover, an appraisal was conducted as part of the proceedings, revealing that the cost of the controlling shares in Maxi-Group at the moment of purchase was 2 times lower than the advance payment made by NLMK in favor of Mr. Maximov when concluding the deal.
Thus, the court of the first instance has satisfied NLMK’s claims, the latter being convinced that the Agreement was signed under the influence of fraud on the part of Mr. Maximov. The Defendant had deliberately concealed from the company a number of negative circumstances related to the financial position and the quality of Maxi-Group assets.
In March 2011, NLMK filed a claim with the Moscow Arbitrazh Court to declare the Agreement as null and void. This happened following Mr. Maximov’s unexpected declaration at the end of 2010 during proceedings at the International Commercial Arbitration Court (ICAC) of the Chamber of Commerce and Industry of the Russian Federation that he refuses to recognize the representations and warranties that he had taken on under the Agreement. On 7 February 2014, Mr. Maximov confirmed this refusal to accept the obligations as to the representations and warranties during a court hearing in the Arbitrazh Court of Moscow.
Earlier, on 30 January 2014, the ICAC had refused to consider Mr. Maximov’s claim against the Company on the recovery of damages he had allegedly incurred as a result of NLMK violating the Agreement. ICAC has ruled that it does not have the competence to handle this dispute and it should be taken to the Arbitrazh Court of Moscow.
The Decision made by the Arbitrazh Court of Moscow on 7 February 2014 confirms the fairness of NLMK’s actions and the reasonability of the position the Company has been holding for the last several years, i.e. that Mr. Maximov was involved in a large-scale fraud against NLMK in connection with the execution of the Agreement.
Reference information of the conflict around Maxi-Group
Maxi-Group was created in the beginning of the 2000s. Nikolai Maximov was Maxi-Group’s major shareholder and president. The company united a number of companies collecting and recycling scrap, as well as companies manufacturing steel and rolled products for the construction industry; directly or indirectly the company controlled dozens of legal entities. Its key production units – NSSMZ and UZPS – are located in the Sverdlovsk region.
In Autumn 2007, Mr. Maximov turned to the shareholders of large steelmaking companies offering them to buy the controlling share in Maxi-Group. On 22 November 2007, NLMK and Mr. Maximov, at that time the sole shareholder and president of Maxi-Group, signed an Agreement under which NLMK acquired 50%+1 share of the company. The Purchase Agreement included representations and warranties on the part of Mr. Maximov, including those related to the financial standing and quality of the assets of all legal entities that made up Maxi-Group.
Mr. Maximov received RUB 7.3 billion as an advance payment for the shares. Besides this, NLMK provided debt financing for Maxi-Group to pay off its arrears, including for salaries, and restructured Maxi-Group’s debt owed to more than 50 banks (at the end of 2007 its debt levels exceeded RUB 50 billion).
However, as a result of enormous debt burden that turned out to be unsecured by assets that were absent due to fraudulent actions and unduly management by Mr. Maximov and his management team prior to the Agreement being signed by the parties, in August 2011 Maxi-Group was declared bankrupt and is currently going through bankruptcy proceedings.
About NLMK Group
NLMK Group is a vertically integrated steelmaking company, and Russia’s leading manufacturer of steel and HVA rolled products. NLMK Group’s high-quality steel products are used in a variety of industries, from construction and machine-building to the manufacture of power generation equipment and offshore windmills.
NLMK’s production facilities are located in Russia, Europe and the USA. The Company’s crude steel capacity is over 17 mt per annum, of which approximately 16 mt are located in Russia. The Company generated $12.2 billion in revenue and $1.9 billion in EBITDA in 2012.
NLMK’s ordinary shares are traded on the Moscow Stock Exchange (ticker “NLMK”) and its global depositary shares on the London Stock Exchange (ticker “NLMK:LI”).