On January 29, the Kentron and Nork-Marash District Court is scheduled to examine the suit that the German portfolio investment firm “Ostinvestor” has filed against Gagik Tsarukyan’s “Yerevan Ararat Brandy”. “Ostinvestor”, a German portfolio investment firm, claims that Tsarukyan, who heads the Prosperous Armenia Party, illegally obtained the shares through a questionable stock consolidation deal. It wants to get the shares back.

In the suit filed by “Ostinvestor” against YABWV, there are the following demands – restoration of shareholder rights, nullify the decision of the general stockholders’ meeting and official posting in stockholders’ register. Back in 2006, “Ostinvestor” purchased 1,520 shares of YBVW, 3.2% of the company’s outstanding shares, on the Armenian stock market. After the purchase YBVW had a total of 124 shareholders. Gagik Tsarukyan held 82% of the shares outright; his MultiGroup company held an additional 10% and the remaining 7%, minus Ostivestor’s 3.2%, were divided amongst the remaining shareholders. In June, 2008, the German firm received a note from the principal shareholder of YABWV, demanding that it sell all its shares since MultiGroup wasn’t prepared to recognize the “Ostinvestor” holdings. The German firm refused to sell given that it had used its investors’ money to buy the shares with. In the end, at a special October 12, 2008, stockholders’ meeting it was decided to consolidate the shares of YABWV by issuing one new share for each 2363.5 held at a valuation of 18,908,000 Armenian drams* (approximately 45.212 Euros.) Given that “Ostinvestor” only held 1,520 shares and one new share was to be the equivalent of 2,363.5 shares, the German firm wasn’t able to secure even one share of the new stock issue.

“Ostinvestor” winds up with nothing after share consolidation

As a result of the stock consolidation, “Ostinvestor” and the remaining minor stockholders received fractional shares. The same special shareholders’ meeting defined the procedure for the repurchase of shares. During the special YABWV meeting, a formula for the resale of these fractional shares was worked out. The firm of “En-Audit” pegged the market value of one full share at approximately 69 Euros. “Ostinvestor”, however, had spent 184 Euros per share and thus wound up paying 279.680 Euros for its original 1,520 shares. As a result of the share consolidation, “Ostinvestor” and the other minor shareholders wound up with fractional shares. This means that these shares were to be sold back to the major holders. “Ostinvestor” is no longer listed as a shareholder and since it has refused to sell back its shares according to the formula reached, a value of 18 Euros has been set for each share to be closed out. (See:  German Firm Loses Shares in Armenian Company Owned by Gagik Tsarukyan (July 27, 2009), German Investor Doesn’t Regard Armenia as Safe Investment Bet Right Now; But He Hasn’t Lost Hope in Future (October 19, 2009) YABWV attorney Davit Mantashyan told Hetq that the global crisis, having virtually paralyzed the company, played a prominent role in the decision to consolidate shares

YABWV lawyer claims they followed letter of the law

Mr. Mantashyan claims that YABWV sales have dropped considerably since October-November, 2008. “Given such a situation, the company is forced to optimize its operations and to adopt a more flexible business approach,” stated the lawyer. He pointed to the consolidation of shares, implemented in accordance to the laws, as part of the optimizing of operations. However, in its petition, “Ostinvestor” argues that the article doesn’t presuppose such a consolidation whereby any shareholder has less than one fill share and, as a result, not be part of the company. The petition reads, “The logic of the law is clear. As a result of consolidation at least one share must arise, whereas, as a result of the consolidation of “Ostinvestor’s” 1,520 shares, not one share arose. Naturally, this is not only dissents from the mentioned legal norm, but in fact contradicts it.” According to “Ostinvestor”, in the case where logic does not follow, a shareholder owning more shares than another legal entity can organize a consolidation in such a manner that all those shareholders that have a lesser number of shares, can be left out of the company. “There is not one point of law that envisages the possibility of any shareholder being left out of the company against their will, the plaintiff argues and cites Article 31 of the RoA Constitution. In cases where the law makes provisions for, the article allows for an entity to be deprived of their property, but only by judicial procedure, whilst YBVW, not appearing before the courts, deprived the stockholder of their property in regards to shares.” According to “Ostinvestor” Director Stefan Laxhauber, the 69 Euros set by the appraisal firm of En-Audit, as the buyback price for one share wasn’t equivalent to the fair market price. Stefan Laxhauber claims that reappraisal of the company’s total assets was arbitrary and was aimed to unduly decrease the capital base, and thus decrease the buyback price given that just the company’s 4, 5601 hectare parcel of land at Isakov #9 in Yerevan had a market value of 5 billion AMD. “An exact examination of the October 12, 2008 balance sheet shows that the Company’s capital base dropped to 6.9 billion AMD compared to the beginning of the year. Fixed assets alone decreased by 10 million AMD and were posted at 5.3 million AMD. An analysis of this line shows that a reappraisal of the assets by way of devaluation,” argues “Ostinvestor”. Official figures for the largest tax payers over the past four years tell a different story. In 2006, YABWV placed 166 in the list of largest Armenian taxpayers. In 2007, it moved up to 139th place. In 2008, it came in at 70th place with a tax payment of 2.5 million Euros “I have been really waiting for a long time and hoping that someone can solve this problem in a business or diplomatic way. But since we haven’t received any reply or response to our protestations, I can’t say that I have much hope that we’ll receive justice in the Armenian courts either. Thus, we’ll do what it takes to take the case to the European Court. We are prepared to go this route. It has become a matter of principle for us. We have been patient for a long time and made many proposals to resolve the issue diplomatically, but to no avail. We will wage this struggle with all possible means at our disposal, regardless of the costs or time involved. This investment here in Armenia is quite small in terms of our Fund but it has become a question of principle – will I receive legal defence in this country or not?”, stated Mr. Laxhauber to Hetq. Hetq will be following developments in the case as they unfold.