After the decision on Pugachev, hiding assets will become more problematic

Banker Sergey Pugachev, who hid assets in New Zealand trusts, was recognized by the court in London as their beneficiary. The precedent decision of the court will allow the DIA to seize the businessman's expensive real estate in England, France, Switzerland and the United States.
Origin source
The High Court of London ruled on the dispute between DIA, bankruptcy manager of the bankrupt Mezhprombank (BPS), with its owner Sergei Pugachev hiding in France. On the recognition of the last beneficiary of New Zealand trusts, portal The Lawyer reported.

"The meaning of the trusts was to hide control over assets, to make an appearance ... that they did not belong to him," the judge said.

Positions of the parties

Thus, in fact trusts are recognized as alleged, the real owner of the assets behind them - Sergey Pugachev, and DIA as the competitive manager of Mezhprombank gets the opportunity to take a recovery on these assets, confirmed by RBC in Hogan Lovells, a law firm representing the interests of the DIA. This will happen if today's decision of the first instance on this issue survives in further proceedings, if any.

The DIA position is set out in the press release of the agency. "The court found that the discretionary trusts of Pugachev (who do not have a specific beneficiary, it is believed that such structures maximally protect the assets hidden behind them - RBC) are feigned, and the assets transferred to these trusts can be levied as for own property Pugacheva. In a judgment of 11 October 2017, the court agreed that the trusts in question were not in fact true discretionary trusts. The true essence of these trusts is that Pugachev should remain the sole beneficial owner of trust assets. He retained absolute control over assets due to his status as a "protector" of these trusts, which, among other things, allowed him to change trust trust managers if they stopped fulfilling his instructions, "the document says.

Among the assets hidden behind trusts, DIA calls, in particular, "two properties in London and a villa on an island in the Caribbean Sea."

Sergei Pugachev's position was passed by his press office. It is traditionally the opposite: "The law firm Hogan Lovells on behalf of the Deposit Insurance Agency (DIA) in May 2016 appealed to the English court for a claim that some property since 2011 was allegedly transferred to trusts in bad faith. The suit was filed with the English court, despite the fact that trusts are New Zealand and, therefore, are not subject to UK jurisdiction. Mr. Pugachev, as a citizen of France, also does not fall under the jurisdiction of the English court. Any legal disputes over New Zealand trusts can only be considered in the High Court of New Zealand. Despite the fact that the main defendant in the case is Sergei Pugachev, he was not notified of this court session. Neither he nor his lawyers participated in the trial. The DIA in its suit asked to recognize Mr. Pugachev as the owner of the property transferred to the trusts, and the transfer of property to trusts - feigned. Undoubtedly, the main point of the DIA suit was a request for the transfer of property belonging to New Zealand trusts to the Deposit Insurance Agency. This request was not granted by the court. Given that most of the property was transferred to trusts by third parties, the request for recognition of Mr. Pugachev as the owner of this property is absurd. "


As previously reported by RBC, litigation is being conducted against five New Zealand trusts.

In the assets of trusts, the total cost, according to the DIA estimates, tens of millions of dollars - expensive real estate in England, France, Switzerland, Russia and the United States, as well as cash in bank accounts. Information about the assets hidden behind the trusts was received by the DIA in the proceedings to seize Pugachev's assets in the High Court of London (the arrest order was issued in the summer of 2014 to secure a decision by the Russian court to attract Pugachev to pay the bank's debts.) , as well as as a result of a search by order of the court in the premises occupied by Pugachev and persons from his entourage. Sergei Pugachev is not formally a beneficiary of trusts.

The bankruptcy of Mezhprombank is one of the largest bankruptcies in the newest Russian history. Although it began at the end of 2010, as of September 1, 2017, the bank was due to several hundred creditors for more than 80 billion rubles.

What's next

The next step for DIA is to foreclose on assets from New Zealand trusts, to sell them and to contribute the proceeds to Mezhprombank's receivables for settlements with creditors.

"The decision in favor of the DIA means that Pugachev will eventually lose the assets transferred to the trust," says Dmitry Vodchits, head of the legal consulting and tax practice department of KSK Group. "Recognizing citizen Pugachev as a beneficiary of an imaginary trust will allow to recognize the property of such a trust as his personal property and to reclaim his debts to such property and thus satisfy the claims of creditors," says Vladislav Kocherin, a lawyer and managing partner of the company "Cocherin and Partners".

However, as lawyers point out, this is not fast and not as simple as it seems at first glance.

"The withdrawal of assets in the framework of court decisions from any trusts is a very complex and expensive procedure," says FBK Legal attorney Dmitry Paramonov. - Only lawyers who have such practice in English jurisdiction can conduct such cases: their services are much more expensive than those of their Russian counterparts. Also, a lot of external specialists are involved in collecting the evidence base, which conducts financial intelligence, searches for witnesses, sends out requests for information to various departments. "

"Do not forget that the decision taken on this issue is not final and can be appealed," adds Vladislav Kocherin.

The final victory of the DIA can be considered a foreclosure on assets, to which at least a year, believes the partner of the law firm JUST Alexander Bolomatov.

Consequences for the market

Nevertheless, the current benefit of DIA is a precedent of global significance: previously businessmen who hid assets for discretionary trusts were not recognized as their beneficiaries, lawyers indicate. It is a sign to the whole business: the ability to withdraw and hide assets becomes and will become less and less.

"This decision could undermine the widespread ownership structure through trusts. It will also give a very serious tool to creditors "chasing" their debtors around the world and will most likely force dozens of unscrupulous debtors to start negotiating repayment of debts, while up until now most of them have felt quite comfortable, "argues Managing Partner of Kulkov, Kolotilov and Partners Maxim Kulkov.

The court's decision will, of course, be a direct precedent in England, as well as an indirect precedent in the countries of the Anglo-Saxon system of law (primarily the British Virgin Islands, Cyprus, Hong Kong, etc.). In addition, it will be recognized and listened to in all civilized countries, he notes.

"The more such decisions are made in favor of the DIA, the more such attempts will be made, and due to this, the expensive process of cross-border attraction of the beneficiaries of the bankrupt business to the payment of debts of their companies to creditors may become cheaper in the future," Alexander Bolomatov sums up.