Dutch asset protection is key for investments in riskful countries
by Robert Bron ABiLiTieS Trust enables you to actForeign
investments shall be structured so that risks shall be mitigated. One of the
risks is political risk. Foreign investors and lenders should protect their
assets and mitigate the risk of expropriation whereby the foreign state does
not or insufficiently compensate investors and lenders.
Asset protection
can obtained in many forms, for example by means of an adhoc sovereign or
government guarantee providing direct recourse to the country in case of breach
of contract, acknowledgement that accounts of operational companies can,
despite local foreign currency regulations, be kept outside the country of
investment, support from export credit agencies in the form of guarantee or
insurance.
When doing
business in riskful countries it can be recommended to have a Dutch holding company or finance
entity in place within your investment structure. The Netherlands provides
asset protection because of three lines of defense against expropriation. The
owners of the Yukos assets brought all three into practice. The Yukos case
consists of multiple court cases to obtain control over the assets of Yukos, a
bankrupt Russian oil company. Its bankruptcy was caused by unlawful tax
claim.
Measure 1: Investment protection treaties.
A bilateral
investment protection treaty is entered between two countries to protect
investments made by a national of either of the states into the other. It aims
to provide a level of legal protection to the investor and lender. The number
of bilateral investment protection treaties concluded by the Netherlands is
higher than most other countries. The Netherlands is also member of
multilateral investment protection treaties such as the Energy Charter. This is
an international agreement which establishes a multilateral framework for
cross-border cooperation in the energy sector. The treaty
also covers legally binding dispute resolution procedures. In 2014, the nearly
10-year-long Yukos case was
decided by the Permanent Court of Arbitration in favour of the claimants on the
basis of the Energy Charter, with a record-breaking $50 billion award. The case
is not ended yet as the authority of the Permanent Court of Arbitration located
in the Hague is currently disputed before Dutch courts.
Measure 2: STAK
A type of Dutch
foundation, Stichting Administratiekantoor (‘STAK’), can be used for many
purposes. For asset protection it is very suitable as it can prevent from
hostile takeovers. A STAK can be structured in such way that the owners of
certificates have no control over its assets, instead the control is with its
board of directors.
Yukos managers established
a STAK in the year 2005. At the time, Financial Performance Holding, a Yukos
entity, transferred its assets to STAK Yukos International in order to protect
shareholders' interests.
Measure 3: Territorial approach to bankruptcies
The Netherlands has
a territorial approach to bankruptcies. The territorial approach makes that the
Dutch courts will not automatically rely on bankruptcy judgment from outside
the EU. Such judgment will be verified whether it does not conflict with
public order in the Netherlands. This defense was successfully brought into
action in the Yukos Finance case involving approximately € 800 million of assets. The Dutch Court
concluded that the Russian tax rules were violated and that this was done with
the obvious intention to provoke payment power and ultimately cause the bankruptcy of Yukos.
Sources:
ABiLiTieS Trust's article on Dutch asset protection
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Created on Feb 23rd 2019 07:59. Viewed 1,844 times.