Corporate wars at Latvia's pharmaceutical giant

Take note – story published 4 years ago

It seems that a shareholders' meeting at Olainfarm, a leading pharmaceuticals producer in Latvia, with the goal of "toppling" factory head Irina Maligina -- the eldest daughter of the late Valērijs Maligins -- has successfully taken place. However, it is now up to the Enterprise Register to rule whether the meeting, which was held inside a black van at the company's factory, took place legitimately, reports

The late Valērijs Maligins, who passed away at the age of 52 on December 9, 2017, owned 69.5% of Olainfarm shares. He bestowed all of his free estate to his daughters Irina Maligina, Anna Emīlija Maligina (born 2006, she is represented by her mother Signe Baldere-Sildedze) and Nika Saveļjeva. His wife Elīna Maligina was not mentioned in the testament but under Latvian law became a forced heir and chose to convert her shares into money, estimated at about €8m to €10m.  

In practical terms, however, it was Irīna who assumed complete control over Olainfarm last year. Why is that so? 

Three sisters but only one key to company

It would seem that, if 69.5% of the shares are bestowed upon three sisters, two of them could always team up against the third if there's any conflict. But it is not as simple in practice.

Valērijs Maligins only owned 26.9% of the shares directly; these were divided into three. But the vast majority of the shares, or 42.6%, was controlled indirectly, via the Olmafarm company.

Last February Irina Maligina, named the trustee of the inheritance, became a board member at Olmafarm. Basically, it means she held voting rights for 42.6% of the shares. It would seem that, should the other sisters dislike this arrangement, they could simply instate another board member instead.

But it soon turned out that Irina had made herself irreplaceable -- for the time being, at least. Olmafarm statutes were changed to the effect that changing the board member required 75% of the vote. That meant that the younger sisters controlled two thirds of the company but could not change its leadership.

In essence, Irina Maligina secured complete control over Olainfarm. In September, she used her privileges to shake up the company council, inter alia adding lawyers Mārtiņš Krieķis and Pāvels Rebenoks to it.

Was this an ethical thing to do? According to Irina Maligina, this was necessary for the benefit of the factory. 

Changes by April 1

The recently held meeting was initiated by Nika Saveļjeva and Signe Baldere-Sildedze, basically with the goal of seizing power at Olainfarm. A chance arose for them to do that in January.

Back then Nika and Signe, or rather their team of lawyers, were finally able to assume control at Olmafarm and replace Irina Maligina -- despite the new statutes -- with Milana Belēviča. These changes were entered at the Enterprise Register. Mathematically speaking, Nika and Signe now hold the majority of votes at Olainfarm, or about 57%. 

The other party has contested the Register's decision (it is controlled by the Justice Ministry) on changing the board of Olmafarm, claiming it was caused either by incompetence or corruption. 

On March 27, several days before the meeting, Olainfarm management decided to cancel it. Why? According to the management, data of the Central Depository say that Nika Saveļjeva and Signe Baldere-Sildedze are not Olainfarm shareholders and therefore they were not allowed to call for a meeting. As Pāvels Rebenoks said, "they're nothing".

Meanwhile it took two days for the Financial and Capital Markets Commission (FKTK), which initially distanced itself from the conflict saying it should be resolved in court, to officially condemn the Olainfarm decision. FKTK said sometimes the depository does not have info on the shareholders, as it sometimes lists banks or brokerage companies that hold the individuals' shares. I.e., just because someone isn't listed, it doesn't mean they're not a shareholder.

The stock exchange reacted by suspending the trade of Olainfarm shares starting April 1 "due to the contradictory information in the mass media which might become an obstacle to transparent and fair trading".

Change of power?

Despite that Olainfarm management cancelled the shareholders' meeting, its largest shareholder Olmafarm -- now controlled by Nika and Signe -- disagreed and asked minority shareholders attend the meeting on April 1, as planned.

At the end, several of them indeed attended but were not admitted to company premises. It did not stop them from holding a meeting, however, which they did in a black van with 61.5% of shareholders present. That is, in addition to the daughters there were minority shareholders present, having about 3 to 4% of Olainfarm shares. The result was that a new supervisory board was elected with Gundars Bērziņš as the chairman. He has the power to shake up management at Olainfarm.

This is not the first time something like this has happened in Latvia. When there was a conflict between Ventspils Nafta shareholders, there were parallel meetings held simultaneously -- one of them indeed happened in a van. They made conflicting decisions but ultimately it was up to the Enterprise Register to decide who would prevail.

It is evident that the same thing will happen, with the Enterprise Register again playing a crucial role. It will either deem the meeting legitimate, or not. According to experts reached by, it is likely that the meeting will be pronounced legal and that Olainfarm will come under the control of Nika and Signe. In this scenario, Irina Maligina will become a minority shareholder with little actual influence. She'll be able to control about 8% of the shares that she owns privately.

Ethical ramifications

The situation at Olainfarm is particularly difficult in that even experts and minority shareholders don't know who to support. If best corporate practices mean anything, both of the shareholders don't look particularly well-situated, ethically speaking. Corporate wars are also bad in that, sooner or later, it starts to deplete the funds of the actual business in question.

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