The Payback for Dobrobut:
Astarta-Kyiv vs. Kovalenko
Valentin Khoroshun, Konstantin Tkachenko 15.02.2019
A new spiral of conflict between the representatives of the agro-industrial holding Astarta-Kyiv and Aleksandr Kovalenko, the ex-director of the holding's subsidiary Agricultural company Dobrobut LLC, has broken out recently. This refers to the situation that happened two years ago and resulted in the scandalous discharge of Aleksandr Kovalenko. Now the big guns are bringing out. The newsmaker is the Warsaw Stock Exchange (WSE), and one should admit that it is not an ordinary case.

The ex-director accused the holding of the breach of obligations under the share buyback and its understated value. Astarta, in its turn, claimed against him for UAH 56 million as the compensation for the termination of contracts with shareholders and the loss of profits. At the same time, the events, regarding the arrest of 10 thousand land plots of Agricultural company Dobrobut, are unfolding, and allegedly the similar conflicts arise in other divisions of the agro-industrial holding.

Aimed at figuring this whole mess out, listened attentively to the viewpoint of Aleksandr Kovalenko.
— Why have you decided to speak in detail about your conflict with the owners and the top management of Astarta-Kyiv right now?
— Recently, I have found out, from a publication on the Internet, that the Warsaw Stock Exchange received some information about the conflict between Astarta and the former minority owner of Agricultural company Dobrobut. After reading the publication, I was amazed by the number of distorted facts in it, including the fact that the conflict is intangible. I strongly disagree with this interpretation, because the conflict includes material, moral and psychological factors. That's why I turned to you with a proposal to talk in detail about the situation, so that people in Poltava region, and everyone else, would know what really has happened.
— It is worth reminding for our readers that this refers to the situation that happened two years ago and resulted in the conflict with the founder of Astarta, Victor Ivanchyk, regarding your dismissal from Dobrobut and the obligations under the buyback of your share. But at the beginning let's characterize your role in the establishment of the company and your number of shares.
— Agricultural company Dobrobut was established in October 2003. The company had 4 founders. I owned a share of 5%, the other two founders — 10% each, and Astarta-Kyiv owned 75%. But in fact, that was me who created the company from scratch. I received a seal and began collecting farmland, held meetings, worked with fees, recruited staff, structured the production and organizational set-up. By the end of 2003, the company had a lease of just over 3 thousand hectares of land. And that was just the beginning.

As we got forward, the company grew significantly. The structure of Dobrobut included new subsidiaries because we actively worked with the population in five districts of Poltava region. At a certain stage, the volume of leased land in the turnover of the agricultural company reached 42 thousand hectares. And due to the fact that the company had huge assets, the shares of the shareholders were redistributed. Astarta increased its share to almost 98%. And the share owned by me was determined at a rate of 0.98%.
The notice of withholding payments to Aleksandr Kovalenko
— And was the payout amount fair when there was a talk of the buyback of your share?
— The value of Dobrobut was estimated on June 30, 2017. According to these data, the value of my share in the company amounted to UAH 13,065.000. Initially, I really adhered to the standpoint that this evaluation does not fully correspond to reality.

I think it is reasonable to explain this idea. According to the minutes of the May meeting of the shareholders of Agricultural company Dobrobut in 2018, which was held after I had submitted an application for withdrawal from the list of shareholders as of 01.02 2018, I mentioned a smaller amount — UAH 13.065,000. I asked to evaluate my share that could be a basis for the calculation of the payout amount. In an official letter signed by Andrei Berezovsky, the CEO of Agricultural company Dobrobut, I was offered to familiarize myself with the evaluation at any convenient time.

I managed to get the evaluation only on February 13. However, I know for sure that on January 1, 2018, the value of fixed assets of the entire company was reevaluated, and their value increased significantly. They did not reevaluate the assets all those years when I headed the company and that is a real mystery for me.

However, after the reevaluation on 01.01.2018, the value of the assets of the company increased significantly, and I was considered the payout amount on the balance of 2017.

My colleague tried to evaluate the assets himself, but he was not allowed to do it. In particular, he could not do it physically — he was not allowed to inspect the relevant facilities. Therefore, I refused to attempt an independent evaluation.

