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Kristine Aghalaryan

The “Arzni” water plant has become a headache for “Anelik Bank” CJSC

Kristine Aghalaryan

The “Arzni” water plant  in the Byureghavan community of the Kotayk Marz has become a headache for Anelik Bank” CJSC (now ID Bank,  renamed after rebranding). The new shareholder of the bank has suddenly found himself in a predicament where the sole hope for its resolution is the impartiality of the new government and the judicial system.   

By resorting to different mechanisms, businessman Gevorg Afandyan, the owner of "Arzni" mineral water plant, has tried to put himself in a beneficial situation, despite the large credit liabilities owed to "Anelik Bank".

 Gevorg Afandyan is the owner of the bankrupted chain of “Star” supermarkets, the chain of “AG Electronics” stores, “AG Print” printing houses, the Etchmiadzin cannery, “Cinnabon” and “Segafredo” cafes and a number of other businesses. In one of his interviews, he labelled the banks as the roof of his business, from which he had borrowed loans and established businesses. As of 2012, he claimed his businesses to be successful, but today almost all of Afandyan’s businesses are bankrupt, save for a few.  Others have been transferred by Afandyan to his sons or registered with the names of his close ones.  Afandyan is the entrepreneur to whom a loan had been extended by the former head of the Compulsory Enforcement Service (CES), currently MP Mihran Poghosyan. The latter has filed lawsuits against Afandyan for confiscation of the debt from his "Byurakn" LLC and "Star Divide" CJSC companies.

Some of Gevorg Afandyan’s business partners include entrepreneur Silva Hambardzumyan in Silvi AG LLC, as well as Khazak Karayan, the former Deputy Chairman of the State Committee for Real Estate Cadaster and currently the director of the Information Technology Department of the Eurasian Economic Commission, in S.G.K. Soft LLC. “Silvi AG” LLC  held a license for capital construction activities. In 2012-2013 "S.G.K.-Soft" LLC held a license for geological exploration in the middle and upper streams of Bughakar River basin in Syunik Marz. G. Afandyan has never hidden his close ties with Alexander Sargsyan, former President Serzh Sargsyan's brother.   

The new shareholder’s requirement: clear the bank from suspicious transactions

In order to satisfy the Central Bank’s requirement for the Armenian banks to have a charter capital of 30 billion AMD, a new shareholder appeared in Anelik Bank CJSC in 2016. Russia-based Vardan Dilanyan became the 60 percent owner of the bank in 2016. The remaining 40 percent still remained with the Lebanese CreditBank S.A.L.

Transactions with Afandyan were entered into during the former shareholders, and the new shareholder has learned of the details of these transactions just recently upon receipt from the court the bankruptcy receiver’s claim demanding penalties in the amount of USD 22 million.

In 2010, Gevorg Afandyan borrowed a USD 7 million loan from Anelik Bank for his “Byurakn” LLC business group (according to the data of the State Register, Byurakn LLC does not belong to Afandyan since 2007, however he does not deny that it is one of his companies) by pledging a building of about 14 thousand square meters, a land plot of 2.8 ha, stores of about 1074, 113 and 92 square meters respectively, that belonged to Arzni Mineral Waters Plant - a member of the "B.M.L Arzni" group.  According to the Companies’ State Register, "B.M.L Arzni"  LLC belongs to Afandyan’s eldest son -  Vahe Afandyan, who owns 100% of the shares of the "B.M.L Arzni"  LLC.

Gevorg Afandyan, however, failed to make the payments on time and, consequently, overdue penalties accrued.  The entrepreneur offered the Bank to buy the pledged assets so that he could continue the operations and, thus, repay the debt. The bank’s Lebanese management agreed.

The Bank and Gevorg Afandyan had signed an agreement whereby the Bank undertook to grant the pledger, or a third party indicated by the latter an exclusive right of first refusal for the purchase for a period of 2 years. In case of non-compliance with the right of first refusal the bank undertook to pay a penalty equal to the fivefold of the amount of the confiscation value.  The Bank further committed to direct the amount of the penalty for the repayment of the obligations of the “Central Station”, “Ecoprint”, and “Supra” LLSs - belonging to the Afandyan family – accrued towards the Bank as of that moment. Meanwhile, an audit was initiated in the Bank by the new shareholder for the purpose of increasing the charter capital of the Bank.   Vardan Dilanyan's auditors advised on the removal of Afandyan's assets from the balance sheet of the Bank, since it was problematic. It was a precondition for Vardan Dilanyan’s purchase of the Bank’s shares.

The Lebanese shareholders agreed on that. For that purpose, in August 2016, a new company, "Tarmak" LLC, was incorporated to which the pledged assets of “Arzni” waters plant were sold in October of the same year.  The founder of "Tarmak" LLC is "Private International Company" S.A. (“PIC”), registered in the offshore zone of the Virgin Islands, where 33% of shares were also given to Afandyan's eldest son. This transaction was thus completed, and the new shareholder of the bank was satisfied.

