Report of the Bankruptcy Administrator to the Creditors of ...snoras.com/.../9_month_report_to_Creditors_Final.pdf · made by the creditors’ committee appointed by resolution of

Zolfo Cooper

Report of the Bankruptcy

Administrator to the

Creditors of Akcinė

Bendrovė Bankas Snoras

(bankrupt) for the period

ending 30 September

2014

November 2014

Report of the Bankruptcy Administrator to the Creditors of Akcinė Bendrovė Bankas Snoras (bankrupt)

Contents

1 Introduction ....................................................................................................... 1

2 Executive summary ............................................................................................... 2

2.1 Key events and milestones achieved in the nine months to 30 September 2014 ........... 2

2.2 Significant events since 30 September 2014 ...................................................... 3

2.3 Future strategy and next steps ...................................................................... 4

3 Income and expenses ............................................................................................ 6

3.1 Income ................................................................................................... 6

3.2 Expenses and distributions to creditors ............................................................ 8

4 Operational review ............................................................................................. 10

4.1 Size and shape staff review ........................................................................ 10

4.2 Branch network ....................................................................................... 10

4.3 Other operating costs ................................................................................ 10

4.4 Operating budget ..................................................................................... 11

4.5 Assets remaining to be realised .................................................................... 12

5 Progress with the bankruptcy ................................................................................ 13

5.1 Tangible asset realisations.......................................................................... 13

5.2 Loans ................................................................................................... 15

5.3 Determination and payment of creditor claims ................................................. 15

5.4 Litigation ............................................................................................... 18

5.5 Sale of subsidiaries ................................................................................... 19

5.6 Bankruptcy Administrator procurement process ................................................ 20

6 Next steps ........................................................................................................ 21

Disclaimer:

This report is prepared by the Bankruptcy Administrator of Akcinė bendrovė bankas Snoras (Snoras) pursuant to the request

made by the creditors’ committee appointed by resolution of the first creditors’ meeting dated 12 June 2012 (the

Committee).

The information contained in this report is principally based on the information and investigations undertaken by the

Bankruptcy Administrator as at 30 September 2014.

Given the ongoing investigations and review, the information in this report should not be regarded as definitive or conclusive

and may be subject to further review by the Bankruptcy Administrator. No representation, warranty or other commitment is

given in respect of the accuracy and completeness of the information in this report. No party may rely on the contents of this

report or the information contained within it and Snoras, the Bankruptcy Administrator and their respective employees

agents, advisers and the Committee shall not be responsible or liable for the information contained in this report or for

reliance by any party on it.

Please note that figures in this report may include minor rounding differences.

Report of the Bankruptcy Administrator to the Creditors of Akcinė Bendrovė Bankas Snoras (bankrupt) 1

1 Introduction

This report to the creditors includes a summary of financial information and activities in the

bankruptcy for the nine month period to 30 September 2014 (the Period).

There remain a significant number of issues to be resolved in the bankruptcy. The amounts

estimated to be paid to creditors will ultimately be determined by:

the overall amount of money recovered by the Bankruptcy Administrator from the

assets of Snoras;

the amount and ranking of approved claims of creditors in the Snoras bankruptcy; and

the costs incurred in the bankruptcy process.


2 Executive summary

2.1 Key events and milestones achieved in the nine months to 30 September

2014

The keys events and work carried out in the bankruptcy in the Period are summarised as

follows:

Realisations

• Gross receipts in the bankruptcy to the end of the Period stand at LTL 2.4 billion,

LTL 522.7 million of which was received in the Period.

• Total loan servicing receipts (cash interest and principal repayments) since

appointment amount to over LTL 1.3 billion, of which LTL 240.7 million relates to the

Period.

• The Bankruptcy Administrator continues to work closely with the Committee and real

estate agents to determine the optimum strategy to realise the Bank’s portfolio of

owned and foreclosed properties (the Properties). The Properties in Lithuania, Latvia

and Estonia are being sold through a process of public forced auctions in accordance

with the laws of Lithuania. The Properties in other jurisdictions are being sold by free

sale. As at the end of the Period, the sale of 58 properties had been agreed for a total

value of LTL 94.3 million.

• The initial stage in respect of the loan book sale was completed in January 2014 and

second stage bids from shortlisted investors were received in June 2014. Following

further negotiations, improved bids were received, assessed against other options and

presented to the Creditors’ Committee in early September. Negotiations with the

leading consortium continued through into October.

• Negotiations were progressed with the three bidders interested in the purchase of the

Finasta Banking Group (Finasta) all of whom applied to the Bank of Lithuania for

approval and subsequently received clearance. Final offers from all investors were

received in September.

• The Bankruptcy Administrator secured and recognised LTL 187.9 million of funds which

were held in Finasta in respect of the unissued shares. This followed the ruling of the

Supreme Court that the funds received in respect of the unissued shares were the

property of the bankruptcy estate.

