Sofiyskiy Fitness Center takeover becomes test for ‘new’ Ukraine’s investment climate

Ukraine, struggling after three years of war and economic upheaval, is in greater need than ever of foreign investment. The last thing it needs is an image-scarring, 1990s-style ownership dispute over a multimillion-dollar business in Kyiv.

But that’s exactly what it got at the end of May at the Sofiyskiy Fitness Center, when a group of men walked into the luxurious club in the very heart of Kyiv and seized control of most of it.

The men, who represented a company called BF Group, claimed that the owners lost the fitness center because of an unpaid $15 million loan, which the owners deny.

The intruders welded steel bars over stairwells to block off access to all but a part of the club, stopping its operations.

Then two weeks later, on June 12, a group of movers guarded by 15 unidentified men broke into the remaining part of the club and began to haul out all of its gym equipment and other property, leaving its owners having to go through all their belongings on the back terrace of the building for hours afterwards.

The takeover has a political undertone: It emerged that the BF Group may be linked to ex-Prime Minister Arseniy Yatsenyuk, who controls the country’s second biggest political party, People’s Front.

Meanwhile, the Sofiyskiy case could have far-reaching negative consequences for the whole country. At least so believes the club’s legal advisor Bate C. Toms, a managing partner of B.C. Toms & Co., a multinational law firm specializing in Ukrainian law.

Toms, who used to be a member himself, argues that the case will get attention among investors and business circles because the pricey gym has been the club of choice for many wealthy expats and Ukrainian executives.

“It sends the message to the community that the rule of law is threatened in Ukraine,” Toms said.

BF Group has not responded to the repeated requests for comments.

Trouble brews

The roots of the conflict are found back in 2008.

Back then the Cyprus-registered firm Daylenko, which is owned by the Ryabchenko family, who own the Sofiyskiy Club, took a $15 million loan from Swedbank, both BF Group and Toms say.

The collateral for the loan was the building that now hosts Sofiyskiy Fitness Club. But the collateral was provided by its owner, another Cyprus-registered firm, Efenes Properties Ltd.

Both firms were owned by Oleksiy Dmytrenko, a former Ukrainian lawmaker and the husband of Iryna Ryabchenko, a co-owner of the Sofiyskiy Fitness Center.

The family representatives don’t reveal what the $15 million loan was taken for. But Daylenko company was unable to pay it back. Swedbank sold the problem loan.

It was resold six times until BF Group bought it in December.

Since then, BF Group has been trying to claim the building that was collateral on the loan.

In January Sofiyivskiy won a court to ban BF Group from claiming the building, but later the same month BF Group managed to cancel the ruling in a different court.

Since then, Sofiyivskiy has been trying to challenge the ruling, but with no luck. The last ruling by the Supreme Economic Court of Ukraine on May 29 was in favor of BF Group.

Owners respond

But the Ryabchenkos say that BF Group has no rights for the building, because their claims for it are allegedly based on forged bank documents.

They claim that in 2015 RWC Bank, which back then owned the problem loan, ordered a duplicate of the collateral agreement from a Kyiv notary, and that all the following sales of the loan were based on the duplicate document.

This made the following sales of the loan illegal, including the final sale to BF Group, say the Ryabchenkos’ representatives.

A Kyiv court on May 24 found the duplicate to be invalid.

On the next day, BF Group took the building by force.

Both sides of the conflicts have made some controversial or manipulative claims.

In a comment to the Kyiv Post, the club’s owner Ryabchenko said that the BF Group’s claims were absurd because “neither Sofiyiskiy nor Efenes Properties Ltd. which owns the building has never taken any loans.”

While that is technically true, Efenes Properties Ltd. did use the building of Sofiyivsky Club as collateral on a loan of the family’s other company, Daylenko.

Sofiyskiy rents the club premises from offshore-registered Efenes Properties Ltd.

Elite connections

The Ryabchenkos claim that the capture of their fitness center is a “political raid attack,” citing the BF Group’s high connections.

BF Group, in turn, claims that the Ryabchenkos are slandering the company to divert attention from their debts.

BF Group has connections with the Ukrainian political and business elite. Its director Yuriy Hryshchenko is an aide to Andriy Ivanchuk, a top lawmaker in the People’s Front Party who is close to the party leader and ex-Prime Minister Yatsenyuk.

The owner of BF Group Artur Grants is a business partner of Leonid Yurushev, Ukrainian businessman and billionaire, whom Ukrainian media have often named as one of the sponsors of People’s Front party. Also, investigative journalist Dmytro Gnap discovered that Yatsenyuk’s first cousin, Volodymyr Yatsenyuk, used to be an executive in BF Group.

Yatsenyuk’s spokeswoman Olga Lappo denied any such connections.

“Neither Arseniy Yatsenyuk nor any people who are close to him have ever had any connection to this story,” she said in a written comment.

In the past, BF Group has become a center of media attention when it won profitable contracts, such as a 10-year contract to rent the space for a duty-free shop at Kyiv’s Boryspil International Airport two years ago. BF Group beat five rivals, including the famous Dufry, a Swedish-based travel retailer.

Ukrainian journalists from the Schemes investigative television program reported that the company struck the deal to rent the 2,050-square-meter space in Boryspil Airport thanks to its connections to Yatsenyuk and head of his party’s faction in parliament Maksym Burbak, another business partner of Yurushev.

Regain control?

The Ryabchenkos, along with Sofiyskiy staff, say they will continue to file lawsuits to regain control over the building. They are trying to take the issue on the international level.

“We had many representatives of embassies, OSCE, international companies as clients, and they are all helping us now,” Ryabchenko said. “They are trying to reach chambers of commerce, journalists of foreign publications who investigate corruption schemes in Ukraine, and so on.”