Note that in May 2018, at the meeting of shareholders, I signed a protocol stating that I agreed to get the value of my share until January 31, 2019. Thus, I confirmed that I agreed even with the payment that had been counted by Astarta.

But even that payment was not made, and on February 1 I received a letter, signed by Berezovsky, that at the meeting of the shareholders of Astarta-Kyiv it was decided to suspend the payback of my share in connection with the filing of a counterclaim about paying UAH 56 million. This claim, as they said, was motivated by the fact that I had harmed the company.
The claim for compensation of losses for Agricultural company Dobrobut
— How do they argue such a significant amount?
— They calculated the loss of profit for 7 years ahead. This indicator may be put any way you like it. But I would like to draw your attention to the fact that the people who at the end of 2018 withdrew their land shares from Dobrobut did not violate the company's rights regarding the uncompleted agricultural production. The company harvested the new crop and only after that people began withdrawing their shares. Thus, they did not do any harm to the company.
— However, if you do not agree with the demands put forward, the company can bring a case before the court.
— This item is mentioned in the appeal to Dobrobut, which we have prepared, according to it only the court can rule if I have done harm to the company. Moreover, the claims for the payment of UAH 56 million, which the company put forward to me, are not related to the buyback of my share. And it is reasonable to mention that the payment period has already come to an end. There were no claims or demands for a whole year. And on the first day after the expiration of the payment, they sent me a claim. That's the point.
— Let's talk about the conflict itself. Why did it arise and what was its cause?
— The fact is that until 2013 both Agricultural company Dobrobut with its enterprises and Astarta-Kyiv were actively and dynamically developing. At that time, we were the leaders, the so-called flagships, which moved other companies forward. All other farms and agricultural enterprises were guided by our internal policy. It was focused primarily on the employee and the shareholder, i.e., timely payments for the lease of land shares, free tillage of private land plots, provision of financial assistance, reasonable payments in the form of agriproduce, substantial amounts of public financing in the villages, etc.
— How much were shareholders paid for the lease of land?
— In 2003, at the start of Dobrobut we paid 1.5%, while the others paid 1%. Then the rate was increased to 3%, while the others paid 2%. Later, we raised it to 5%, then to 7%, when other companies paid up to 5%. That's when the most interesting things started: by 2012, many large players of the Ukrainian agrarian market understood that to preserve the land bank, one has to cooperate with shareholders and employees.

To save human resources, it was not enough to pay the rent in the amount we had at that time. Other agricultural holdings were catching up with us, and in order to maintain leadership, we had to reach a fundamentally new level for all positions: wages, rents and social programmes. But at that very time the Astarta's policy towards the core enterprises of the holding began to change. A new management came to the company, and the holding set a course for centralizing management, according to which all strategic, financial and organizational decisions should be made only in Kyiv. And the directors of enterprises should implement these decisions, inasmuch as we were one team.

In practice, the distance between enterprise managers and top management began increasing. The management's vision of relations with the villagers changed a lot. Actually, it came down to the fact that people should get only the rent. I understood that if the new team of managers of the holding had lived and worked in the village and had not just observed the process during business trips, the management might have changed the views on Astarta's development. As a result, it became difficult for them to understand us, and also the other way around.

I was often told: "You do not understand, this is just business", and I answered that in business one can do anything, but there are things that need to be paid attention to, and decisions should be made by those personally responsible.

Ultimately, the central apparatus took over the functions of the director of an agricultural enterprise. That was ridiculous. It did not matter what financial issue was discussed, a "second button" was always set in Kyiv; any payment could be made only after the agreement with "the centre", and that rule was followed not only on global issues, but even on ordinary payments to shareholders.

By the way, I fully agree with the standpoint of the holding on the centralization of the main procurement: fuel, mineral fertilizers, plant protection products, seeds. But after 2012, the managers of enterprises, agronomists, and engineers were completely barred from making decisions in technological processes of production.
In practice, the distance between the enterprise managers and the top management began increasing. The management changed its attitude to the villagers.
— Were your recommendations taken into consideration?
— No, I was always told that the budget was limited. In this case, I'm not talking about the holding's agricultural companies in general, but exclusively about Dobrobut. I saw that we had the resources, nice profitability, which meant we had to increase the rent and salary, because it was of great importance for people. Or we could renew the machinery fleet, which was poorly updated in 2012-2016.