Litigation

• The Bankruptcy Administrator is investigating legal claims with a potential litigation

value overall of approximately LTL 2.4 billion. Some of these claims overlap however,

and at this stage the level of eventual recoveries remains uncertain.

• A significant volume of work has been undertaken to investigate the movement of funds

in relation to the alleged misappropriation of large sums by the former shareholders.

This has included obtaining a World-Wide Freezing Order on assets to a maximum value

of LTL 1.7 billion owned by one of the former shareholders. The proceedings have been

stayed in London due to the extradition hearing of Messrs Antonov and Baranauskas. The

World-Wide Freezing Order remains in place and the Bankruptcy Administrator awaits

the result of this hearing.


• The Bankruptcy Administrator continues to make substantial progress with claims

against potential defendants in Switzerland in relation to alleged misappropriated

assets. The value of these claims is estimated at LTL 1.6 billion.

• The Bankruptcy Administrator was successful in obtaining two judgments, one against

Mr Baranauskas and the other against Mr V Antonov, Ms O Jampolskaja, Mr A Antonov

and Ms T Antonova. The awards amounted to a total of LTL 24.8 million. The

enforcement options available in this regard are being considered.

Creditors

• Over 29,500 claim requests have been submitted and, having reviewed and processed

them, 18,557 creditor claims have been approved by the court with a total value of LTL

6.8 billion. All remaining first ranking claims have been finalised and paid.

• Distributions to the second ranking creditor during the Period amount to LTL 1.4 billion,

in line with the second, third and fourth payment plans agreed by the court. The total

amount distributed to the second rank creditor to the end of the Period was LTL 1.7

billion.

Operational review

• The Bankruptcy Administrator continues to review employee requirements on a periodic

basis. Total employee numbers have been reduced over a number of phases from 1,397

at the start of the bankruptcy to 123 at the end of the Period.

2.2 Significant events since 30 September 2014

Agreement of the Committee on 4 November 2014 to negotiate a definitive sale

agreement for the loan book.

Agreement of the Committee on 23 October 2014 to the sale of the Finasta Banking

Group to Invalda LT.

At a meeting of the Committee on 2 October 2014, on the recommendation of the

Bankruptcy Administrator, the Committee resolved to approve the conclusion of a

settlement agreement with Ernst & Young Baltic regarding the audit negligence claim

of the Bank. A creditor has appealed against this decision.

At a meeting of the Committee on 16 October 2014 the Committee resolved to accept

the resignation of Neil Cooper as Bankruptcy Administrator and to apply to the court

regarding his resignation.

At a meeting of the Committee on 16 October 2014 the Committee resolved to ask the

court to appoint UAB Valnetas (responsible person Gintaras Adomonis) as the new

Bankruptcy Administrator of the Bank.


2.3 Future strategy and next steps

The table below summarises the strategy by key workstream.

Workstream Future strategy

• Tangible asset

realisations:

Bank owned

properties

• The Bank owned 25 properties, including four located overseas.

The properties in Lithuania include the branch network.

• As at 30 September 2014, ten of the non-branch properties in

Lithuania had been sold for a total realisation of

LTL 11.0 million. The two unsold properties continue to be

marketed for sale by the Bank’s real estate agents.

• The Bank’s branch network comprises ten properties; nine of

which are owned, including the head office in Vilnius. On 31 July

2014 the branch in Utena closed. This property will be

independently valued and included in a future forced auction.

• The Bankruptcy Administrator continues to review the

requirements of the regional network as part of the overall

bankruptcy strategy. As branches become surplus to

requirements they will be closed and offered for sale in future

auctions. This is closely linked to the decision on the sale of the

loan book.

• The four overseas properties are located in France, Latvia (x2)

and Ukraine. During the Period, the sale of the two properties in

Latvia was agreed; the sale of one property had completed

before the end of the Period and the sale of the second property

is expected to be completed by 30 November 2014.

• At the time of preparing this report, the sale of the property in

Ukraine had been agreed but not completed. The property in

France remains unsold and continues to be marketed for sale by

our real estate agents.

Foreclosed

properties

• Foreclosed properties in Lithuania continue to be sold via public

forced auctions in line with the laws of Lithuania. Any properties

which remain unsold after the second forced auction are sold

through a free sale process.

• The number of foreclosed properties increases periodically in

line with the Bank’s policy with regard to underperforming and

terminated secured loan agreements. All newly foreclosed

properties are independently valued and offered for sale to the

public at forced auctions.

• Foreign foreclosed properties are sold in accordance with the

laws of Lithuania where possible or commercially practicable to

do so. Where this is not possible, the property is sold in line with

the best practice for the relevant country.


