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Address by the Extraordinary Trustee before the Parliamentary Committee on the Economy

Esteemed Members of the Board, dear Members of Parliament, Ladies and Gentlemen,

At the time Ivica Todorić on Friday, April 7 last year together with all Members of the former Management Board signed the request to activate the Extraordinary Administration Procedure at Agrokor I was on vacation in Split. This is where the call on Saturday morning, April 8, of the then President of Parliament and of the party MOST, Mr. Božo Petrov, found me. He called to inform me that at MOST they had had a number of consultations and various opinions and that they have finally come up with the conclusion that they wanted to nominate me for the position of Extraordinary Commissioner at Agrokor. I thanked Mr. Petrov for his proposal and told him that unfortunately I was not able to accept it because whoever this person would be, he or she would have to have the full support of both coalition partners at the time, otherwise it would not be possible to work.

In particular, I knew that I was characterized to be „Čačić's“, „Škegro's“ or I don't know whose player any more, because I had worked with those people and knew that this fact would disqualify me right from the start with some protagonists at the political scene. However, after that Saturday's call from Mr. Petrov, on Sunday morning a call came from Deputy Prime Minister Mrs. Martina Dalić that I should come back to Zagreb for a meeting with the Prime Minister who, according to her words, wanted to urgently see me as they intended to nominate me as Extraordinary Commissioner for Agrokor. After this conversation I sat in my car and headed for Zagreb for the meeting with the Prime Minister.

On Monday, April 10, 2017, upon proposal of the Government of the Republic of Croatia and by decision of the Commercial Court in Zagreb, I was appointed as Extraordinary Commissioner and took over the management of Agrokor as well as control over Agrokor's companies subject to the extraordinary administration.

Mr. Ivica Todorić, accompanied by his son Ante and another two Members of the former Management Board of Agrokor, received me that Monday a bit more than 10 months ago at his office on the 19th floor of the Agrokor tower, with a small folder containing the basic documents and a number of instructions and advice on urgent matters that needed to be addressed and on which Agrokor's survival would depend.

Mr. Todorić was, of course, fully aware of the condition of the company whose accounts had already been blocked for ten days and requested, together with his Management Board, for the Extraordinary Administration Act to be activated in order to protect Agrokor from the enforcement of receivables by its creditors and the bankruptcy which would doubtlessly have followed. At that point the bankruptcy of Konzum had already been requested.

Interestingly enough, he then said that it was necessary to urgently, as soon as possible, secure meat, fresh fruit and vegetables to be supplied and that the Konzum shelves urgently needed to be filled before Easter, as the survival of Agrokor would depend on that.

As something of an oddity, let me tell you that on this occasion Mr. Todorić was surprised at our care for the suppliers, saying that he had never asked them anything because where would it have gotten him if he had bothered.

Personally, I believe that it was this very lack of quality communication of the former Management Board of Agrokor with all creditors, particularly the suppliers, which seriously distorted their trust in Agrokor.

In the first week of the Extraordinary Administration's work I found that there were suspensions or outright stoppages in the production of several FMCG companies and a heavily aggravated supply of the retail business, which was completely missing some products. The agricultural companies were faced with a lack of animal feed and at a point when the preparations for the season should have already been well under way, Agrokor did not even have sufficient liquidity for a timely payroll payment.

Salaries and wages were being paid, but with delays which had started back in December 2016.

At the point of my appointment as Extraordinary Commissioner on April 10, after the blockades of the accounts were lifted, I found the accounts completely empty with a balance of literally 6 kunas. At the same time, the company was facing the obligation to pay another payroll by the 15th of the month, which happened to be Good Friday, in the amount of HRK 200m.

This actually means that I had only three working days available to arrange a loan with the banks, which the bankers had previously announced they would provide in the amount of €150m. However, after two days of negotiations, on Wednesday, April 12 around 3 a.m. it became clear that two out of six banks wanted to use the loan agreement to obstruct and derogate the Extraordinary Administration Procedure. This is why on Wednesday as of 7 a.m. I focused all efforts on reaching an agreement with four local banks. By the end of the day we were able to arrange a loan of €80m, thus securing the funds for an urgent supply of goods for the stores ahead of the Easter Weekend and to pay the payroll. 

I am explaining this initial relationship with the banks in detail in order to familiarize you to some extent with the circumstances I faced at the beginning of the Extraordinary Administration.

Those first days and week upon opening of the Extraordinary Administration Procedure were a daily struggle for survival, a battle to re-establish the deeply distorted trust of all stakeholders in the company and to establish control over this large system in which I had found a situation of complete chaos and a lack of basic standards of good corporate governance. For instance, Management Board sessions were not being held. At Agrokor there were no minutes containing an agenda or decisions made and which all Management Board Members would have voted for.  This was not existent at Agrokor. All decisions were made by only one man based on his personal assessment, although this is a complex system of more than 160 companies.

