Update on Russian case law regarding forced conversion: Russian court orders Raiffeisenbank to carry out forced conversion on Sberbank ADR's.
In this post we provide a sixth update on recent Russian court decisions.
Case 6: Forced conversion in 2025 as a result of an unjustified rejection of the request for forced conversion in 2022
The sixth case involves US citizen mr. Zlatin who owned 20,000 ADR's (depositary receipts) of Sberbank via the broker HilltopSecurities. Hilltop refused to carry out a request for standard conversion.
Mr. Zlatin therefore applied for forced conversion. Raiffeisenbank rejected this request because the documents did not meet the standards set by Raiffeisenbank to execute the request for forced conversion.
Mr. Zlatin then went to court in Moscow. He filed his claim relatively late in April 2024. When the case came to an end at the end of 2024 the first rulings from the Supreme Court started to come back in other cases. The ruling by the Supreme Court in those other cases that stated that Raiffeisenbank had unjustly set unreasonable standards for forced conversion and forced transfer. This probably helped to get the claim rewarded in first instance. As a result Raiffeisenbank was ordered to carry out the forced conversion for the depositary receipts held by mr. Zlatin.
Raiffeisenbank did not agree with the decision and appealed the ruling. The appellate court rejected the appeal. Raiffeisenbank then went to the cassation court. The cassation court also rejected the cassation request today.
Unfortunately we cannot determine from the case materials whether Raiffeisenbank actually executed the forced conversion or simply paid the penalty that was imposed by the court in case of non-execution. We are trying to find out through other channels wether Raiffeisenbank forcefully transferred the Sberbank shares out of the account of JP Morgan (the depositary bank for Sberbank) into the account of mr. Zlatin.
All the case materials can be found here: https://kad.arbitr.ru/Card/13404bba-273d-4fdb-8695-67b34908a4eb
Why is this case interesting?
This case shows that foreign investors from unfriendly countries (mr. Zlatin was from the US) can successfully file a claim against Russian custodian banks that have unjustly rejected requests for forced conversion. It also shows that a fairly long period may pass before filing a claim with the court in Moscow. Investors should keep in mind that the standard statute of limitations in Russia means that claims expire after 3 years. This period starts after the (unlawful) rejection of the application of forced conversion. A successful claim may result in forced conversion to be carried out even in 2025.