Workstream Future strategy

Moveable assets

• As the Bank’s activities are wound down, moveable assets in the

branch network and head office become surplus to

requirements. These assets are transferred periodically to a

central location and sold via public auctions.

• The auction results are continually monitored to ensure the

process is maximising the return to creditors.

• Other moveable assets include motor vehicles which are sold

through professional auction channels as they become surplus to

requirements.

Loans

• Following the agreement to the sale of the loan portfolio, a

definitive agreement and transfer plan is being negotiated with

the investor consortium.

• In the meantime, the loan portfolio is being actively managed to

achieve the forecast level of collections and manage default

rates.

Determination and

payment of

creditor claims

• The Bankruptcy Administrator will continue to register and

review new claims, reconcile insured creditor claims with the

DIF claim, expedite disputed claims handling with the court and

review unissued share claims following the ruling in relation to

the Finasta funds.

• The Bankruptcy Administrator will continue to liaise with the in-

house legal team and instructed legal advisors in relation to the

referral to the European Court of Justice of Deposit Certificate

and Bond claims.

Litigation

• The Bankruptcy Administrator will continue to review the

strength of all litigation claims on a regular basis and pursue

only those with a strong prospect of an overall net recovery to

creditors.

Sale of subsidiaries • It is expected that the sale of Finasta will be completed during

the fourth quarter.

Other

• The Committee resolved to accept the Bankruptcy Administrator

Neil Cooper’s resignation at a meeting on 16 October 2014.

• The Committee has finalised the process of selecting the new

Bankruptcy Administrator and the court approved the

appointment of UAB Valnetas (responsible person Gintaras

Adomonis) as the replacement Bankruptcy Administrator on 28

October 2014, becoming effective on 5 November 2014 on expiry

of the period for lodging separate appeals.


3 Income and expenses

3.1 Income

The table below shows the breakdown of cash receipts in the Period, together with the

cumulative receipts since the start of the bankruptcy.

LTL 000

Cumulative to

31 Dec 13

3 month period

Jan 14 – Mar 14

3 month period

Apr 14 – Jun 14

3 month period

Jul 14 – Sep 14

9 month period

Jan 14 - Sep 14

Cumulative to

30 Sep 14

Income

Rental income 7,694 95 159 154 408 8,102

Interest received on securities and on cash balances held

12,872 2,836 2,523 9,064 14,423 27,296

Loan interest and charges 146,584 11,280 9,904 9,607 30,791 177,375

Total income 167,150 14,211 12,586 18,825 45,622 212,772

Asset realisations

Loan repayments 913,059 41,264 85,521 83,109 209,894 1,122,953

Funds held by financial institutions

563,604 111 185,984 1,851 187,945 751,549

Financial assets 193,942 776 571 458 1,805 195,747

Investments in subsidiaries 17,596 - - - - 17,596

Fixed assets, investments and other assets

17,591 13,269 25,111 41,680 80,060 97,651

Cayman loan repayments (transferred from frozen account)

37,489 (2,596) - - (2,596) 34,893

Litigation costs awards 894 - - - - 894

Total cash receipts 1,911,325 67,036 309,773 145,922 522,731 2,434,056

Points to note regarding the income in the Period are as follows:

Rental income

Rent totalling LTL 0.4 million was received in the Period. Total rental income collected

since the appointment of the Bankruptcy Administrator is LTL 8.1 million.

As stated in the report to 30 June 2013, Krajbanka gave formal notice to the Bankruptcy

Administrator of their intention to exit the property in Riga and subsequently exited the

property on 20 June 2013. From this date rental income decreased significantly. Colliers

Latvia was appointed to market the property for sale, and a sale was completed on

5 September 2014.

Interest received on securities and cash balances held

Since the appointment of the Bankruptcy Administrator LTL 27.3 million has been received,

of which LTL 14.4 million has been collected in the Period. This amount includes interest

from securities, term deposits, deposit accounts and realised profit made from the sale of

securities.


Loan repayments

Funds totalling LTL 209.9 million were received in the Period from loan repayments and

refinancings.

In addition to the realisations detailed above, asset foreclosures of LTL 5.3 million were

exercised on terminated loans (seized collateral). Residual permitted set-off and foreign

exchange movements of LTL 2.3 million, discussed further in Section 4.5, impacted the

balance sheet value of the loan book also.

Total loan income received since the date of appointment of the Bankruptcy Administrator

is over LTL 1.3 billion.

Funds held by financial institutions

Funds totalling LTL 186.1 million were recognised in the six months to 30 June 2014

following the Supreme Court ruling that funds held in Finasta Bank relating to unissued

shares in Snoras are a realisation of the bankruptcy. The balance of LTL 1.9 million was

recognised in July following an Appeal Court ruling.

Financial assets

Income received for the Period from financial assets held by the Bank pre-bankruptcy

totalled LTL 1.8 million.

