Statement on Bankruptcy of Chernomorsky Shipbuilding Yard and Opening of Dissolution Procedure


On 3 July 2018, the Economic Court of Nikolaev region ordered to stop the rehabilitation procedure of Chernomorsky Shipbuilding Yard (ChSY, Nikolaev), to declare the company bankrupt and to open the procedure for its dissolution. The Court stated that the package of steps to revive the solvency of ChSY, previously approved by the relevant judicial decision as part of the rehabilitation plan, could not be implemented and failed to prevent the bankruptcy of the debtor.

This decision is a direct consequence of the destructive position of the Prosecutor General's Office of Ukraine.

Back in July 2017, at the request of investigators of the Prosecutor General's Office, the entire property of the company and the shares issued by it were attached in the framework of the investigation into the alleged failure to fulfil investment obligations in the privatization of ChSY in 2003-2012. Due to this property attachment it was impossible to implement the rehabilitation and financial recovery plan, which in particular implied the sale of the property not related to production activities, in order to meet the demands of creditors.

On 14 June 2018, Alexander Ostapenko, a turnaround manager of ChSY, sent an official letter to the Prosecutor General Yuriy Lutsenko, in which he indicated that retention of the attachment of the company's property and shares in fact blocked the activities foreseen by the rehabilitation plan, which deadline expired on 1 July 2018.

The turnaround manager drew special attention of the Prosecutor General's Office to the government program for the construction of a series of corvettes, which had been suspended due to lack of funding. In 2014, the lead vessel of the series, which today is ready by about 17%, was mothballed. The working group under the Ministry of Defence of Ukraine, established to address the challenges of the said government program, considered an option of spin-off of a new company from ChSY and transfer of all the rights and obligations under the project to it. The working group recognized this option as a promising one. Corresponding measures were included in the rehabilitation plan and approved by a judicial decision mandatory for implementation throughout the territory of Ukraine once it becomes effective. In December 2017, ChSY’s general meeting of shareholders approved the spin-off of Corvette Shipbuilding Company with a statutory fund of UAH 5.168 million. However, due to the existing property attachments, the decision of the general meeting remained outstanding. Alexander Ostapenko noted in his official letter that 13 months had passed since the registration of the criminal proceedings, which was quite enough to conduct a full and impartial pre-trial investigation. He warned that ChSY would seek to file a claim in Pecherskiy District Court of Kiev asking the court to lift the attachments. He also asked Yuriy Lutsenko to take into account the interests of the state when building the legal position of representatives of the Prosecutor General's Office in court.

Nevertheless, on 26 June at a meeting in Pecherskiy District Court of Kiev, representatives of the Prosecutor General's Office insisted on keeping the attachment and the court agreed with their questionable argument. It is noteworthy that in the court session the investigator and prosecutor openly stated that their main task was to launch the process of the company's re-privatization with the help of this criminal prosecution. As is known from the media, some owners of other shipbuilding assets demonstrate keen interest to the property of the company.

In view of that, following the letter of the law, the creditors' committee had to acknowledge that it was impossible to implement the rehabilitation plan and had to lodge a motion to the court demanding to stop the turnaround and to open the winding up procedure. This motion was supported by representatives of government institutions and organizations, the claims of which were included in the register of the company's creditors.

Therefore, the position of the prosecutor's office led to the dissolution of a leading Ukrainian military shipbuilding enterprise and to losses incurred by the state budget. UAH 74 million of advance payments under contracts with non-residents will be lost. In addition, the unresolved situation with property attachments leads to a further rise in the cost of the project. Since the beginning of the construction, its value has exceeded the forecast figure by UAH 1.4 billion. Moreover, the likelihood of implementing the government program tends towards zero. Since the property attachments did not allow to spin-off Corvette Shipbuilding Company from ChSY, this led to the situation that the constructed hull of the corvette will be included in the liquidation estate for further selling. We have drafted a letter to the Security Service of Ukraine requesting it to consider this anti-State position of representatives of the Prosecutor General's Office.