Russia’s leading aluminium producer Rusal has escalated its legal battle against billionaire Vladimir Potanin, CEO of Norilsk Nickel, by filing additional claims in London’s High Court, bne IntelliNews can report.

Rusal alleges that Potanin caused at least an estimated $2.5bn in financial damages to one of the world’s leading producers of nickel and platinum, according to bne IntelliNews estimates based on information in the case documents, seen by bne IntelliNews.

The new claims mark a new chapter in the long-running dispute between Potanin and Rusal that has escalated again after nearly a decade of relative quiet. Their relations were regulated by an expired shareholders agreement, which, in particular, outlined how dividends should be distributed – one of the main points of contention. The published court documents, referred to as the “Amended Particulars Of Claim” (APOC), outline multiple claims by Rusal, old and new, and describe an alleged complex web of companies operating in conjunction with the metallurgical giant and Potanin. Rusal holds a 26% stake in Norilsk Nickel and has previously criticised certain management decisions by Norilsk’s CEO and largest shareholder Potanin, who holds a 37% stake but remains in operational control of the company.

Until the end of 2022, relations between Rusal, which has veto rights over certain managerial decisions, and Potanin were governed by the ten-year shareholder agreement, which was signed in 2012 when Rusal was still controlled by its billionaire founder Oleg Deripaska, and governed Norilsk Nickel’s policies on management, dividends and other matters.

After the US personally sanctioned Deripaska in 2018, he was forced to give up direct control over Rusal as part of an agreement with the US Treasury Department to remove Rusal from sanctions.

Shortly before the shareholders agreement expired, and as Potanin moved closer to retaining primary control of decision-making within the company, Rusal filed a lawsuit in the High Court in London, accusing Potanin, one of Russia’s richest men, of a series of corporate violations.

According to the shareholders agreement, if Potanin were to materially breach his duties as CEO and managing shareholder of Norilsk Nickel, he would be obliged to either sell 7.5% of the company’s shares at a 25% discount or transfer 1.875% of its shares to Rusal for just $1.

Rusal’s fresh claims, detailed in the APOC, describe events that the company claims allegedly show “material breaches” of the shareholder agreement by Potanin, and call for his resignation as CEO of Norilsk Nickel.

Potanin’s office did not immediately respond to a request for comment.

Rusal said its claim “fully aligns with the best interests of Norilsk Nickel and its minority shareholders.”

Artic oil spill

One of the biggest black marks on Potanin’s record of running the company was a massive oil spill in May 2020 that became one of the worst ecological catastrophes in the history of the Arctic region, according to Russian press reports at the time.

Approximately 21,000 tonnes of diesel fuel leaked from Norilsk Nickel’s storage tank, contaminating nearby rivers and soil. As a result, the total clean-up cost of the accident reached nearly $150mn, and Norilsk Nickel was fined an unprecedented $2bn in March 2021 by the authorities.

The APOC documents accuse Potanin of “negligence” in the fuel spill that was declared a “federal emergency” by the Kremlin at the time and dubbed “Russia's Exxon Valdez” by the press.

Financial and funding shenanigans

In another claim of malpractice Rusal further alleged that Norilsk Nickel’s pension fund was sold below a fair market valuation, reportedly generating $195mn in what the APOC described as “kickbacks” – profits to entities affiliated with Potanin through offshore channels.

The kickback claim is based on an anonymous “whistle blower” report Rusal says it received on 17 June 2021, “who claims to have been personally involved in the process of the AF sale execution and stated that as a result of this transaction Mr Potanin received a significant kickback through a chain of affiliated entities.” The APOC goes on to detail some of these transactions, some worth hundreds of millions of dollars, it claims were detailed in the whistle blower’s report.

APOC also claims Norilsk Nickel made a series of donations to charities adding up to tens of millions of dollars, goes on to assert that these were fraudulent schemes designed to personally benefit Potanin. The APOC details some of these transactions, but claims they did not comply with Russian rules on corporate charitable donations and for the lack of accountability or reporting on the use of the funds by these charities.

“The requests did not comply with reg. 9.3.3 of the Charity Regulation, in that they did not provide a breakdown of the items on which the money sought would be spent. Accordingly, pursuant to reg. 9.6 of the Charity Regulation, the requests should have been refused,” the APOC says. According to the APOC, a complex series of transactions funnelled these funds to entities controlled by Potanin and his associates.

Rusal also claimed that between 2017 and 2022 Norilsk Nickel's management transferred its significant subsidiaries to entities either under common control with, or closely associated with, Potanin at substantially and unjustified discounted prices and without regard for Rusal’s veto rights.