Fixed assets, investments and other assets

Total income from the sale of fixed assets, investments and other assets in the Period was

LTL 80.0 million. This included proceeds from sale of the Bank’s real estate of

LTL 79.2 million, comprising LTL 36.0 million in respect of foreclosed assets and LTL

43.1 million in respect of Bank owned properties. Funds received from the sale of motor

vehicles and other moveable assets in the Period were LTL 0.9 million.

Total income received from the sale of fixed assets, investments and other assets since the

date of appointment of the Bankruptcy Administrator total LTL 97.7 million.

Cayman loans

The payment of LTL 2.6 million made in the Period relates to the final release of escrowed

settlement costs.

Please note that receipts collected after April 2013 in relation to Cayman loans are included

within overall loan repayments and interest as shown in the Income table.


3.2 Expenses and distributions to creditors

Payments during the Period totalled LTL 1.4 billion (including VAT), including

LTL 17.5 million of operating expenses, LTL 20.8 million of professional fees, and

distributions to creditors of LTL 1.4 billion.

The table below summarises payments for the Period, together with cumulative costs since

the start of the bankruptcy:

LTL 000

Cumulative to

31 Dec 13

3 month period

Jan 14 - Mar 14

3 month period

Apr 14 - Jun 14

3 month period

Jul 14 – Sep 14

9 month period

Jan 14 - Sep 14

Cumulative to

30 Sep 14

Operating expenses

Personnel 47,539 3,732 3,106 2,361 9,198 56,737

Premises 10,665 926 742 722 2,390 13,055

Assets 7,930 380 417 496 1,293 9,223

Communication and IT 14,775 1,032 1,125 658 2,815 17,590

Security and insurance 3,547 184 124 132 440 3,988

Other expenses 2,457 467 622 266 1,355 3,812

Total operating expenses 86,913 6,720 6136 4,636 17,491 104,404

Non-operating expenses

Professional fees and disbursements

140,702 5,884 6,796 8,146 20,826 161,528

Other payments 42,398 2,106 - - 2,106 44,503

Total non-operating expenses 183,100 7,989 6,796 8,146 22,931 206,031

Payments to creditors

Payments to first ranking creditors

9,362 - - - - 9,362

Payments to second ranking creditors

375,000 500,000 50,000 800,000 1,350,000 1,725,000

Total payment to creditors 384,362 500,000 50,000 800,000 1,350,000 1,734,362

Total payments 654,374 514,709 62,931 812,782 1,390,422 2,044,797

The Bankruptcy Administrator is focussed on continually improving the cost effectiveness of

the Bank’s operations and reviews all costs on a regular basis in order to identify savings

that can be achieved.

Professional costs incurred in progressing the bankruptcy and maximising recoveries for

creditors are reviewed on a monthly basis, together with the Committee, to ensure value

for money is achieved and costs are kept as low as possible.

Additional detail in relation to the recent operating expenses is provided in Section 4 of this

report.

Non-operating expenses paid in the Period are summarised as follows:

• Professional fees and disbursements: professional costs of LTL 20.8 million were paid in

the Period in relation to the bankruptcy.

It should be noted that professional fees and disbursements paid within the Period do

not represent payments of fees incurred in nine month period to 30 September 2014.

The majority of payments due in respect of professional fees and disbursements have


been made for fees incurred prior to 30 June 2014. The delay represents the time taken

to complete all necessary reports and seek approval from the Committee, and allow

lodging of the Committee minutes at court.

• Payments to creditors: further distributions of LTL 1.4 billion were made to the second

ranking creditor in the Period. Total distributions to the first and second ranking

creditors amount to LTL 1.7 billion.

• Other payments: the court decreed that LTL 2.1 million of funds held in bailiff escrow

accounts did not belong to the bankruptcy estate and that the sums must be paid to the

bailiffs.


4 Operational review

4.1 Size and shape staff review

The Bankruptcy Administrator reviews the Bank’s staffing level on a regular basis to align

staff numbers and costs with the objectives of the bankruptcy.

The employees are on fixed term contracts of varying lengths. The employees were

categorised based on their role and the Bankruptcy Administrator’s requirements. The

employee contracts in each category had different end dates. As part of each size and shape

review, the Bankruptcy Administrator identifies which employee contracts to extend or to

allow to expire.

Three further size and shape reviews were undertaken during the Period, the final one of

which was implemented on 30 September 2014. At the end of the Period, 123 (115 FTE)

staff were employed. The contract end dates for all staff retained after this date have been

aligned to 31 January 2015.

The number of staff who have left the Bank since the start of the bankruptcy is 1,274. This

amounts to a reduction in the overall workforce of 91%.