They explained to me that I was a team player and had to listen to what the team said. And, frankly speaking, I always listened to Viktor Ivanchyk and his team, but at the same time I always spoke honestly about the things that had happened at the local level. If the manager is drawing the wool over eyes, saying that everything is OK, what can it lead to in the end? Therefore, my position was always based on real facts. For example, I mentioned that we had began paying rent for the land with a delay and became non-competitive, as a result, an outflow of qualified specialists began.

By 2016, we paid 1.5-2 thousand UAH/ha less than other producers. There were many cases when within one village council where the shareholders of Agricultural company Dobrobut were paid UAH 12 thousand, other farms paid UAH 15 thousand for the same share. Surely, people shared this information. We were invited to meetings where people asked why we were not raising the rent. Thus, compared to other agricultural companies, we did not just lose positions but returned a few years back.

And during that period of time a lot of the previously concluded contracts expired. And people, no matter how I asked them, began taking the land back from Dobrobut and started leasing it somewhere else.
— And how much land was lost in such a way?
— I cannot say exactly how much land the company has lost to date. But in 2013-2014, when there was a period of massive renewal of agreements, the rent in Dobrobut was 7%. Therefore, I decided to enter into all agreements with a payment of 10%. I held meetings in almost every village, and the new rent attracted the shareholders. We renewed about 65% of the agreements, and it was a smart move.

Truth be told, the decision was made on my own. I had the authority for that. Of course, after the decision I was reprimanded, but the time passed and with time tha management realized that that was the only way out. And Viktor Ivanchyk told me personally "Everything you did was right, but you should have informed about the decision made."
— And if one analyses all companies of the holding separately (since it has a cluster structure), can we state that Agricultural company Dobrobut held the key positions?
— In fact, we have always been in the top three. Everything depends on how you evaluate the situation. And who has the right to evaluate. If it were up to the CFO of Astarta, Viktor Gladkyi, then Agricultural company Dobrobut would never be in the lead.

In 2015-2016, I was aware of the results of each company. And I can say with a strong confidence that during that period Dobrobut held the leading positions by all financial and economic indicators.

But the company was not given a chance to become a leader. I tell you this with all responsibility. I have a financial education, I am good at evaluating things like that, I have a strong understanding of economics, and I have seen analytics from all the agricultural holding companies. I am convinced that the period of 2015-2016 was very successful for Dobrobut.
Of course, periodically the profit was not as big as, for example, at the end of 2015-2016, as there were dry seasons. One of those was in 2017, although even then the company showed a fat profit.

But one way or another, the problem of relations with the central office and the limitation of the authority increased gradually until in 2015 there was no actual authority of the director of the company.
— What was the trigger for fuelling the conflict?
— There was no trigger. This was an evolutionary process that, as I have said, began in 2012. Well, how can a director hold his position and not have the authority? In this case, he is not needed; a simple manager is enough to control the production structure. After all, the director is not only a production structure, but also a social one: I mean human resources, shareholders, work with village councils and authorities.
There was no trigger. This was an evolutionary process that, as I have said, began in 2012. Well, how can a director hold his position and not have the authority?
— Does it mean that the reason for your dismissal was that you always expressed your disagreement with management centralization?
— It was just one side. Another one is related to production. There we had a lot of problems: logistics, start of the sugar beet harvest, sugar refining, etc. Some mistakes were made and they had to be corrected the next year. At the level of the top management of the agricultural holding, the problems seemed to be understood, but in fact nothing changed. The new season began, and the same mistakes were made again and again.
— And how did relations with Ivanchyk develop?
— I had partnership with the Astarta CEO until mid-September 2017. But this is like a tension that grows harder and harder until it is unbearable. I was in a state of chronic stress for 5 years, I was clearly aware of all the existing problems, but I could not solve them as no one at the senior level heard me. And I could help neither shareholders, nor workers.

