Following a complaint from state-owned Ukrainian rail company Ukrzaliznytsia, the Eastern Commercial Court of Appeal based in Kharkiv agreed to reduce one of the state-owned company’s debts to Russian bank Sberbank from $56.1 million to $40.55 million.
Ukrzaliznytsia accrued this debt following a long legal battle over its subsidiary enterprise Donetsk Railway. This regional rail company had accumulated large debts before Russia launched its war against Ukraine in the eastern Donbas region in 2014. It borrowed from major Russian banks including Sberbank, VTB, and others.
Since 2017, Russian creditors have been seeking to reclaim this money. At first, Sberbank demanded that money be returned by Donetsk Railway. This was rejected by the Kyiv City Prosecutor’s Office, which ruled Russian attempts to collect the money as illegal.
The prosecutor’s press service stated that its decision was “in order to protect state interests and prevent the illegal collection of a significant amount of money from an enterprise whose sole shareholder is the state.”
Sberbank, however, pressed its case. On Dec. 22, the Commercial Court of Ukraine opened proceedings on a lawsuit filed by Sberbank for the recovery of a seperate $17.25 million for the period of December 2017 to November 2020, including unpaid interest. This claim was later satisfied by the Economic Court of Kyiv.
In July 2020, the Ukrainian-controlled Commercial Court of Donetsk Oblast ruled that Ukrzaliznytsia was the legal successor to the debts of Donetsk Railway, ordering them to pay a total of $68 million. The Eastern Commercial Court of Appeal upheld this decision in January 2021, reaffirming that Ukrzaliznytsia was now the sole defendant in this case.
Ukrzaliznytsia argues that it should not be considered liable as this borrowed money was spent on improving Donetsk Railway’s rail infrastructure, which, following Russia’s invasion, fell under the control of the Kremlin.
Ukrzaliznytsia will now escalate this dispute further, as it plans to bring this case before the constitutional court of Ukraine, according to Ukrzaliznytsia Supervisory Board Member, Adomas Audickas.
Ukrzaliznytsia stated that this decision essentially made it liable for debts on capital that it did not own, and also described the decision as a threat to national security.
According to Ukrzaliznytsia, 20,000 freight cars, 6,000 privately owned cars, 6,000 passenger cars, and 300 locomotives are currently held by the Kremlin.
Nevertheless, in February 2021, the Commercial Court of Donetsk in Ukrainian-controlled territory partially satisfied the claim of Sberbank, upholding demands to collect a total of $56.1 million. Ukrzaliznytsia has entered into discussions with Sberbank to begin paying some its debt, however the state-run company will still continue to fight the payment of debts relating to Donestk Railway.
In May 2021, Ukrzaliznytsia agreed to change its debt repayment schedule and reduced its financing costs.
In the same month, President Volodymyr Zelensky stated that Ukrzaliznytsia’s finances would be a top priority, commenting on their “loan debt of hundreds of millions of dollars.” According to the president, Ukrzaliznytsia had taken out loans from several “straw companies” which had contributed to its poor financial situation.