4.2 Branch network

The Bank’s branch network comprises ten properties; nine of which are owned, including

the head office in Vilnius, and one leased. The branches remain in use to facilitate the

collection of outstanding loans and to provide a point of contact for the Bank’s loan

customers. On 31 July 2014 the branch at Utena was closed as a result of the last employee

leaving voluntarily. The operations of this branch have subsequently been relocated to

Vilnius. The remaining branches all remained in daily use at the end of the Period.

The Bankruptcy Administrator regularly reviews the requirements for the branch network,

balancing the recoveries from the loan portfolio against the costs of retaining the network.

A further review will be conducted once a timetable and any transitional arrangements for

the sale of the loan book has been finalised.

4.3 Other operating costs

4.3.1 IT systems and contracts

The Bank’s IT system is an integral part of managing the bankruptcy efficiently. The

Bankruptcy Administrator regularly reviews IT requirements and the total cost of the IT

department and implements changes where possible to reduce costs. This includes changing

suppliers where possible or renegotiating existing contracts in line with the Bank’s reduced

data consumption. Since the start of the year, a total of 14 IT related contracts have been

terminated or amended in line with the Bank’s reduced data requirements. This has

generated cumulative savings of approximately LTL 75,000 per month.

As IT contracts come up for renewal, the Bank manages the procurement of the ongoing

service through a tender process. This ensures that the Bank obtains a competitive price for

the IT services it consumes.


In line with all other companies in Lithuania, the Bank is preparing for the adoption of the

EURO currency on 1 January 2015. During the Period, The Bankruptcy Administrator

successfully negotiated a contract with an IT supplier to undertake this project, which

commenced on 1 July 2014.

4.3.2 Premises, assets, security and insurance

These costs are linked to the number of assets owned by the Bank, with reductions driven

by disposals. Premises, security and insurance costs are linked to the number of properties

held by the Bank and fluctuate in line with the number of foreclosed properties under the

Bank’s control at any one time. Other costs are influenced by the loan portfolio

administration activity and include bailiffs’ expenses and enforcement costs.

4.4 Operating budget

By the request of the Bankruptcy Administrator, the Committee approved operating budgets

totalling LTL 20.1 million for the Period. The actual costs incurred in the Period totalled

LTL 18.1 million; this included payment of personnel costs which were accrued in the

previous period, timing differences in personnel tax payments and accrual for costs incurred

in the Period to be paid in the future. The table below summarises the costs incurred

relating solely to the budget period, with a favourable variance to budget of LTL 2 million.

LTL 000 Actual Budget Difference

Operating expenses

Personnel 9,924 10,245 (321)

Premises 2,390 2,849 (459)

Assets 1,306 1,722 (416)

Communication and IT 2,996 3,308 (312)

Security and insurance 440 452 (11)

Other expenses 1,068 1,553 (485)

Total 18,123 20,127 (2,004)

The principal differences between budgeted and actual costs are summarised below:

• Personnel: personnel costs are lower than budgeted due to overall cost savings made

through faster than planned headcount reduction.

• Premises: tax payments relating to Bank owned properties in Russia are yet to be

resolved due to a prolonged court process in Russia. In addition, real estate costs were

less than anticipated in the Period due to a lower volume of foreclosed asset seizures

and savings in fuel costs due to a milder winter than forecast.

• Assets: total costs were lower than expected in the Period as asset recovery expenses

were less than forecast due to a reduced number of foreclosed asset cases in the

period.

• Communication and IT: cost savings have been achieved in data communications and IT

system costs as a result of renegotiated contracts with suppliers.

• Security and insurance: costs are lower than budgeted due to reducing insurance costs

in line with continued realisation of the Bank’s assets.


• Other expenses: costs are lower than budgeted due a timing difference in forecast sales

commission, primarily relating to the property sale in Riga. The sales commission was

paid in the next quarter.

4.5 Assets remaining to be realised

The table below shows the net book value of Snoras’ remaining assets, following a recent review of the provisions:

LTL millions Position at 31 Dec 13 Position at 30 Sep 14

Loans 1,342 1,045

Fixed assets 118 66

Other assets 168 135

Financial assets 720 73

Investments in group companies 1 1

Intangible assets - -

Totals 2,349 1,319

The material provisions and realisations in the current Period are detailed below:

• Loans: during the Period capital and interest payments of LTL 240.7 million were

received and LTL 5.3 million of foreclosed assets were recovered. The balance sheet

amount was further decreased by LTL 95.1 million due to change of other net

movements (foreign exchange movements and set-offs) and loan impairments of

LTL 11.2 million. This was partly offset by a LTL 55.1 million increase in accrued

interest. The movement has resulted in a net balance sheet reduction of

LTL 297.2 million in the Period.

• Fixed assets: the reduction in the balance sheet value of fixed assets is predominately

the result of the sale of assets.

• Other assets: the decrease is due to the sale of LTL 38.3 million of foreclosed assets;

whilst LTL 5.6 million (including additional costs) of foreclosed assets were brought in

during the Period.

