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Bankruptcy debts to go to tender

State rejects offer to buy 5.2 billion Kc debt

By Frantisek Bouc
 Staff Writer, The Prague Post
March 24, 2005


The Czech government has rejected an offer to protect itself against possible international arbitration with financial group Invesmart over its losses in bankrupt Union banka (UB).

Union banka's court-appointed bankruptcy administrator, Michaela Huserova, proposed to the government in late January that the state buy out two claims on Invesmart and Union Group, UB's parent company. The nominal value of the two claims is 5.2 billion Kc ($231.2 million).

Invesmart took over the bank in November 2002. Claims on Investmart now include 21 loans the bank had provided to allied firms worth some 3.9 billion Kc. In exchange, Invesmart received stakes in UB and Union Group.

By purchasing the claims, said Huserova, who has been in charge of the bank since it was declared bankrupt in May 2003, the government could hedge against a possible negative arbitration ruling. It would be the first case of hedging in the country's growing history of international arbitrations (see story, page A11).

Shortly after the bank's collapse in 2003, Invesmart announced it wanted to file a claim in an international arbitration court to get 10 billion Kc from the government, claiming the Czech Republic did not sufficiently protect its investment in UB.

The Italian company has filed a number of domestic lawsuits against the Czech government, but since 2003 it has remained mum on any intentions to initiate international arbitration. Invesmart's head, Paolo Catalfamo, has repeatedly refused to comment on Invesmart's likelihood of following through on past threats. The government in early March said it had no interest in taking Huserova up on her offer.

"Invesmart is currently not leading any arbitration proceedings against the country, and it's not clear when or if there will be any," said Finance Ministry spokesman Marek Zeman. "As a result, there's no point for the government to take over the claims on Invesmart."

Amsterdam failure

At its closure UB managed accounts of some 130,000 clients with total deposits of 15 billion Kc. Overall debts of the bank amounted to 17.7 billion Kc.

Huserova has thus far recouped about 6 billion Kc from liquidation, and 3 billion Kc has been paid to creditors so far. The 3.9 billion Kc claim on Invesmart and 1.26 billion Kc claim on Union Group were the bank's biggest pending claims.

Invesmart doesn't acknowledge the position of being the debtor. It claims the loans were provided in accordance with Czech law, and it has no obligation to assume the bad debt.

Before calling on the government to buy out the claims on Invesmart, Huserova filed a bankruptcy petition in July 2004 against Invesmart at a business court in Amsterdam.

The Amsterdam Court turned down the bankruptcy petition in early March, Huserova said.

"The court did not question [the validity of] Union banka's claim, but the problem was that we failed to find other creditors that would support our bankruptcy petition," Huserova said.

Similarly to Czech bankruptcy law, Dutch legislation requires that more than one creditor needs to file bankruptcy against a company for a court to declare it bankrupt, Huserova said.

Since the government has refused to buy out the claims on Invesmart and Union Group, they'll be put up for sale in a tender, Huserova said.

Frantisek Bouc can be reached at fbouc@praguepost.com
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