VTB v Nutritek (registration required), finally decided by the UK Supreme Court in February 2013, was notable for the judges’ take on “piercing the corporate veil”, jurisdiction, and injunctive asset freezes. Now, let’s take a look at the parties involved.
VTB Capital Plc – a London-based subsidiary of the Russian state-controlled bank, VTB – versus Nutritek International Corp. and Marshall Capital Holdings Ltd, both BVI companies with assets mostly in Russia; and Konstantin Malofeyev, the principal owner of Marshall.
VTB’s complaint was simple. The bank’s London subsidiary had lent $225 million to a Russian company, Rusagroprom (RAP), which used it to buy several dairy plants from Nutritek, a company controlled by Marshall and, therefore, by Malofeyev. Unfortunately for VTB, RAP went bankrupt shortly after the purchase, leaving VTB with a collateral which was worth, as it suddenly became clear, no more than $40 million.
Then VTB found out – according to the complaint – that RAP was controlled by the same person as Nutritek, Konstantin Malofeyev. The bank also realized that the value of the dairy plants, $225 million, had been greatly overstated. The deal was a childishly simple trick: Malofeev received $225 mln in cash for something worth no more than $40 mln.
UK courts refused to try the case on its merits, saying that London was not the right venue. They did not allow VTB to sue Malofeyev rather than Nutritek, keeping the “corporate veil” intact. VTB’s due diligence must have been incredibly sloppy, as noted by a UK judge – it’s almost impossible not to suspect corruption within the bank. A criminal case was opened against RAP in Russia but somehow Malofeyev and his fellow investors have avoided further legal trouble.
It’s not the only controversy Marshall Capital has been involved in. It must have needed a small army of lawyers and GR people. Alexander Boroday was, by some accounts, the most important of the latter.
Last weekend, Boroday was “elected” prime minister of the “Donetsk People’s Republic”. The “defense minister” of the “republic”, the well-known Mr. Girkin-Strelkov, claims that he was once head of security at Marshall. Reports suggest he is an old friend of Boroday. The Ukrainians have intercepted Girkin-Strelkov taking orders from someone whose name and patronymic are the same as Malofeyev’s.
For the Ukrainian part of the story, I’m heavily relying on Oleg Kashin‘s and Nikolay Mitrokhin‘s reporting. Unfortunately, I have no time to translate their pieces. Mitrokhin has important insight on Malofeyev’s split identity: a shady dealer and an honest (possibly) believer in a bastardized version of Eastern Orthodoxy.
The question I’m asking myself is whether Malofeyev can be viewed as one of the Kremlin’s lesser go-to men.