Creditors seem little better off than before the Bankruptcy Law was amended, say those who are footing the bill for the failed AG Banka.
In the case of AG Banka, official bankruptcy trustee Bernard Ondrejka sold claims for a tiny fraction of their nominal value, without allowing creditors - mainly the Deposit Protection Fund, which protects client deposits in case of bank crashes - to vet the asset sales. At SKB, trustee Juraj Tomášek was also found to have erred in not calling a meeting of creditors.
In its decision, the Bratislava Regional Court also crossed both officials off the list of trustees permitted to work in Slovakia. Furthermore, the Court ruled that a bankruptcy court judge, Vladimír Kitta, had exercised insufficient control over the two trustees, and launched disciplinary procedures against him.
The sanctions have renewed claims that Slovakia's bankruptcy law, which was amended in the summer of 2000 to give more rights to creditors of bankrupt firms, has not vastly improved the slow and murky process of recovering viable assets from failed companies.
"The amended law is definitely better than the old one, but in practice, creditor rights are still largely ignored," said Milan Horváth, chairman of the Deposit Protection Fund, the largest creditor at both collapsed banks. "Bankruptcy procedures at these two banks are a clear example of this."
No say in the matter
The Deposit Protection Fund became the largest creditor at the two banks last year after it paid out six billion Slovak crowns ($120 million) in compensation for lost client deposits at AG Banka and SKB.
Horváth explained that the bankruptcy trustees for both banks had since blocked creditors by refusing to call creditors' meetings, and making crucial decisions such as the sale of bank property and claims without the approval of creditors.
Horváth said that Ondrejka at AG Banka had last year sold 47 claims, bearing a nominal value of 885 million crowns, for 10% of this value in a tender to a Cyprus-based firm named Silbermann Investment House Limited without giving creditors a chance to express their opinion on the purchase price.
The Cypriot firm then hired the Slovak Penta Group, which specialises in financial arbitrage, to collect the claims; in short order, Penta managed to collect two in the value of
160 million crowns - almost twice the sum that all 47 receivables had brought AG Banka creditors.
"Our creditor rights were denied, and we are unable to control the situation at these bankrupted banks or influence the decisions made by trustees. They shouldn't have been allowed to make such key decisions without consulting them with creditors in advance. This is against the law," Horváth said.
The Fund chairman added that the trustees should have been removed far earlier, and cast doubt on the motives of the fired officials. "The trustees should have faced the consequences sooner, because they have been blocking our rights for almost a year. I don't want to talk about corruption, but if a trustee disadvantages creditors, I have to ask why."
But Ondrejka defended his moves, and rejected the charges of illegal behaviour.
"I refute all accusations that I acted illegally or damaged creditor rights, and I will soon lay charges against the Deposit Protection Fund for libel," he said.
Ondrejka explained that he had been following the terms of the old bankruptcy law, under which creditors had fewer rights, because the plan for sale of the claims had been approved by the bankruptcy court before the amended law took effect. "The old law says that creditors don't have to approve the sale of claims. This is something they [creditors] have to realise."
He added that he had been trying to collect the claims for six months without success, and had thus decided to sell them through a public tender. "There's no problem with doing so, and if Horváth complains that Penta Group managed to collect them and I didn't, he should ask them how they did it," Ondrejka said.
An official at Bratislava Regional Court, meanwhile, said that creditors should still have been allowed to comment on moves made by the trustees.
"Trustees at both banks delayed the calling of creditors' committee, which could have questioned the decisions they made. This [failure] slowed both bankruptcy procedures. I hope the decision we have taken will help to speed them up," said Tibor Kubík, deputy chief justice of the Bratislava Regional Court.
Under Slovakia's old bankruptcy law, many failed companies had managed to draw out bankruptcy proceedings, making it impossible for creditors to recover their investments by selling off company assets. The amended law, in ostensibly giving creditors rather than failed company owners decision-making powers, was hailed last year by international bodies such as the Organisation for Economic Cooperation and Development as one of the most significant pieces of legislation passed by the government of Mikuláš Dzurinda since it came to power in 1998.
The amendment helped Slovakia to gain membership in the OECD in 2000, and permitted the government to take advantage of the World Bank's financial assistance programme for Slovak bank privatisation.
But data recently released by the Justice Ministry have shown little increase in the number of bankruptcy procedures since last year, with only 301 bankruptcies called in 2001 versus 638 for the whole of 2000.
The work of bankruptcy courts and trustees was criticised this year by Finance Minister Brigita Schmögnerová, who noted that not a single court had accepted a ministry request that a bankruptcy trustee be recalled. In a speech to the Association of Female Judges February 5 she blamed "the influence of different interest groups" for the recalcitrance of the courts.
Anton Marcinčin, an economic analyst with the Slovak Foreign Policy Association, said that the AG Banka and SKB cases were typical examples of how power over the bankruptcy process remained concentrated in the hands of trustees and courts.
"All bankruptcy procedures are dependent on a couple of trustees and bankruptcy judges. They have turned it into their own business and don't want to let anyone else in. They do what they want, and no one so far has made them do otherwise," he said.
Marcinčin added that only a wide-ranging reform of the entire Slovak judicial system could make bankruptcy procedures more effective. Such reform has long been demanded by foreign institutions.