Váhostav-SK owes hundreds of millions of euros to hundreds of small and medium-sized companies. Prior to the government taking action, Váhostav-SK offered to pay 15 percent of what it owed to unsecured creditors, mostly small and medium sized businesses. On April 14, the Fico cabinet proposed to buy up the debt. The programme would be financed by a special levy on commercial banks and lead to the state obtaining Váhostav-SK shares.
While small and medium-sized companies welcome that the cabinet has begun to solve their problems with Váhostav-SK, the opposition as well as law experts criticize the proposed solution.
Fico improved the proposal its cabinet adopted on April 14 and which advanced to parliament within a fast-track proceeding, within one day. In the meantime, the share the Slovak Guarantee and Development Bank (SZRB) is willing to pay to unsecured creditors grew from 40 percent to 50 percent. Apart from selling claims to SZRB, creditors would also be enabled to claim from the debtor full coverage of debts from the debtor’s future profits.
SZRB will capitalize claims thus obtain a stake in Váhostav-SK.
“The basic aim of the amendment is to prevent the damaging of creditors during the bankruptcy and restructuring proceedings and bolster responsibility of running a business,” reads the text drafted by the Justice Ministry. The initiative is a response mostly to the current restructuring case of Váhostav-SK.
Changes to the current scheme of bankruptcy and restructuring proceedings should apply to all still opened restructuring proceedings, including that of Váhostav-SK’s, a company heavily involved in highway construction in Slovakia.
Under the proposed restructuring plan, Váhostav-SK plans to settle 15 percent of its debts or €15.7 million to small and medium-sized companies during five years. So-called secured creditors, especially banks that have secured their loans with collateral, will receive 100 percent of their claims. In total the firm wants to repay just 32.3 percent of its total debts of €136 million, or €43.9 million. The session at which Váhostav-SK’s creditors should vote over the restructuring plan is scheduled for April 30.
Finance Minister Peter Kažimír said that the cabinet is not prepared to buy claims of letterbox companies.
“We are not prepared to buy claims from letterbox companies,” said Finance Minister Peter Kažimír as cited by the Sme daily. Out of 688 creditors these account for six companies and €33.4 million of the debts. This means that the state is willing to buy claims of about €71.3 million.
Law experts warn that it would be impossible to check this as these transactions would be hidden behind commercial and banking secrecy.
“Due to banking secrecy SZRB basically does not have a possibility to inform about transactions it carries out on behalf of it or its clients,” Peter Kunder from the Fair-Play Alliance, told Sme.
Via the purchase of claims SZRB will become a creditor of Váhostav-SK while the company would settle the debt to SZRB from its future profits.
“We think that during the current situation this solution would bring reduction of loses for [unsecured] creditors,” said Marián Moravčík, general director of Váhostav-SK, in response to the cabinet-proposed solution as cited by the Pravda daily.
Earlier on April 14 Moravčík said that his company is not able to settle over more that €44 million of its debts during next five years.
“I won’t sign under this, as I would be lying not only to myself but also to everybody else, and this would mean that the company goes bankrupt,” said Moravčík as cited by the TASR newswire, adding that this would jeopardise 1,500 employees of Váhostav-SK.
According to Moravčík, even the current restructuring plan will be difficult to carry out.
“This company has generated a loss of nearly €30 million over the past three years,” said Moravčík, recalling that the average margin in the construction is around 3 percent.
The cabinet proposes to finance purchases of claims by SZRB from money commercial banks have paid within a special temporary levy into a so-called resolution fund that was earmarked to help banks if they got into trouble during the past years of financial crisis. Banks are obliged to pay the special levy until the account contains €1 billion. About half of that has been collected thus far.
The cabinet approved on April 14 a change in the related legislation in order redirect money from this fund into SZRB.
This proposal has raised concerns as this enables the government to support selected companies.
“This opens a way for subsidising various subjects,” said Peter Golias, analyst with the think thank INEKO, as cited by the Sme. “When the cabinet decides, it will take money from banks and use them as it wishes.”
The opposition criticises the solution proposed by the Fico cabinet. The Slovak-Democratic and Christian Union (SDKÚ), when responding to the first, 40-percent proposal, called it a 40-percent solution as it will reimburse small companies only for costs they have already paid to the state in the form of taxes and levies, TASR wrote while Most-Híd opined that the proposed solution omits from the solution those, who caused the current situation – i.e. the company’s management and its owners.
Law experts opine that the proposed solution does not only solve sources of unfair restructuring processes but it even creates space for abuse of creditors or putting them at advantage.
“This is a toothless proposal because it does not contain any real sanction against owners,” Radovan Pala of the law firm Taylor Wessing told Sme, adding that it is possible to optimise and reduce profits and that shareholders can take out from their companies money without being dependant on profits and thus payment of dividends.
The proposal also does not solve the way in which the company would divide money among creditors after the restructuring process is over when letterbox companies may be preferred, Pala told Sme.
After Doprastav and TSS Grade, which recently underwent restructuring processes, Váhostav-SK is another of the country’s biggest construction firms which failed to pay its subcontractors and nearly closed its doors. Construction companies blame the bad economic situation and decline in demand for construction for their troubles.
Last year Váhostav-SK took note of several proposals by creditors to seize assets to cover debts and instead sought restructuring. Váhostav-SK asked a court for protection from creditors on September 26 and to launch the restructuring process. This process will allow the firm to reduce part of its debts and avoid liquidation. The Bratislava I District Court accepted the request.
Now, Váhostav-SK is working on its restructuring plan when the committee of creditors consisting of Slovenská Sporiteľňa, ČSOB and Tatra Banka, as well as the construction company Doprastav and subcontractor Lomark, approved its draft earlier in April.
Transparency International Slovakia in cooperation with Bisnode have earlier uncovered that there are three Slovak companies behind Váhostav-SK linked with Juraj Široký, while ownership relationships continue to Cyprus, New Zealand and Costa Rica with involvement of also shell companies.