• Financial assets: during the Period financial assets have decreased due to the sale of

matured bonds.

It should be noted that the realisable value of Snoras’ assets remains subject to change,

particularly in relation to the final recovery from the loan book, the sale of subsidiaries and

realisations from the property portfolio and other tangible assets.

In addition to the tangible assets noted above, Snoras has the potential to recover

significant value through a number of litigation claims which are currently in progress.

These claims are discussed further in the next section.


5 Progress with the bankruptcy

A summary of the progress achieved in each of the key areas of the bankruptcy is provided

below.

5.1 Tangible asset realisations

An update in relation to the various asset categories is provided below.

5.1.1 Bank owned property

The sale of the Bank owned properties in Lithuania is being managed by Colliers

International (Colliers) and details of all unsold properties available can be inspected on

Colliers’ website (www.colliers.lt/PropertySearch).

The overseas Bank owned properties are located in France, Latvia and Ukraine and are

being marketed for sale by Colliers or their regional affiliate. Where possible, the foreign

properties are being sold in accordance with the laws of Lithuania or those of the relevant

jurisdiction. The Bankruptcy Administrator continues regularly to review the sale strategy

with the real estate agents and the Committee.

During the Period, the sale of seven Bank owned properties located in Lithuania was

completed; these were sold for a combined realisation of LTL 10.7 million. In addition, one

of the properties in Latvia was sold for LTL 36.3 million.

As at 30 September 2014, the total number of Bank owned properties sold was ten (the sale

of two had been agreed during 2013).

The property located in Ukraine is owned by a subsidiary company of the Bank, which once

sold will be used to repay an outstanding loan to the Bank. The sale of this property is being

coordinated by the Bankruptcy Administrator on behalf of the subsidiary company and is

managed locally by Colliers. The property is under offer and it is hoped to complete a sale

shortly.

The sale of the second property in Latvia was agreed after the end of the Period and is

expected to complete by 30 November 2014.

The unsold property in France will continue being marketed for sale.

5.1.2 Foreclosed assets: less than LTL 1 million each

The total number of foreclosed properties for sale fluctuates as properties are sold and

newly foreclosed assets are added to the portfolio. The new properties are grouped

together in batches to be sold at the forced auctions.

The first batch (Batch One) comprised 131 properties located in Lithuania valued at less

than LTL 1 million each. The auction process for Batch One commenced in July 2013.

During the Period, a second batch of 142 foreclosed assets (Batch Two) was added to the

auction process. The sale of 19 properties was agreed for a combined realisation of

LTL 4.7 million. This included five foreign foreclosed properties for a combined sum of

LTL 2.4 million.

http://www.colliers.lt/PropertySearch


Cash receipts in the Period totalled LTL 5.1 million, of which LTL 370,729 related to sales

agreed in 2013. In addition, LTL 37,350 related to amounts received on sales that were

agreed but subsequently cancelled by the purchaser. Under the terms of the forced

auctions, these sums can be retained as abort fees.

The remaining unsold properties continue to be marketed by Colliers and offered for sale at

forced auctions and in the free sales, in accordance with the policy approved by the

Committee.

5.1.3 Foreclosed assets: greater than LTL 1 million each

The Bank has 13 foreclosed properties independently valued at more than LTL 1 million

each, and a series of forced auctions were held between December 2013 and January 2014.

During the Period, the sale of three properties located in Lithuania was completed for a

total realisation of LTL 9.1 million. In addition, one foreign property was sold for

LTL 14.9 million.

Batch Two, referred to above, added four properties to this category which will be included

in the forced auction process in the fourth quarter of 2014.

Cash receipts during the Period totalled LTL 30.9 million, comprising of LTL 9.1 million from

the sale of three properties located in Lithuania, LTL 14.9 million from one foreign property

and LTL 6.9 million received in relation to sales agreed in 2013.

The Bankruptcy Administrator regularly reviews the sale strategy for the unsold properties

with the local real estate agents in line with market activity in the region to ensure

maximum value is being obtained for the benefit of the creditors.

The remaining unsold foreign foreclosed properties are located in Estonia (three) and Russia

(two). The properties in Estonia comprise residential and office accommodation and are

now being sold via the free sale process in accordance with the Sales Policy.

The foreclosed properties in Russia comprise a motel complex and commercial premises.

The properties are being marketed by Colliers in Moscow to be sold by private tender,

which is a more appropriate method of sale for this type of property. At the time of

preparing this report, an offer had been accepted on the commercial premises, with the

sale expected to complete by the end of December 2014. No offer has yet been received on

the motel complex.

5.1.4 Moveable assets

As previously reported, the Bankruptcy Administrator continues to identify assets that have

become surplus to the Bank’s requirements as the wind down of the Bank’s operations

progresses. These assets include motor vehicles, IT equipment and office furniture.