As early as on April 27 I had to make the official statement that creditors could not rely on the official financial statements of the company prepared during the time of Mr. Todorić, because it was evident that they were not showing the actual position of the company.  

The first report on liabilities, prepared by the advisers who had been engaged by Mr. Todorić, stated in April 2017 that the total liabilities of the Company as at March 31, 2017 amounted to HRK 40.4bn. Once the process of filing claims was completed six months later, the total amount of determined creditor claims exceeded HRK 57bn.

Out of major events that followed and tangible results of the Extraordinary Administration's work the following should be singled out:   

  1. Reaching the agreement in June last year for a new financing in the amount of EUR 1.06bn. In particular, the initial loan of EUR 80m was not even closely enough for the company to survive and get prepared for the tourist season. Let me remind you that the negotiations on the new financing were taking place in a situation of political instability caused by the coalition falling apart and a new coalition being formed. You should not assume that potential creditors were competing as to who would provide more money to Agrokor sooner. The company had no financial statements and providing this loan was then and still is a highly risky business, but once it was in place, it showed that the creditors had confidence in Agrokor's future.

If it wasn't for this financing, the survival of Agrokor would not be possible nor would the preconditions have been created to restructure the company, achieve a settlement and make it viable in the long term. 

  1. On October 9, 2017, the audited financial statements of Agrokor d.d. and the consolidated financial statements of the Agrokor Group for the year 2016 were published. Along with the audited financial statements, the auditor, in line with the regulations, also provided a separate letter in which PwC indicate their suspicion of illicit activities which, according to the rules of the auditors' scope of work, were beyond their mandate.

Key irregularities at which they point in their letter are:

  • HRK 3.9bn of liabilities not stated;
  • HRK 2.3bn of operating and financial costs not stated in the period from 2010 to 2015 and
  • HRK 2.1bn erroneously stated as cash and cash equivalents. For example, in its books in the period from 2014 to 2016 Agrokor stated HRK 700m as cash and deposit, which was in fact the amount borrowed by Ivica Todorić on his private account from Agrokor

For this reason on October 9, 2017 I filed criminal charges against Ivica Todorić and other responsible persons with the State Attorney of the County of Zagreb.

  1. In parallel with establishing the actual financial position of the company, the advisory team and the operating companies' managements were working on operational restructuring and prepared new viability plans for the key companies. These are business plans and projections of Agrokor's companies for the next five years.
  2. In November last year the process of collecting and filing claims was completed and the Extraordinary Administration submitted to the Commercial Court in Zagreb the tables containing all claims filed. These show that the structure of claims to start the settlement with is extremely complex – around 5700 Croatian and foreign creditors filed around 12000 claims. The total amount of claims determined amount to around HRK 57bn, whereof I have examined and recognized claims in the amount of HRK 41.5bn, while the total value of contested claims is HRK 16.5bn.

After we had submitted the tables with the examined claims to the Court, creditors have mutually contested claims in the additional amount of HRK 10.4bn. 

  1. The Interim Creditors' Council held its so far most important, thirteenth session on December 20, 2017. The only point on the agenda was the presentation of the proposed settlement structure within the Extraordinary Administration procedure. 

Further work on the settlement proposal as well as reaching the settlement, which will be decided upon by the creditors, ie. all recognized/verified claims, has been the main focus of our work ever since.

It is our goal to achieve a settlement which will be voted upon by the majority of all creditors within the deadline envisaged by the law, which is unprecedentedly short for a restructuring as complex as this, and thus successfully close the Extraordinary Administration Procedure.

I would like to take the opportunity to point out that the Interim Creditors' Council has, in line with its legal authorities, played a key role in the extraordinary administration process so far – the representatives of various creditor groups were the ones to make decisions on payments of the so-called old debt, the pre-petition debt, which was made possible due to the Extraordinary Administration Act and constitutes one of the major differences between the Extraordinary Administration Procedure and a pre-bankruptcy procedure.  

Pre-petition debt to suppliers, with the exception of financial bills of exchange, have thus to date been settled in full for all suppliers in the micro and small firms category. They were paid to 100 per cent, with the approval of large suppliers and financial creditors. Thereby the major part of Agrokor's debt in agriculture has been dealt with, particularly to small family farms (OPG) and small agricultural producers, but also other small firms whose lives to a large extent depended on Agrokor.

In the category of medium and large suppliers the old debt was settled up to the amount of 40% of their total claims on average, and if we include the trade facility for suppliers and the paid border debt, we come to an average amount of 45 per cent settled claims.