There comes a time when you ask yourself "What role do I play here, and why do I need any?" I had to tell Viktor Ivanchyk that my personal standpoint conflicted with the one of the team, I mean the team that was in the central office, and I intended to leave.
— Was it a personal conversation with Viktor Ivanchyk?
— We had several meetings. The last conversation was unpleasant to say the least. It was autumn 2017. His meaning was the following "I created you". But he did not understand that it is not the thing. If the standpoints of the parties are far apart, you just have to leave company peacefully. Another issue is that Ivanchyk is extremely jealous and oversensitive towards the local directors who enjoy authority there. It annoys him and he tries to do everything to depersonalize the role of a director of any local company. Over the 25-year history of the holding, there was a team with which Viktor Petrovich built the company and achieved success. Today we can state the fact that not a single person from that team is left.
Ivanchyk is extremely jealous and oversensitive towards the local directors who enjoy authority there. It annoys him and he tries to do everything to depersonalize the role of a director of any local company.
— Earlier you held a contract for a period of one year if I am not mistaken. Did it make any difference?
— I understood why it happened. From 2015 to 2017, I renegotiated 75-80% of agreements with shareholders for a period of 7 to 10 years. That is, the main work was done. I think when the central office understood that, they decided to transfer all the directors on a contract basis. I had some questions for Viktor Ivanchyk: "Why do you need this? We have been working for 14 years without any contract, we trusted each other, and we had no matter of argument." And he replied: "This is a European practice, it will be better for everyone." And on January 3, 2017, all the directors signed contracts. When I signed it, frankly speaking, I understood that what that meant.

And what should I tell the people? After all, this is my native land. I live in Kozelshchyna village in Poltava region. 12 thousand hectares of the land bank of Agricultural company Dobrobut are leased in Kozelshchyna district, and these are 3.5 thousand shareholders.

I must clarify that I personally brought many shareholders into the company, in total it is 18.5 thousand hectares of land and that is a great part of the total amount of 38 thousand hectares. Thus, it was very difficult for me. A lot of shareholders were from Kobelyaky, Novyi Sanzhar, Kozelshchyna, and they knew me well. When people turned to me, I could not help them, even taking into account the fact that I had promised to assist when we renegotiated contracts. And, secondly, I always said "You can turn to me as the ultimate authority, if the local one cannot solve your problems".

When people started coming, and I was incapable of helping them, I realized I was deceiving them. And I spoke openly about this to Viktor Ivanchyk.
— When you organized the press-conference, the holding regarded it as the badger game and declared that you wanted to "chop off" 7 thousand hectares. Where did this figure come from? Were you a farmer or an employee by that time?
— Since the establishment of Dobrobut, I did not have a single hectare of land. In 2007, there appeared a plot of one hectare, which I leased to Dobrobut. It is still on lease.

A lot of people asked me why I did not have a farm while working in the company. And I always said that while I was working for Dobrobut, I had no intention to do that. I explained that since we had a common policy, the employees had to lease some land to the company. Moreover, it was the general policy of Astarta-Kyiv. I adhered to this rule until the last day of my work.

And in October-November 2017 I signed an agreement on the termination of the lease, so this was the last thing I could do for people. After all, there were a lot of shareholders, whose terms of contracts had expired two or three years before, but they were still valid according to the state registration.
— Still, you were ready for the discharge and aware of the fact that a priori your share should be bought out, didn't you?
— Yes, but Astarta had a different standpoint. They said that the value of my share had been evaluated, and I proceeded with challenging the results of the evaluation publicly. That's how the holding translated the situation, although the reality was completely different.
— Let's talk about Partner Agro Group, which you head today. How was it established?
— Partner Agro Group was established at the end of 2017. At that time I was no longer the director of Agricultural company Dobrobut, but I also had no connections with Partner Agro Group. The company had its founders and stakeholders. I was offered to join the founders and headed the company in 2018. I became the Director of Partner Agro Group in February 2018. That decision was made by the stakeholders.

