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Chapter 15's First Major Case

By Kurt A. Mayr
December 27, 2006

The continuing drama relating to the demise of the Yukos Oil Company, Russia's leading oil company, has generated two U.S. bankruptcy proceedings that have raised some of the most interesting cross-border insolvency issues in the last year. Both proceedings emanate from the pitched battle between Yukos' management and equity investors, on the one hand ' who assert that the Russian government is expropriating the company for its own benefit in violation of Russian and international law ' and the Russian government and an interim insolvency receiver appointed by a Russian court (the 'Receiver'), on the other hand ' who assert that Yukos' management caused the company to commit a tax fraud of approximately USD $27.5 billion that can only be resolved in a Russian court.

Both sides have extended their litigation campaigns to the U.S. bankruptcy courts in an effort to gain strategic leverage. The first U.S. case involved the voluntary Chapter 11 petition filed by Yukos' management to prevent the Russian government's foreclosure sale of material Russian assets. That case was dismissed by the United States Bankruptcy Court for the Southern District of Texas in a decision that found Russia to be the appropriate forum for resolution of the parties' dispute. See In re Yukos Oil Co., 321 B.R. 396 (Bankr. S.D. Tex. 2005). Shortly thereafter, Yukos was placed into Russian bankruptcy proceedings by its banks, and in a classic 'turnabout is fair play' tactic, the Russian bankruptcy Receiver filed a Chapter 15 case to prevent Yukos' management from consummating their own material asset sales of the company's interests in a Lithuanian oil refinery company.

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