Former board members at Slovakia's only shipyard, Slovenské lodenice Komárno (SLK), are to face prosecution for massive tax and insurance fraud, putting a government guarantee on a vital company restructuring loan in jeopardy.
Government figures, however, have said that the scandal may bring some good by hastening amendments to the commercial code aimed at ensuring better corporate governance in Slovakia's business sector.
Press reports have said that the Police Regional Investigation Office in Nitra has started criminal investigations into the activities of former board members at SLK. Between September 1999 and April 2000, SLK failed to pay 42.6 million crowns ($822,000) in compulsory contributions to the Social Insurance Company. SLK also failed to pay penalties of 2.7 million crowns ($52,000) for not observing rules regarding the employment of partly disabled people between 1997 and 1999.
What is more, based on a tax return submitted by SLK this January, it was due to pay 125.8 million crowns ($2.4 million) in tax. But while records cited by the press show that SLK accounts at the time had the money, the shipyard has yet to make the payment to the Komárno Tax Office.
The regional investigation office was unavailable for comment on the proceedings. However, the new chairman of the board of directors, Jozef Žucha, confirmed for The Slovak Spectator October 24 that his company had initiated criminal proceedings through the Tax Office against former chairman of the board of directors Marián Janeušek and former board members Jioí Dlouhý and Peter Hrín, alleging that the three had stripped assets from the biggest SLK subsidiary, SLK Stroje a mechanizmy.
Žucha said that he had "not yet received information from the Tax Office on the investigation," but was expecting to do so soon. The company in mid-October replaced members of its supervisory board and board of directors.
?ucha added that the current troubles at the shipyards had affected the company's chances of finding an investor. "Of course this will hurt our chances for finding an investor, but we are working hard to rectify this situation."
SLK, formerly one ofthe leading European producers of mid-sized cargo vessels, last year saw its financial situation deteriorate in the aftermath of NATO bombing of Serbia which rendered the lower part of the Danube River unnavigable and left SLK unable to deliver ships to downstream customers. Although having planned turnover of 4.5 to 4.7 billion crowns ($90 million), the firm made less than half that in 1999, racked up a loss of 700 million crowns and had to cut its workforce in half to 1,000 employees.
The company earlier this year negotiated a government gurantee for a 29.5 million Deutschmark (DEM - $13 million) loan for its restructuring. However, by October 14, one of the conditions of the guarantee - that the company remerge 16 of its subsidiaries - had not been met, prompting the management dismissals. Žucha said that after these personnel changes the company was likely to receive the government gurantee for the loan.
The government has made no official statement on the SLK investigation or its guarantee for the loan. However, Vladimír Tvaroška, advisor to Deputy PM for the Economy Ivan Mikloš, told The Slovak Spectator October 23 that the loan guarantee was not out of the question for SLK, raising hopes that the company may be able to press forward with restructuring prior to starting a search for an investor.
"The conditions for the government guarantee were quite clear, but not all of those conditions have been met, including the one stipulating that all the [subsidiary] companies of SLK be returned to the mother company. The government cannot give a guarantee for a company that has no assets. But if SLK does meet those conditions then I can see no reason why the guarantee can't be met," said Tvaroška.
Shutting the stable door?
Slovakia has been repeatedly criticised by international organisations such as the IMF for lacking a transparent business sector. Government representatives are, however, in the process of drawing up amendents to the existing commercial code designed specifically to reduce the frequency of situations like that at SLK.
"As in most transition states Slovakia has no defined concept of corporate governance but we are planning changes now to put that into legislation," said Katarína Mathernová, legislative advisor to Mikloš. She added that under the new laws, shareholders themselves would be able to launch action against poor managers on directors' boards, whereas at present this can only be done through the supervisory board.
"The problem with this is that both boards are usually, in Slovak companies, so closely tied together that this is never done," she said.
Mathernová said that while cases like this were often perceived to have a negative effect on the corporate sector's image, investors were already aware of problems with asset stripping at companies throughout central Europe.
"There are some cases [of asset stripping] that will hurt the image of Slovakia, but they are well within regional levels. Even more developed countries such as the Czech Republic have this. Tunelling [as asset stripping is known in Slovakia - ed. note] is not a Slovak phenomenon. Also, when investors do invest, they do it in such a way that they will have control [of a company] and things like this can't happen," she said.
"Incidents such as this do not necessarily put off investors. In fact, cases like this [of SLK] only highlight the need to change the institutional and legal structure in Slovakia, to change the environment of corporate governance. It actually makes the job of making people see the need for, and pushing through, these changes a bit easier."
Domestic analysts have admitted that the government's task in changing attitudes to corporate governance will be a long one. "The government has a very limited role in what it can do, the problem is more one of general business culture," said Michal Kustra, analyst at Tatra banka in Bratislava. "Of course, the term corporate governance is not defined in Slovak legislation, and this could be changed in amendments to a number of laws on taxes and so on. But there is no tradition of corporate governance here, and the process of developing it will take years."
Additional reporting by Zuzana Habšudová