Supreme Court puts an end to fraudulent conveyance scheme: AVELLUM and Hillmont Partners defend American investors

AVELLUM, together with Hillmont Partners, successfully defended the rights of American investors Argentem Creek Partners and Innovatus Capital Partners in a high-profile bankruptcy case involving Olimpex Coupe International LLC (“Olimpex”), a member of the GNT Group.

Argentem Creek Partners and Innovatus Capital Partners provided GNT Group with a US$95 million facility. The loan was secured by assets and suretyship of Ukrainian and foreign companies, including the suretyship from Olimpex.

However, the GNT Group defaulted on its debt repayments and attempted to withdraw the property from Olimpex’s ownership through a complex scheme of business transactions. The GNT Group mortgaged the assets to banks in breach of loan agreements with American investors. Just before the opening of bankruptcy proceedings against Olimpex, the opponents implemented a complex multi-level fraudulent conveyance scheme: the bank assigned its claims under the mortgage agreement to a financial company, which assigned these claims to a third party, and ultimately the mortgaged property was sold to third parties in order to create a “bona fide” purchaser.

When considering case No. 914/466/23 (914/2764/23), the Supreme Court not only analysed the content and circumstances of each transaction separately, but also assessed all business transactions implemented to avoid obligations to creditors. The Supreme Court concurred that the property was sold at an undervalued price, the contracts contradicted the debtor’s obligations to other creditors, and that their real purpose was not ordinary commercial activity, but rather to prevent the satisfaction of claims in bankruptcy proceedings. Such actions demonstrated a clear misuse of private law instruments for purposes contrary to their lawful intent, which was the basis for granting the claim.

The Supreme Court upheld the resolution of the court of appeal, which invalidated mortgage agreements and property sale agreements with third parties and reclaimed the property in favour of Olimpex.

This decision of the Supreme Court demonstrates new approaches in judicial practice concerning the invalidity of fraudulent transactions (transactions concluded to cause harm to creditors) in bankruptcy cases. In particular, the decision demonstrates the Court’s comprehensive analysis of the scheme of transactions and relations between companies, as well as its assessment of their impact on the debtor’s financial position and the possibility of satisfying other creditors’ claims. This approach enhances the protection of creditors against unscrupulous debtors and misuse of collateral property.

The AVELLUM team was led by senior partner Kostiantyn Likarchuk and partner Vadim Medvedev.

Hillmont Partners was represented by managing partner James Hart, senior partners Andriy Nyzhnyi and Valentyn Zasukha, together with partner and Head of the Lviv office Andrian Artsishevsky.

This high-profile case also became the subject of an editorial by the Financial Times.