COURT: Agrokor granted recognition of extraordinary administration by UK court, Sberbank challenges rejected - Update - Debtwire

COURT: Agrokor granted recognition of extraordinary administration by UK court, Sberbank challenges rejected – Update

08 November 2017 - 12:00 am

[This updates Debtwire intelligence #2534597 originally published earlier today, to provide further the details from the judgment]

 

Agrokor dd secured a recognition order today from an English court for its Croatian extraordinary administration proceedings under the Cross Border Insolvency Regulations (CBIR). The judgment was handed down by His Honour Judge Paul Matthews – sitting as a judge of the High Court.

The application was opposed by lender Sberbank. The Russian state-owned bank claims to have more than EUR 1bn of exposure to the beleaguered Croatian retailer. The case was heard between 23 October and 26 October, following an application made by Agrokor’s extraordinary commissioner Ante Ramljak on 27 July.

 

“In my judgment the evidence adduced and submissions made on this application satisfy me that the criteria for recognising the extraordinary administration proceeding in Croatia as a foreign main proceeding within the CBIR have been met in the present case, and therefore I will grant recognition as sought in the application,” the judge said in his 44 pages-long decision.

 

CLICK HERE to see the judgment.

 

Appearing as respondent in the UK proceedings, Sberbank argued that the extraordinary administration proceeding (EAP) pending in Croatia is not a “foreign proceeding” within article 2(i) of Schedule 1 to the CBIR, and that even if it were such a “foreign proceeding”, recognition of that proceeding would be “manifestly contrary to English legal public policy”. This is because the legislation is manifestly contrary to fundamental principles designed to ensure a fair insolvency proceeding including the right to practical and effective access to a legal remedy and the right to private property, the bank said.

 

Laying out first grounds

 

The first grounds of Sberbank’s argument was divided into five sub-arguments.

 

Firstly, the bank argued, the extraordinary administration law on which Agrokor’s insolvency is based (Lex Agrokor), is not a “law relating to insolvency”, and was therefore outside the scope of the CBIR.

 

The judge noted that the evidence in the present case showed that the proceeding in Croatia “is a single group proceeding against the company as a debtor and against all its affiliated and controlled companies, that is, the whole group of companies”. He, however, found that the application for recognition before him was one in respect only of “the company itself, and not the controlled or affiliated companies.”

 

“There is nothing in the CBIR to prevent a foreign proceeding being recognised, which in the foreign court involves a group of companies, but the recognition is sought in this country in relation only to a particular individual debtor,” he ruled. “In my judgment, the respondent’s objection here is without foundation.”

 

Sberbank’s second point was that the Lex Agrokor was not one passed “for the purpose of reorganisation.”

 

Judge Matthews held that the Croatian proceedings are intended to facilitate a restructuring of Agrokor, and dismissed Sberbank’s argument that the Lex Agrokor does not respect the principle of minimum protection of creditors.

 

Thirdly, Sberbank argued that the proceedings under could not be characterised as “collective proceedings”. But Judge Matthews disagreed.

 

“The respondent objects that in this context “collective” must mean relating to the debtor and its own creditors, and not the debtor and creditors of others,” he wrote in his judgment. “It seems to me that the objection here is not that this proceeding is not collective enough; rather it is that it is too collective. The objection is that a proceeding to deal with the whole group at once cannot be fitted into the Model Law because, even taking just a single debtor focus, it allows persons who are creditors of another entity to claim a share in the assets of the debtor. There may perhaps be other objections under the text of the Model Law to the recognition of group wide proceedings, but it cannot be said that this is not a “collective” proceeding.”

 

Fourthly, Sberbank put forward that the Croatian proceedings are not “subject to control or supervision by a foreign court”.

 

The judge noted that in order to qualify as a foreign proceeding under the CBIR, that proceeding must be such that the assets and affairs of the debtor are subject to control or supervision by a foreign court, emphasising on the role of the Croatian government in the ad hoc legislation over Agrokor.

 

“The test which I am to apply is whether the proceeding is subject to the control or supervision of the court, and not whether the government has any particular power in relation to it,” he said. “If I conclude (taking account of the roles and powers of the various actors) that overall the proceeding is subject to the control and supervision of the court, it is irrelevant that the government also has powers in relation to it. In my judgment, given the powers and provisions set out above, it is quite clear that, once the proceeding has been commenced, and for so long as it lasts, it is under the control or supervision of the court, through the medium of the extraordinary administrator.”

 

And on the fifth point in Sberbank’s first argument, Judge Matthews held that there is nothing in the CBIR to prevent recognition of a foreign proceeding initiated in respect of a group of companies, but where the recognition is sought in relation only to a particular individual debtor.

 

Contrary to public policy?

 

Sberbank’s second grounds for objection was that even if it were such a “foreign proceeding”, recognition of that proceeding would be “manifestly contrary to English legal public policy,” because the Croatian legislation is “manifestly contrary to fundamental principles designed to ensure a fair insolvency proceeding”.

 

Judge Matthews, however, found that assertion to be unfounded.

 

“Drawing the threads together, in my judgment there is no violation of English public policy, let alone a manifest violation, in merely recognising the extraordinary administration proceeding in Croatia as a foreign main proceeding within the CBIR,” he wrote. “The fact that the priorities of the Croatian law in reorganising or liquidating the company are different from those which apply or would apply under English law, is simply not enough.”

 

Agrokor was represented by solicitors firm Kirkland & Ellis and by Tom Smith QC and William Willson. Sberbank was represented by solicitors firm Linklaters and David Allison QC and Adam Al-Attar.

 

by David Graves and Hossein Dabiri