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Lex Agrokor: State Support for Companies of Systemic Importance

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Lex Agrokor: State Support for Companies of Systemic Importance INTERNATIONAL Lex Agrokor: State support for companies of systemic importance The Croatian parliament passed the ‘Act on Special Administrative Procedure for Companies of Systemic Importance for the Republic of Croatia’ on 6 April 2017. This controversial law is also known as ‘Lex Agrokor’, and is intended to permit an administrator appointed by the government to prevent the largest agricultural and food corporation in South-Eastern Europe from financial collapse. he new law came into force on 7 The purchase of Slovenia’s Mercator Group accordingly, and a huge liquidity crisis April and provides for ‘the extra- in 2013 was intended to create the largest took hold. As a consequence of increasing ordinary management of Croatian company in the sector across the entirety of doubt as to Agrokor’s financial solvency, companies of systemic relevan- South-Eastern Europe, while simultaneous- local suppliers (who had been paid in pro- ce’. Such companies are defined ly strengthening economic collaboration in missory notes for some time) ceased deli- Tas having more than 5,000 employees and former Yugoslavia. However, the takeover of veries in spring 2017. Faced with almost liabilities of a minimum of 1 billion euros. the Slovenian supermarket chain led to a dra- six billion euros of debt, financial collapse This piece of legislation was triggered by matic increase in debt, and several attempts appeared near-inevitable: the most recent the need for a legal framework within which to float the Agrokor Group on the stock ex- results showed that the company’s liabili- to save the Agrokor Group, which has been change failed over the next few years. ties were already six times the sum of its hard-hit financially. This privately owned equity by the end of 2016. The Croatian food and retail corporation runs the Konz- In January 2017, results nosedived once public prosecutor launched investigations um retail chain, among others, and is one of Agrokor was no longer able to refinance against high-ranking managers at Agrokor the region’s most important employers with its debts on reasonable terms. Rating agen- as a result of suspicions of alleged accoun- around 60,000 employees in Croatia alone. cies downgraded the company’s bonds ting fraud. Eight former executives were Photo: Pixsell 24 LGP news 2 | 2017 INTERNATIONAL arrested in October; the owner’s private The operational side of business will be ma- in London recently ended in the recognition residence was also searched. naged by an administrator appointed by the of Lex Agrokor. government (special commissioner Ante However, the uncontrolled collapse of this Ramljak), while creditors are represented on We can but hope that, once the period of huge corporation would have had catast- the creditors’ council. This creditors’ council special administration has ended, new in- rophic consequences for the small country comprises up to nine representatives of vari- teresting business opportunities will open of Croatia, which has just four million in- ous groups of creditors (the distribution of the up for investors. In addition to some of the habitants. According to the European Bank groups and number of representatives will be most well-known brands in South-Eastern for Reconstruction and Development, the decided in court). The commissioner must put Europe’s retail and food markets, the Agro- conglomerate’s current liabilities amount to forward a restructuring plan within 12 months. kor Group also owns a wide range of proper- 15 percent of Croatian GDP, and it is esti- This can either be accepted by a joint overall ties and other assets that will likely come up mated that half a million people in the region majority (by number), a significant majority for sale as part of the imminent restructu- would be affected, directly or indirectly, by (by liabilities) within individual groups, or a ring of the company. n the Group’s exit. The Croatian government two-thirds majority of all creditors. swiftly drew up ‘Lex Agrokor’ at the start of April to avoid this looming scenario. In this instance, the Act does away with the standard criteria for protecting creditors, LGP & WESTERN BALKANS This new Act provides for special administra- such as the ban on discrimination against tion for the financially foundering company, certain classes of creditors or the require- There is plenty going on in the succes- which deviates from the regular provisions of ment that no creditor can end up worse off sor states of the former Yugoslavia. Croatian insolvency law in certain key areas. than if the company were wound up. The For example, the process of special administ- creditors’ council only has limited rights in Croatia is already a member state of the ration can only be initiated by the company af- terms of the operational management of the European Union, and Serbia has gone a fected (Agrokor) – if creditors want to get the company as well. Some provisions of Lex long way towards this goal. The markets process underway, the company must agree to Agrokor have sparked concern in legal circ- between the Balkan and the Adriatic are this. In addition, special administration trig- les as to whether the Act adheres to Croatian gers an immediate moratorium on all claims and European law. In particular, this relates interesting for foreign investors as well. against Agrokor and its subsidiaries (with the to possible breaches of EU directives on il- For them, our Western Balkans and SEE exception of wage claims). At the same time, legal rescue aid, anti-trust law and constitu- Desk is the first choice when it comes to any ongoing bankruptcy proceedings, com- tional law. While Slovenia does recognise conducting business in the region, espe- pensation proceedings or other insolvency the provisions of Lex Agrokor for Sloveni- cially in the energy sector, industry, and proceedings against Agrokor and its subsidi- an subsidiaries, a Serbian court has refuted infrastructure. Within LGP, expertise on aries shall be suspended. Under Lex Agrokor, that the Act’s geographical scope of appli- the region is concentrated with Regional there is no normal legal pathway for creditors cation extends to the Group’s subsidiaries Manager Daniel Gros. to follow to claim back outstanding debts. based in Serbia. An arbitration proceeding DANIEL GROS, PHILIPP FREUND, M.A., B.A., Mag. MARA OKMAŽIĆ, Legal Consultant, Head of Western Balkans & SEE Policy Advisor, Western Balkans & SEE Desk, Legal Consultant, Western Balkans & SEE Desk, Desk, is a lawyer with roots in former Yugoslavia, is part of the Western Balkans & SEE Desk at LGP. specialises in EU law, the law of the Republic of and has been involved in building up economic He also works as a research associate and is a Croatia, civil and human rights and arbitration. relations between countries in the SEE region and personal assistant to Dr Wolfgang Petritsch. She primarily advises clients from South-Eastern Austria since 2010. In addition, he has specialised Europe on matters of European integration and in matters of European integration over the past internationalisation across the SEE region. Photos: LGP few years. 2 | 2017 LGP news 25.
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