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TRUSTEE SAYS HE IS ONLY TRYING TO PROTECT CREDITORS

PPS investor cries foul

AS BANKRUPT engineering firm PPS Detva Holding (PPS Holding) prepares for a sell-off in April, a foreign investor in a lucrative subsidiary firm claims that the bankruptcy trustee has blocked its shareholder rights and prevented its access to factory facilities.
Despite acquiring a two-thirds stake in automotive component maker PPS TSN (TSN) last year, officials from the Danish company Green Welt say their representatives have been unlawfully removed from the company's boards and have been physically prevented from using their offices.
"We don't know what is going on in our own factory," said Marek Sásik, director of Green Welt Slovakia, a subsidiary of the Danish company. According to Sásik, the bankruptcy trustee for PPS Holding, Vladimír Rybovič, has refused to recognise Green Welt's capital increase into TSN despite its approval by PPS Holding shareholders in May 2002 and its entry into the Slovak commercial registry in October.

AS BANKRUPT engineering firm PPS Detva Holding (PPS Holding) prepares for a sell-off in April, a foreign investor in a lucrative subsidiary firm claims that the bankruptcy trustee has blocked its shareholder rights and prevented its access to factory facilities.

Despite acquiring a two-thirds stake in automotive component maker PPS TSN (TSN) last year, officials from the Danish company Green Welt say their representatives have been unlawfully removed from the company's boards and have been physically prevented from using their offices.

"We don't know what is going on in our own factory," said Marek Sásik, director of Green Welt Slovakia, a subsidiary of the Danish company. According to Sásik, the bankruptcy trustee for PPS Holding, Vladimír Rybovič, has refused to recognise Green Welt's capital increase into TSN despite its approval by PPS Holding shareholders in May 2002 and its entry into the Slovak commercial registry in October.

The dispute calls into question the future of PPS Holding, which Rybovič says he would like to sell as a unit by May. TSN is one of the best performing companies within PPS Holding, reporting profits of Sk3.6 million (86,000 euro) in 2002. PPS Holding reported gross profits of Sk1.5 million (36,000 euro) in 2002.

This is the latest in a series of legal problems faced by PPS Holding, formed in 1997 in order to transfer assets from the heavily indebted communist-era engineering and armaments company PPS Detva, which was privatised in 1995. The new company tried to transform the business from military to automotive production, but soon ran up large bills of its own to insurance companies, utilities, banks, and suppliers.

By spring 2002, debt in PPS Holding had reached Sk1.8 billion (43 million euro), including Sk60 million (1.4 million euro) in wages for the company's 1,200 employees for the first three months of 2002.

In addition, a decision by Slovakia's Supreme Court last March challenged the legality of the transfer of assets from PPS Detva to PPS Holding, sparking the mass resignation of PPS Holding management and strikes by workers, who were owed back pay and who had been working in unheated facilities.

Under bankruptcy, PPS Holding cut more than half of its workers, dealing a serious blow to the central Detva region, where PPS is the largest employer and unemployment exceeds 20 per cent.

Total claims against PPS Holding exceed Sk2.7 billion (64 million euro), Sk770 million (18 million euro) of which has already been acknowledged by the courts. The company also still owes Sk50 million (1.2 million euro) in back wages.

Green Welt representatives say they had been aware of difficulties in PPS Holding, but that did not stop them in May 2002 from proposing a capital injection into TSN, which was approved by the boards of PPS Holding in May and by Rybovič in June. The investment, at Sk5.4 million (130,000 euro) was the highest allowed by the company's general assembly and increased the basic registered capital at TSN by two-thirds, to Sk8.1 million (193,000 euro).

The general assembly in May also approved the granting of power of attorney to PPS Holding's board of directors to register the capital increase after the power of attorney was entered into Slovakia's commercial register, say Green Welt officials.

Rybovič later filed suit in Banská Bystrica regional court that the May shareholders' meeting, at which TSN was transformed from a limited-liability to a joint stock company and the capital increase was approved, was not valid. The case was dismissed, but Rybovič has launched an appeal with the Supreme Court.

In October, the power-of-attorney provision was entered into Slovakia's commercial register, and TSN's basic capital increase was deposited in December after the trustee's preemptive right to increase the share capital had expired. The increase was approved by two of the three members on TSN's board of directors.

Green Welt officials maintain that having deposited the share capital according to the law, they are now the owners of two-thirds of TSN. But they say Rybovič is blocking their ownership in order to fetch a higher price for PPS Holding, despite consistently supporting Green Welt's plans to make the investment.

"[The trustee] is preventing foreign investment because he's made a mistake. He is trying to roll back the film," said Erdal Parlar, general manager of the Green Welt parent company in Copenhagen.

Rybovič, however, says that he has not is not trying to block investment, but looking out for the interests of PPS Holding's creditors. Further, he says that Green Welt is only interested in a piece of the holding company, while the plan had always been to sell PPS Holding as a whole.

"It is not true that I, as trustee of PPS Holding, changed my position towards the foreign investor. Certain steps have been taken, which I refuse to judge in this period from the legal standpoint because we have different legal opinions on the whole case," said Rybovič.

According to Parlar, Rybovič called three shareholders' meetings in TSN in January 2003 without notifying Green Welt representatives. The last of these meetings resulted in the sackings of two of the three members of the company's board of directors - the members that had been supporting Green Welt.

"It was the CEO and the CFO - they were removed from the board and their contracts were terminated," said Parlar, adding that executives, once recognised by Rybovič, were subsequently escorted from PPS facilities by company security.

In addition, says Parlar, a fax sent out by Rybovič announcing the sale of TSN shares specified only the number of shares that would be for sale, representing the share capital before it was increased. The document did not specify what share in the company the stake represented - 33 per cent, as Green Welt maintains, or 100 per cent, as Rybovič says.

"The liquidation was approved such that PPS Holding would be sold as a unit, but the shares of TSN were selected from this on the request of Green Welt," said Rybovič

"Everything is a question of legal opinion, and my steps were directed towards one goal - so we would receive the best price for the shares, so the creditors would not challenge me," he said.

The investors, however, are worried the procedural and legal questions involved in this case will not help PPS Holding emerge as a functioning company, and that other investors may turn away from Slovakia because of the confusion.

"It's amazing that a person can play with the destiny of such an important company as this; it is a shame," said Parlar.

"We have always considered Slovakia a part of modern Europe. We never imagined something like this would happen here," he said.

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