Let me reiterate, this percentage of claims settled was realized over the course of the last nine months, prior to closing the Extraordinary Administration Procedure. By way of comparison, in any pre-bankruptcy settlement creditors have to wait for the recovery of even the smallest part of their old debt until the closing of the pre-bankruptcy settlement, which is typically a process of several years.

As of the opening of the Extraordinary Administration Procedure to date more than HRK 2.5bn were paid to suppliers for all claims, making sure that the Agrokor crisis does not spill over to the rest of the Croatian economy and the region. At the very beginning of the Agrokor crisis you were witness to the reactions of governments from the region and their concern for the economies of their respective countries and you also witnessed the danger for Agrokor's assets to be seized.

By establishing an open dialogue, by the huge efforts exerted and due to transparent operations we were able to avert these dangers and today all the companies within the Agrokor Group are preserved and do business normally. Some of them are the flagships of their respective economies. Let me remind you that, for instance, Mercator is the largest employer in Slovenia, just as Agrokor's companies in Bosnia and Herzegovina.  

By preventing the crisis to spill over from a huge private company to everyone doing business with Agrokor, the first goal of the specific Law according to which this procedure is conducted has been met. Additionally, jobs were preserved both with suppliers and at Agrokor itself, in spite of the extensive restructuring and business optimization undergone by all the companies within the system.

In conclusion, I would like to point out that my role as Extraordinary Commissioner and the role of the advisers working in the Extraordinary Administration Procedure is only and solely to provide support to the Interim, and hopefuly soon the Permanent Creditors' Council, to the process of their decision-making and making arrangements on concluding the settlement itself. Because, as the Law stipulates, the Creditors' Council has to approve all of my materially significant decisions.

Although such procedure is being conducted for the first time in Croatia, it is clear that as Extraordinary Commissioner I have all the characteristics of a bankruptcy administrator / receiver as per the special Law. Irrespective of the fact that I was nominated to the Court by te Government of the Republic of Croatia, my rights and obligations are set forth by the laws regulating bankruptcy matters.

In line with the legal obligation, in April last year I have also selected the main restructuring adviser, the company AlixPartners, and engaged other legal and financial advisers, auditors and other specialized advisers without whom the pursuit of an extraordinary administration procedure of such complexity and within the extremely short time period stipulated by the law, would by no means have been possible. For this very reason, and based on the experience of other countries, the Law not only envisaged this, but imposed it on me as an obligation.

While the engagement and the costs of advisors have lately again become a subject of particular public interest, let me remind you that in line with the instructions received from the Commercial Court I have started to disclose the total operating costs of Agrokor d.d. as well as the adviser costs specifically, in the monthly reports as of October last year.

I had then disclosed that the total restructuring cost, depending on the duration of the process and the successful closing of a settlement, would amount from 58 to 69 million euros. This amount is slightly less than 1 per cent of the total debt of the Agrokor Group and thus significantly below the percentage in comparable situations in the world, which amounts to more than 3 per cent of debt.

The vertiginous amount of half a billion kunas restructuring cost is paid by the creditors of Agrokor from their assets, the assets that will formally belong to them after the settlement as Agrokor's debt exceeds the value of assets many times over.

I would finally also like to address the engagement of the company Texo management, where I was previously employed.  

Let me explain why I only had a few hours to summon a team with which I would be able to enter Agrokor. At the beginning of this exposition I tried to depict the circumstances and the speed of action that they required. I didn't have a second of time to get acquainted with the situation, to see where I had come to and who was available to work with there, and I had to immediately secure the funds to be able to keep on working.

I invited people with whom I had worked earlier, with whom I had cooperated closely, people I trusted and of whom I knew they had the required experience so that we could together try and stop the complete collapse of Agrokor.

It was never my intention to hide their names, as demonstrated by the fact that as early as on April 12 I disclosed whom I had invited to my team of advisers, which was published in all the national media.  

From today's perspective I can understand why, looking from the outside and with hindsight, this move of mine can be assessed as being immoral or possibly even corruptive. I am sorry that this has been perceived as such because, believe me, whoever has known me throughout my 25-years carreer, knows that I have been honest and straightforward, working according to best professional standards.

By accepting this position I was ready to make any sacrifice and put all my reputation at stake to save the Croatian economy. Together with my whole team and all Agrokor employees I have been committed and worked literally day and night in order to preserve jobs and secure a perspective for these companies. The loyalty and committment of those people, all Agrokor employees who have spared no effort to save their jobs, have been my daily motivation and for this I am grateful to all of them.

If you, honorable Members of the Croatian Parliament, as well as the Government of the Republic of Croatia should think that with this (course of) action I have compromised the entire Extraordinary Administration Procedure and all the results we have achieved so far, I am ready to bear all consequences and take the entire blame on me.

Thank you.