The assets are being sold via weekly auctions at the Bank’s head office, or via specialist

third party agents (in the case of the motor vehicles). All of the assets offered for sale are

advertised ahead of the relevant auction on the Bank’s website (www.snoras.com).

In addition to the moveable assets owned by the Bank, a quantity of residential and office

furniture has been acquired from foreclosed assets where the former occupier has vacated

the premises and failed to remove their belongings. Primarily the Bankruptcy Administrator

attempts to sell the furniture together with the foreclosed property. Where this is not

http://www.snoras.com/


possible (ie where the purchaser insists on acquiring an empty property), the items are

removed from the premises and included in the weekly auctions.

Included in the Bank’s assets was a Spyker motor car which had been the subject of

litigation between the Bank and Spyker Automobielen B.V (Spyker). EUR 80,000 was

received in June 2014.

Total cash receipts for the sale of moveable assets and artwork (see below) in the Period

was LTL 0.9 million.

5.1.5 Artwork

The Bank owned 27 paintings by various artists (the Artwork). The Artwork was

professionally valued by three independent valuers. In addition, the Bankruptcy

Administrator consulted with local art dealers and gallery owners in Vilnius and the wider

area to identify the most appropriate way to sell the Artwork.

The public auction was held on Thursday 29 May 2014 and a total of four pieces were sold

for a combined sum of LTL 14,650.

A second auction has been arranged for 27 November 2014. Any person interested in

acquiring any pieces can record their interest via the Bank’s website.

5.2 Loans

Regular loan servicing income has decreased from LTL 253.6 million from the prior nine

month period to 31 December 2013 to LTL 240.7 million in the Period. Asset foreclosures

during the Period amounted to LTL 5.3 million.

As previously reported, in October 2013 it was decided in conjunction with the Committee

to initiate an exploratory sale process in relation to the Bank’s largely Lithuanian retail and

corporate loan portfolio (the Portfolio). Following a tender process, the Bankruptcy

Administrator engaged Zolfo Cooper Capital Management (ZCCM) to act as the sales agent

to perform and manage the sales process of the Portfolio.

The Bankruptcy Administrator completed the first phase of the sale of the Portfolio in

January with four bidders progressing to the next phase. This was completed in June 2014

with binding offers submitted by three potential investors. Further negotiations were

undertaken resulting in improved offers being submitted and presented to the Committee in

September 2014.

A decision to go ahead and negotiate a definitive sale agreement with the selected investor

was finally taken on 4 November 2014.

5.3 Determination and payment of creditor claims

As at 30 September 2014, there were 28 disputed claims to be determined by the First

Instance Court, the Court of Appeal or the Supreme Court. The majority of these claims still

await settlement dates from the Court.

In order to assist the court with this process the Bankruptcy Administrator provided written

explanations to the court for all the remaining disputed claims. The court is reviewing this

information to ascertain whether there is a need to hold a court hearing with the


participation of all parties, or whether judgment can be passed based on the written

explanations provided. The Bankruptcy Administrator is waiting for the court’s ruling in this

regard.

There have been various hearings and certain key developments during the Period,

including:

• VĮ Indėlių ir investicijų draudimas (DIF): DIF’s current agreed claim is LTL 4 billion.

During the Period, distributions to the DIF totalling LTL 1.4billon were made in line with

the second, third and fourth court approved plans. A total of LTL 1.7 billion has been

distributed to the DIF.

In late December 2013 and January 2014, two appeals were lodged with the Supreme

Court with regard to the Court of Appeal’s ruling of 9 October 2013 in respect of the DIF

claim ranking. Both applications also included a request that the matter be referred to

the European Court of Justice for consideration of the implementation of two European

Directives.

On 20 June 2014, the Supreme Court issued a ruling confirming the ruling of the Court

of Appeals ie the Supreme Court rejected cassation claims and left the DIF claim as a

2nd ranking claim and the claims of Sodra and VMI as third ranking claims. Additionally,

the Supreme Court refused a request to refer the issue of claim rankings to the

European Court of Justice.

• Rights issue claim: following the ruling of the Supreme Court on 2 October 2013, and

upon receiving legal advice, the Bankruptcy Administrator recognised that the funds

held in Finasta in respect of the unissued shares are realisations of the bankruptcy.

A number of creditors made an initial claim in the Bankruptcy, many of which were

acknowledged as approved by the court on 22 March 2012. Subsequent to the approval,

the creditors then made an application to have their claims withdrawn, on the basis

that they wanted to pursue and properly argue their civil claims to acknowledge them

as owner of the funds that have been invested.

