High Court overturns Sazka's bankruptcy appeal

Troubled gambling firm Sazka's bankruptcy has been reaffirmed after the High Court in Prague overturned an appeal July 20 filed by potential investors. The decision came just after Sazka CEO Aleš Hušák withdrew his own appeal, under what some are calling suspicious circumstances.

The overturned appeal had been filed by Gladiolus, which is a partnership of Penta Invest and E-Invest, two firms that had made offers to provide financial assistance to Sazka in exchange for a stake in the company. They maintain that the declaration of bankruptcy handed down in May did not follow Czech law and was carried out by the court-appointed insolvency administrator Josef Cupka in favor of credit holders.

Despite the decision, investors say they are considering further action.

"We are analyzing legal options for an appeal," said Martin Danko, a spokesman for Penta Invest. "We were of the opinion that restructuring of the company would have been better, because it could have somehow saved the value of the company in a better way than bankruptcy. Since May, the value of company has dropped significantly, and we were of the opinion that if there was an alignment of interests between shareholders, creditors and management, this could have secured a better value."

In a much more controversial turn of events, Hušák announced shortly before the ruling that he would withdraw his own appeal on the bankruptcy, angering shareholders, who say Hušák has abandoned ship because of a deal with company creditors.

Bankruptcy of the company is in the interest of the massively indebted company's creditors, PPF and KKČG, who stand to profit on Sazka's liquidation, but bankruptcy also guarantees shareholders will have no say in the company's activities and will lose all hold on the company.

"It was clear the path to reorganization of Sazka has been definitively closed," Hušák said. "I had no choice but to minimize the damage."

However, shareholders say their suspicions that Hušák had switched sides were confirmed by the events before and during a potentially influential meeting July 19.

"I can only wonder why, over the course of several weeks, he changed his mind," said Pavel Kořan, chairman of the Czech Sports Association (ČSTV), Sazka's largest shareholder.

Kořan said the night before the meeting, he received a call from PPF Chairman Kamil Ziegler asking shareholders not to remove Hušák, a reversal from Ziegler's previous insistence that Hušák leave the company.

"His assertions that the appeal was withdrawn because lenders insist on bankruptcy are ridiculous," Kořan said.

PPF has denied they reached a deal with Hušák.

Shareholders ultimately failed to remove Hušák at the meeting after official documents were locked in a vault and could not be accessed; a coincidence that Kořan said resulted from "foul play."

"It only illustrates a situation where shareholders are prevented from exercising their - albeit limited due to bankruptcy circumstances - shareholder rights," he said. "Athletes in ČSTV are being robbed."

Kořan said they are considering legal options against Hušák for failing to "carry out duties with due diligence."

The firms in Gladiolus are now waiting to see how the bankruptcy will be managed. Fortuna, which is owned by Penta Invest, has made a bid to buy Sazka's lottery operations, while Gladiolus sent a joint offer to buy Sazka's entire property.

Meanwhile, the Education, Youth and Sports Ministry has released tentative 2012 estimates for sports funding, which used to be provided by mandatory contributions from gaming companies like Sazka in exchange for tax breaks. The ministry said around 1 billion Kč ($59.1 million) in funding had been lost with Sazka's bankruptcy, and the ministry plans to provide around 1.8 billion Kč in grants to sports organizations, which is around 71 million Kč less than last year. Still under discussion is a new system for supporting the sports budget, which could exchange the tax breaks for a new tax that would be used to supplement the budget.

Cat Contiguglia can be reached at
ccontiguglia@praguepost.com