The key subsidiaries named in the APOC include the air carrier Nordstar, the warehouse operator Logistic-Center and the industrial construction contractor PSMK, all of which were, the APOC claims, sold below their actual market valuations.

As of 2023, Nordstar was carrying 1.3mn passengers a year in its fleet of a dozen planes. “An independent valuation conducted by Finotsenka LLC has established that, as of 11 March 2022, Nordstar was worth at least RUB1,293,500,000 (c. $10.745mn as of 11 March 2022, and c. $13.467mn as of 25 March 2022, i.e. on the date of the sale). Further, internal NN Group financial statements listed Nordstar as having a value of RUB3.181bn (c. $38.07mn) as at 31 December 2021,” the APOC reports.

A sale of Nordstar was formally proposed to the managing committee by an email circulated by the Norilsk Nickel corporate secretary on March 16, 2022. The management engaged a company called Rosexpertiza to value the airline the next day, which valued the whole company at RUB1, less than one dollar on the basis of the “net value of the subject company’s assets.” Rosexpertiza started with the assumption that any buyer would wind the airline up in three months.

“The assessor found Nordstar had fixed assess worth RUB1.712bn (c. $16.47mn)… but deducted RUB1.611bn (c. $15.50mn) (representing projected losses for three months of trading) and RUB1.279bn (c. $12.3mn), (representing projected payroll expenses during Nordstar’s liquidation).”

The net value of the airline then falls to zero as result of this calculation, one that Rusal objects to as “unreasonable.”

“There was no good reason for Rosexpertiza to assume that Nordstar would be placed into liquidation within three months,” the APOC says, pointing out that despite the sale, the airline is still operating today and has not gone bust.

The APOC raises similar objections to the sale of the other assets and accusations of manipulation of the valuation are detailed in the documents submitted to the High Court.

According to the APOC, Logistic-Center was sold at a price nine times lower than its valuation, yet its dividends over four years exceeded the sale price by more than 101-times, according to the documents. Similarly, PSMK was sold for around $4.8mn, a fraction of PwC’s estimated value of $14mn to $19mn, the material claims. Within just two years, it generated dividends of about $159mn for its new owner. Nordstar, meanwhile, reported a profit of approximately $24mn in 2022, which exceeded its sale price by over 1,749-times, according to the APOC.

These companies had no significant competitors and played a crucial role as primary providers of transportation and construction services in the Norilsk region – a remote area without direct rail or road links to mainland Russia, accessible only by air or seasonal Arctic shipping.

Atomyze metals blockchain.

Rusal has also accused Potanin of prompting Norilsk Nickel to invest at least $24.6mn of its funds to create the digital finance operator called Atomyze, that the APOC claims will enrich Potanin “in bad faith at NN’s expense.” The APOC claims that Norilsk Nickel had a publicly declared 49% stake in Atomyze but the rest was collected by Potanin, “behind our back and it was his asset that was developed with the company's money,” Rusal’s lawyers claim.

Rusal said Potanin diverted resources and structured business arrangements to benefit Atomyze, “breaching fiduciary duties under the shareholder agreement,” particularly when he launched an employee incentive programme at Norilsk Nickel in the form of digital tokens valued at over $62mn, which offer the same returns as shares but do not grant voting rights.

“Under the staff incentive programme, shares were bought with Norilsk’s money, which in the end belong to Potanin’s structures,” Rusal’s lawyers claim.

Rusal's lawyers allege that the incentive programme was designed to allow Potanin-affiliated firms to use Norilsk Nickel's funds to purchase its own shares on the market, ultimately enabling control over the voting rights associated with these shares.

Atomyze is a Russian digital financial assets (DFA) operator on a blockchain, launched in 2020 and approved by the Central Bank of Russia (CBR) two years later. The company was the first ever to be included in the CBR’s register of digital financial assets (DFA) in 2022 after the relevant DFA law on came into force in January 2021.

The Atomyze ecosystem includes tokenisation platforms not only in Russia but also in other jurisdictions, such as in the US and Switzerland, and the idea was break metals trading down into small units, denominated with a coin, that could be traded on the virtual exchange to broaden the pool of potential investors and significantly reduce the costs of metals trading.

The ongoing case in London’s High Court underscores the UK’s continued role as the preferred venue for resolving corporate disputes between Russian businesses, even in the face of unprecedented Western sanctions. How Potanin and the other defendants will navigate the unfolding legal battle remains to be seen.