To put it simply, I did not prepare the ground for the transition to Partner Agro Group. After leaving Dobrobut, I took a time out, made a decision to take a break for some six months or a year: that should help to improve my health, to put my mind at ease. Suddenly, there appeared an offer. And since I did not know what to do in my life except working on the land, my decision was unequivocal. I accepted the offer with great pleasure and headed the company.
— And how many stakeholders are there in Partner Agro Group today?
— The company has 4 stakeholders. My share is 47%. One more stakeholder has the same number of shares. Others have 3% each.
— When you joined the company, what was its landbank? Were those lands originally Astarta's?
— At that time Partner Agro Group had about 600 hectares. There were some share lands, but at the same time there were also plots which had been previously cultivated by Agricultural company Dobrobut. These were the lands of government reserve that were put up for auction. But Astarta lost it. Currently, the land bank of the company is more than 2 thousand hectares.
— Did it happen when you were the head of Dobrobut?
— Of course, but Astarta lost the auction as the CFO of the holding had set a limit on the lease of such land of no more than 5-7 thousand UAH for 1 hectare.

And, honestly, Astarta lost almost all subsequent land auctions in which I did not take part.
— Does it mean that the limit set by the central office of the holding was initially non-competitive?
— No doubts, the limit was absolutely non-competitive. Therefore, in 2017 and, as far as I know, in 2018, Dobrobut lost all auctions, except a few ones.
— And what was then?
— And then Partner Agro Group bought out the corporate rights from one of the enterprises of Kobelyatsky district of Poltava region. After that, the shareholders started doing the same in other districts — in Novyi Sanzhar, Kozelshchyna district, Kobelyaky — they saw that the new enterprise was working well. Some of them came to me. People asked to lease their land.
— Weren't they the shareholders of Astarta anymore? Were those people the shareholders of Agricultural company Dobrobut whose contracts had been broken when you worked there?
— Not only. There were the shareholders who leased land to other farms and agricultural companies. Those shareholders were a lot. They wanted to find a new enterprise and were only waiting for the expiration of contracts concluded with other leaseholders.

There were those with whom I, indeed, prematurely terminated the contracts which had been concluded with Dobrobut. But the termination was initiated by shareholders, who decided to lease the land to someone else. And when it turned out that I no longer worked in Agricultural company Dobrobut, yet I manage a new enterprise, people came to me with the desire to lease their land to Partner Agro Group.
— How many were those shareholders?
— A good many.
— Did you have a right, as the director of Agricultural company Dobrobut, to terminate the lease agreement with shareholders?
— Yes, according to the corporate charter, I had such a right, but I would like to focus on another point. Among the shareholders, whose land had been previously leased by Dobrobut, were those who cultivated it by themselves. Others decided to lease the land to farms, and a lot of people came to me to a new company. Therefore, this fact does not give any ground to say that Kovalenko has taken everyone to his company. I did not have such a goal. The purpose of the termination of contracts was to give people the right to choose. So that they themselves decided who they would live and cooperate with in the future.
— OK, everything is clear about the shareholders. However, it is unclear about farmers. As far as I know, Dobrobut used the land that was rented by farmers. Will you dwell on this scheme?
— At some point, the state administrations provided agricultural land for rent to farms, if they could legally be called farms. Therefore, in agreement with the management of the agricultural holding, we decided to diversify the land bank and establish farms from among the employees of Dobrobut. Petro Rybin, who at that time was the CFO of Astarta, supported that idea.

I agreed with the people that while they worked in the holding they leased their land to us. And if they left the enterprise, they could dispose of the land at their own discretion. At that time, people, who had farms, came to Dobrobut because of my reputation. And these farms were in the structure of Agricultural company Dobrobut to the last. A lot of them are still in Dobrobut, because they are the employees of the enterprise.
— What about the conflict shareholders, as you have called them. What is the conflict?
— Astarta accuses me of backdating signing the termination agreements, and, thus, I affected the company. These accusations are based on the presumption that I have a fake seal of Agricultural company Dobrobut, which allegedly made it possible to terminate the land lease agreements retrospectively. But this is not true. I put all the seals and signatures on the terminated contracts at the time when I was the director, that is in October-November 2017. That is why there is tremendous pressure on me today.

But no matter how many criminal proceedings are opened against me, no matter what the situation is, I will defend my standpoint. People always strive for the best conditions. Always has been, always will be. And my meaning is that despite the pressure from Astarta-Kyiv, and all that negative and dirt that is spread through various leaflets and media, I have not lost my face. I am open to communication with everyone. People call me, they constantly come to me, and they try to meet to find out what is happening and how to act in this situation.