A year later, the Bank received the claim of “B.M.L Arzni" LLC’s bankruptcy receiver (Hakob Asoyan). The bankruptcy receiver asked the court to confiscate AMD equivalent of USD 22 million from the bank in favor of “B.M.L Arzni" LLC ". The bankruptcy receiver referred to that very agreement which grants the “B.M.L Arzni” the right of first refusal for the purchase. That is to say, according to the bankruptcy receiver, the bank was in breach of the said agreement, having sold the pledged assets to another company before the expiration of the two-year period.  

In March of this year the Court of First Instance of the Kotayk Marz granted the manager's claim in entirety and ruled on confiscation.  The Bank has appealed the said decision as it believes that the deal was made with Afandyan’s consent, moreover, his son was given 33% of the shares in the newly established company.

In the meantime, a number of Afandyan’s companies had been declared bankrupt by the court, including:  “Byurakn” LLC and “B.M.L Arzni” LLC. The liabilities of the “B.M.L Arzni” LLC are estimated at around USD 13 million. Should USD 22 million be collected from the Bank, then the debt will be repaid and the remaining USD 9 million will be left with Afandyan's company. It is, therefore, a good option for the businessman Gevorg Afandyan.

USD 22 million is about 35 percent of the Bank's charter capital. The new shareholder of the Bank believes that there is an organized group formed around this case, which – by applying fraudulent schemes – attempts to confiscate this amount from the Bank at any cost.  After meeting with Afandyan, the representatives of the Bank realized that he has a big appetite and there is no way to find points of reconciliation.

Furthermore, according to the bank, it was ensured - by utilizing manifestly unfounded, illogical legal tricks not based in law and in violation of rules of procedure - that the case was heard by the same judge of the Kotayk Marz  - Tigran Poladyan, who had examined several bankruptcy  cases of the companies owned by Afandyan. In relation to the biggest of the said companies - the “B.M.L Arzni” LLC, the court has demonstrated an unprecedented expedition for the judicial system of the Republic of Armenia, by reviewing the case within five months and by holding 8 court sessions.

"An illegal decision has been rendered against the bank, which may end up in extorting a huge amount of money from the bank," says Hakob Martirosyan, a representative of the Bank.

Hakob Martirosyan and the bank’s lawyer, Arthur Melikyan, have identified numerous violations of both material and procedural norms. More than 25 such violations are indicated in the complaint with the Court of Appeals, which, as they say, include violations that undermine the fundamental principles of law and legality, including the fact that the same subject had appeared both on the side of the plaintiff and on the side of the defendant; a judgment made in favor of an inappropriate plaintiff (one that lacked standing); misinterpretation of the contract in contradiction with the law by which an attempt has been made to align it with reasoning and the purposes of the various parts of the judgment. The Bank has also filed with the Highest Judicial Department of the Republic of Armenia for the initiation of disciplinary proceedings against Judge Tigran Poladyan on the grounds of distorting violations made during the trial and in the ruling.  Judge Tigran Poladyan is the brother of Karen Poladyan, the Head of Judicial Department of Armenia.   

The Bank has appealed to Nikol Pashinyan

All this has happened during the administration of the former authorities, and now the new shareholder and the management of the bank hope that under the new Government the judicial system will be unbiased and will render a fare decision on the case.

The Appellate Court decision will be announced on July 20. Meanwhile, the Chairman of the Board of the Bank, Mr. Ruben Melikyan, has addressed a letter to the Prime Minister Nikol Pashinyan.

In his letter the Chairman of the Board states that businessman Gevorg Afandyan, known for his close ties with the highest circles of the former authorities, has systematically harassed the Bank that has been established and is operating with Lebanese and Russian investments. Gevorg Afandyan's companies had been borrowing tens of millions of dollars from Armenian banks for many years, and in recent years almost all of his companies have either become bankrupt or are on the verge of bankruptcy.

Ruben Melikyan wrote that in October 2017, Gevorg Afandyan, taking advantage of the bankruptcy of “B.M.L Arzni” LLC, has launched a real attack on the bank and its shareholders filing several lawsuits for a total claim of more than USD 35 million.  

The Chairman of the Board writes in his letter - "The fact that Gevorg Afandyan has been standing behind his sons and other fictitious shareholders and directors in the past, and now – behind the bankruptcy receiver, is proven to be true both by the testimonies given by Afandyan and his sons during the trial, and by the fact that he was a party to the negotiations with the Bank’s representatives conducted after the court ruling where he directly accepted this fact.” 

The Bank and its shareholders are confident that under the new Government Armenia will overcome the corruption, and justice will be restored. However, there is still a concern that  the new realities in the country have yet had no effect on Gevorg Afandyan’s and his sponsors’ vicious practices, and that  the deals formerly made, including the possible arrangements with the judicial system, are still very much valid and viable. Ruben Melikyan concludes - "We believe that addressing of this problem in a timely manner will help to prevent the serious risks that Gevorg Afandyan's judicial aggression could pose to our future activities in Armenia as well as to Armenia's investment climate at large."

