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Leading domestic steel mill Liberty Ostrava is trying to convince creditors to approve the proposed restructuring plan. The main argument is that restructuring will be more beneficial for creditors than insolvency. But, for example, the restructuring administrator Liberty has doubts about the usefulness of this procedure. As well as largest creditor Tameh Czech, which Liberty is trying to exclude from voting on the plan. Liberty admits that if the rescue plan is rejected, it would have to start looking for a debt solution, possibly even within the framework of insolvency.
“Businessman (Liberty Ostrava – editor’s note) assumes full satisfaction of creditors as part of preventive restructuring in a shorter period of 30 months. Such quick satisfaction is completely beyond the scope of insolvency proceedings, especially if we take into account the number of creditors of the entrepreneur, the size of his plant and the complexity of the issues that would have to be resolved in the insolvency proceedings,” states Liberty Ostrava’s restructuring plan.
However, it is more complicated to satisfy the obligations of the smelter’s creditors. If Liberty expects 100% creditor satisfaction as part of the restructuring, this does not apply to all companies with claims against steel mills.
As of January 31, Liberty had liabilities of 16.3 billion crowns. However, the restructuring plan will only cover debts in the amount of 2.3 billion crowns. This is only 14 percent of Liberty’s total debts.
They are obligations towards the so-called affected parties. This is a term from the Act on Preventive Restructuring, which refers to a creditor directly affected by a restructuring plan, who at the same time received a call to start negotiations on a restructuring plan.
Question mark over debt
Liberty’s restructuring plan is vague about most liabilities. The editors of SZ Byznys therefore also turned to the restructuring administrator of Liberty, Michal Žižlavský, with a request for comment.
“The company Liberty Ostrava is still going through a non-public preventive restructuring, in which our company performs the function of restructuring administrator. We control the operation and management of the company. We report our findings to the court and provide it with support in its decision-making activities. At the same time, we have a legal obligation of confidentiality. Therefore, we cannot publicly comment on our conclusions, not even regarding the comparison of the advantages of restructuring and insolvency resolution,” responded administrator Žižlavský.
However, the editors were able to obtain an administrator’s report on the situation at Liberty dated March 13. In the document, the administrator draws attention, among other things, to the fact that it is still not clear how the metallurgical company intends to resolve liabilities that do not fall under restructuring.
“The restructuring administrator holds a legal opinion according to which, if it is to be established whether the restructuring plan has reasonable prospects of preventing the bankruptcy of the entrepreneur (Liberty Ostrava – editor’s note) and preserves or restores the operability of his plant, it is necessary to explain how, from what sources and in what terms the obligations to the unaffected parties will be paid by the entrepreneur,” the restructuring administrator noted in his report.
Liberty itself subsequently responded to the question about the total amount of liabilities in the spirit that their composition, volume and repayment do not represent a problem.
“The amount of 16.3 billion crowns takes into account the company’s total liabilities, both long-term and short-term. Among them is the sum of 2.3 billion crowns, which will be paid out in accordance with the restructuring plan. Some of the liabilities, both long-term and short-term, have an intra-company character. Some obligations are repeated, in particular the fulfillment of obligations towards the EGAP company and other labor law obligations, while we are able to fulfill both of these groups of obligations monthly, as we have already proven,” said Liberty spokesperson Ivo Štěrba.
“There are also commitments that are disputed, some of which are already the subject of legal proceedings. The total amount has no effect on the implementation of this plan, which will lead to the fact that creditors’ claims will gradually be paid in full,” the representative of Liberty added.
What is more advantageous?
Liberty is basing the restructuring plan on the argument that restructuring will be more beneficial to creditors than an insolvency solution. According to the restructuring plan, the estimated market value of Liberty’s assets is 19.3 billion crowns.
“However, in the case of the sale of property in bankruptcy, it cannot be assumed that the realized price for the sale of property assets will correspond to this value. As experience from previous comparable insolvencies shows, the monetization of such a large and complicated set of assets is always a unique operation, during which it may not be possible to achieve even a fraction of the estimated price, as the circle of potential buyers is extremely limited,” states Liberty in the text of the rescue plan.
According to the restructuring administrator, however, it is not that simple. He mentioned, among other things, the fact that, as part of the restructuring plan, Liberty offers satisfaction of 100 percent of the claims of the affected parties, but without accessories, i.e. mainly without interest on late payment.
At the same time, administrator Žižlavský pointed out that the value of Liberty’s assets after clearing liabilities is 2.5 billion crowns according to the restructuring plan. Let us remind you that the estimated market value of the company’s assets is approximately 19.3 billion crowns and the total liabilities are 16.3 billion crowns.
“From the above, according to the legal opinion of the restructuring administrator, it can be concluded that in any insolvency proceedings of the entrepreneur (Liberty Ostrava – editor’s note) there could also be a partial satisfaction of the accessories of the claims of the parties concerned, i.e. receiving a payment that is higher than 100 percent of the amount of liabilities without accessories, i.e. higher than the payment offered by the entrepreneur as part of the presented restructuring plan,” wrote Liberty’s administrator in his report .
Key vote
Creditors have until April 15 to vote on Liberty’s restructuring plan via ballot or in person at a creditors’ meeting on April 8.
A total of 1,075 companies will be able to vote on Liberty’s restructuring plan. At the same time, the original rehabilitation project, which is a document preceding the restructuring plan, included 1,333 entities. The reduction in the number of companies with the right to vote on the rescue plan also raised the doubts of the restructuring administrator.
“In the submitted restructuring plan, the restructuring administrator does not find an explanation for the relatively significant change in the circle of affected parties, compared to the original rehabilitation project,” wrote administrator Žižlavský in his report.
At the same time, it is still not clear whether the position of the so-called affected party, which can vote on the credit plan, will be won by Tameh Czech, the energy supplier for Liberty. The latter is Liberty’s largest creditor with a claim exceeding two billion crowns. The smelter is trying to convince creditors to exclude Tameh from voting on the plan.
Tameh criticized Liberty’s restructuring plan.
“In the last three months, unfortunately, Liberty Ostrava did not approach the solution of its debts constructively. Liberty Ostrava, according to public information, should be in bankruptcy, instead it is abusing the protective moratorium to delay the resolution of the situation. This should include the return of nearly eight billion that Liberty lent to its sister companies and the subsequent payment of Tameh’s two billion debt. This is the only way the whole situation will be resolved,” said Tameh’s media representative Patrik Schober.
Around 6,000 people work at Liberty. When the company stopped production before Christmas, most of them had to stay at home with full compensation. A total of 2,100 employees have already returned to work.
Events around Liberty Ostrava on SZ Byznys
The editors of SZ Byznys closely follow the events surrounding Nová huti from the Liberty group. The most important articles on the topic are available in the overview below:
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