I am extremely pleased with my work and team after I have joined Partner Agro Group. I sincerely want to develop the company. And I am sure that in the future people will come to me, because I treat them respectfully and I am always honest especially if we speak about the financial arrangement. It has always been the main thing for me. My deceased father used to say "Son, if you cheat once, none comes to you again."

I remember these words, so I cannot be intimidated. I had a sense of purpose and I continue doing it.
— Don't you see any "personal motive" in Astarta's rejection of buying out your share in Dobrobut? What if this is the way to disrupt the sowing campaign in Partner Agro Group?
— Sowing campaign will start in any case. Moreover, it will be carried out at a high level. And a non-payment of UAH 13 million won't be a problem neither for me nor for Partner Agro Group. I have got a lot of friends left. And, as you know, a friend in need is a friend indeed. And, believe me, no one among my friends has let me down. They can solve the problem of both money and opportunities, so we can hold the sowing campaign easily.
— At the end of last year, the regional media reported that the court arrested 10 thousand of Dobrobut land plots. What can you tell about it?
— You know, I can't talk about it without excitement, because it is an unprecedented case in the history of Ukraine. The Oktyabrsky District Court of Poltava, upon the application of Astarta-Kyiv, filed through the Agricultural company Dobrobut, decided on the arrest on 10 thousand land plots that are leased by the company. I will stress once again: the arrest was imposed on 10 thousand land plots that are not the property of Dobrobut. It is as if you gave me an apartment or a car for rent, and the court, according to my application, arrested your property.

Before now, I could not even imagine that such court decisions could be made in Ukraine. I personally explain this by the fact that in 2019 and on, the term of the land lease agreements of Dobrobut will expire. And by imposing a court arrest, the department for legal issues of Astarta is trying to block the exit of the shareholders, so that they can hold a dialogue on the renewal of contracts using various overtones. This is a kind of intimidation.

You understand who are shareholders in the village, they are mainly pensioners. And any trial is a psychological trauma for them. You need to find a lawyer, go to court sessions; everything costs money and pain in the neck. Although it is not only about money, it is about procedural nuances. To win the court you need to monitor the progress of the trial constantly. And it is almost impossible to do it alone, without a lawyer.
— Was the application filed against the individuals?
— The arrest of land was imposed in the framework of the criminal proceedings opened on the application of Dobrobut. The company found a violation of the law in the actions of the state registrar, who registered the early termination of lease agreements with Agricultural company Dobrobut.

But I also want to mention that the arrest was imposed not on those land plots, the information on which was entered by state registrar, but on all 10 thousand of leased plots. Because of this decision, some shareholders cannot dispose of their land until now. People cannot make an inheritance, and today there are such precedents as the arrest of land plots, which have not been completely canceled.

In fact, the court arrested 10 thousand cadastral numbers. The court ruling on the imposition of arrest lasted about three weeks. During this time the farmers and the shareholders invited the media to make it public.

Then the prosecutor's office intervened, the arrest was canceled, and the criminal proceedings against the state registrar were closed. No violations found. There is already a verdict of the appeal court, which confirms that the decision to impose an arrest on all land plots was rendered illegally. This was achieved by people, and the prosecutor's office promptly responded to such illegal actions by Astarta.

However, the state registrar managed to enter the information about the imposition of arrest on 100-110 plots into the State Register. After the court ruling on the arrest was canceled, the state registrar should have done the reverse procedure, which is to enter in the register the information about the abolition of the arrest. But, since 2018, the state registrar has suspended its work, so the arrest of approximately 100 land plots continues, and it is unknown when it will be canceled.
— Generally speaking, is the conflict with shareholders which occurred in Agricultural company Dobrobut unprecedented for Astarta-Kyiv?
— In fact, a similar conflict situation developed not only in Dobrobut. This happens in many branches of Astarta in Poltava region. Perhaps, this is due to the fact that Astarta-Kyiv has provided insufficient powers to the heads of local enterprises for making prompt decisions. I strongly believe that if appropriate and adequate decisions are not made in a timely manner, people's discontent in the company can grow into something more.
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