USD 9 million in Afandyan’s pocket

“They cannot execute contracts with one another in a proper form, is it Asoyan’s fault?” - said the bankruptcy receiver Hakob Asoyan in a conversation with us. - "I will repay all my liabilities to all banks, and whatever remains, I will return to the debtor. It was up to the Bank not to make the mistake and not to put itself in a bad condition.”

The bankruptcy receiver did not want to get into details advising us to ask their lawyers instead.

In the conversation with us, businessman Gevorg Afandyan confesses that he will benefit from this deal. The businessman has even made calculations: out of USD 22 million he will pay USD 11 million for the “B.M.L Arzni” liabilities under the bankruptcy case, USD 1-2 million will be paid as taxes, and USD 9 million will end up on his bank account.

Within the scope of this case Nerses Karamanukyan, former manager of "Anelik Bank", and businessman Gevorg Afandyan and his sons had given testimony to the court. Neither of them denied the fact of the deals.  However, Gevorg Afandyan denies his participation in the incorporation of the "Tarmak" LLC. He admits only the creation of an offshore company, where, however, he considers his son’s share to be negligible, since it does not give him any powers.   The management of the plant, transactions and the creation of "Tarmak" LLC plus USD 11 million credit on the shoulders of the offshore "PIC" were all done without his consent. 

lso read: Businessman Gevord Afandyan, supporter of shadow economy, talks about the confrontation between Arzni Waters Plant and Anelik Bank.

“They will lose big amounts on these deals, whether it is going to happen today, tomorrow or the day after, I do not know: their bank is in a very messy condition, their management, their loan portfolio.  It's not hard for me to earn on their loan portfolios, to open up a case.  There is a lot going on here ... I will get my money to the last penny…” says Gevorg Afandyan.

He is also ready to appeal the decision of the Appellate Court if it is not in his favor. Although the plaintiff is the bankruptcy receiver, the entrepreneur forgets about this fact when talking about the matter and considers himself as a key party to the case.

"As you may know, the European Court quickly slams countries for the attempt to steal a business.  This is a classical form of theft”- he says.

In order to clarify some of the issues related to the years of the Lebanese management of the Bank, we asked questions to Mazen A. Shehayeb, member of the Board of Anelik Bank, Coordination of Foreign Branches, Lebanese “Credit Bank” S.A.L. 

The foreign shareholders of Anelik Bank believe that under the new Government their business and investments will be protected.

He told us that back in 2010, the former shareholders and management of the bank, and later, the representatives of Chzmachyan family, introduced Mr. Gevorg Afandyan to “Creditbank” as Armenia's most successful oligarch and businessman who owned many companies, including “Star Divide” LLC, "Interstatos" LLC, "Byurakn" LLC, "Arzni Group" LTD, "B.M.L. Arzni” LLC, “Eco Print” LLC”, “E-Print” LLC, “V&A Tour” LLC, etc. and is involved in printing, supermarket, bottling and beverage production businesses.  

"However, the former management did not inform CreditBank that Gevorg Afandyan's companies had borrowed tens of millions of dollars from Armenian banks and that he was one of the largest borrowers in Armenia, and that some of his companies were on the verge of bankruptcy. Based on the said information, the Bank provided a loan to “Byurakn” LLC, which was presented by Chzmachyan family as a member of Afandyan Group of Companies controlled by G. Afandyan” - says Mazen A. Shehayeb.

Mazen A. Shehayeb points out several arguments that prove the bank's rightfulness in this dispute. In particular:

- the right of first refusal, agreed on March 4, 2015, has never been notarized by the notary public and no rights and limitations arising thereof have been registered;

- unlike the purchase agreement, fixing of the right of preemption was not approved by the Board of "Anelik Bank" CJSC nor was it verified by the CreditBank Board;

- the non-judicial levy procedure was launched on March 17, 2015;

- the property rights over the assets (real property and two land plots) subject to confiscation was transferred to the Bank for the consideration of USD 4,434,907,9 million, while Gevord Afandyan had purchased the said property in 2001 for USD 30 thousand (AMD 10 million);  

- on June 22, 2016 “B.M.L Arzni” LLC  was declared bankrupt;

-in October 2016 the assets were transferred to “Tarmak”  LLC, the time when  “B.M.L Arzni” LLC had neither legal nor financial capacities to redeem the said assets;

- and Gevorg Afandyan has agreed to approve the transfer of the assets on the following 4 conditions, including:  

1. provided that he gets one-third of the assets free of charge by owning 1/3 of the shares in the new company who will have ownership over the assets;

2. provided that his companies continue using the property for the production of non-alcoholic beverages,

3. provided that he gets a share of USD 380 thousand from the Bank, which will make 50% of tax returns for the property;

4. provided that he additionally gets USD 500 thousand from the CreditBank.

The Arzni Mineral Waters Plant that has passed to “Tarmak” LLC is not operating since September 2017. The property of “B.M.L Arzni” LLC is on auction, however there is move forward due to the absence of offers.  In the meantime, Gevorg Afandyan has filed 5 lawsuits before the Armenian courts against the “Anelik Bank”.

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