At that time, the court held over this issue, pending the outcome of the civil

proceedings. Following the outcome of those civil proceedings, the creditors may lodge

claims in the bankruptcy case. The court requested that the Bankruptcy Administrator

contact the representatives of these creditors to confirm that they wish for their claims

to be approved in the bankruptcy case. This has been done but the court has postponed

a decision in relation to these claims based upon the further application made to the

court by the Creditors concerned in respect of recognition of funds paid by them as

deposits, details of which are provided below.

Subsequent to this, a request was made to the court to renew the process in the share

issue case. Responses were provided and the request of the claimants was dismissed.

Following the filing of an appeal by the claimants, the Court of Appeal upheld the ruling

of the Court of the First Instance on 25 September 2014.

5.3.1 Share issues

Following the ruling in relation to the rights issue as noted above, the Bankruptcy

Administrator received new claims from 262 of those rights issue investors asking the court

to recognise them as depositors of Snoras so that they may claim deposit insurance.

Initial responses were filed by the Bankruptcy Administrator, DIF and the Bank of Lithuania.

Additional pleadings were subsequently submitted by the claimants and the Bankruptcy

Administrator.


The claim was rejected by the ruling of the court on 29 September 2014.

An additional 33 claimants filed a further request to the court asking for their claims to be

accepted as deposits. Responses have been filed and the court hearing is scheduled for

26 January 2015.

5.3.2 Deposit certificates and bonds

On 16 December 2013, following a hearing on 14 November 2013, the Supreme Court

decided to approach the European Court of Justice and ask them to adopt a preliminary

ruling on the expedited procedure. The Supreme Court requested that the European Court

of Justice clarify whether the EU directives provisions regulating investors and deposit

holders insurance are properly incorporated into Lithuanian legislation. Under Lithuanian

laws, insurance for deposit certificate and bond holders is not applicable.

On 11 February 2014, the Bankruptcy Administrator received a notification from the

European Court of Justice giving the opportunity to the parties of the dispute, member

states and the European Parliament, Commission and European Central Bank to provide

written remarks within two months. The European Court of Justice did not agree to either

of two requests by the Lithuanian Supreme Court’s to consider the case in an expedited

manner.

Written responses have been provided by the Bankruptcy Administrator and other parties to

the European Court of Justice. It is understood that any ruling in the case may take some

time, given that the two requests to have the matter dealt with in an expedited manner

have been rejected.

The European Court of Justice has invited all parties to the request to an oral hearing in

Luxembourg on 20 November 2014, where the request will be examined by the Second

Panel, consisting of five judges. Appropriate representation has been arranged.

Until the European Court of Justice adopts a ruling on this matter, the Bankruptcy

Administrator is requesting that all deposit certificate and bond claims currently listed in

lower courts are suspended.

5.3.3 Approved claims

The table below reflects the number and value of admitted claims as at 30 September 2014,

less any amounts already distributed to first and second ranking creditors:

Priority ranking Number of approved claims Sum of approved amount (LTL million)

1 - -

2 1 2,119

3 3 13

4 17,145 2,583

7 21 205

Grand total 17,170 4,919

5.3.4 Ceded claims

Cession claims are claims made to the court by an original creditor (cedent) requesting that

his claim be transferred to another party. Once the cession is approved, the original


creditor loses his right to claim and the new creditor takes his place in the list of approved

claims.

Ceded claims continue to be lodged and are dealt with by the Bankruptcy Administrator as

and when they are received. After examination of the ceded claims, the Bankruptcy

Administrator provides all the information and relevant documentation to the court.

At 30 September 2014 a total of 110 cession claims have been submitted to the court. Of

these, 107 have been completed and three claims have recently been submitted to the

Court for consideration.

5.4 Litigation

5.4.1 Switzerland

The potential claims in Switzerland continue to be progressed; however, at a speed

dictated by the local criminal process, which the Bankruptcy Administrator’s lawyers are

monitoring.

One significant claim has been drafted and was sent to the proposed defendant in July 2014

seeking a substantive response and/or a meeting to discuss settlement, prior to any

decision to file the claim being made.

As at 30 September 2014 no response had been received from the defendant. As such, the

Bankruptcy Administrator now intends to take further action to progress the claim in court.

Work on two further claims, against two additional proposed defendants continued in the

Period and claims are in the process of being drafted in this regard.

5.4.2 The civil claim against Messrs Antonov and Baranauskas

The civil claim against Messrs Antonov and Baranauskas was filed by Snoras in May 2012,

supported by a World-Wide Freezing Order obtained on 18 May 2012 against the assets of Mr

Antonov, for a value of at least LTL 1.7 billion.

Following various discussions between the parties and in anticipation of the extradition

hearing in the UK, the civil action against both Messrs Antonov and Baranauskas was stayed

on 15 December 2013. On 20 January 2014, the UK Court ruled in favour of the State of

Lithuania that the extradition of Messrs Antonov and Baranauskas should proceed. However,

an appeal was lodged shortly afterwards and a date of 22 July 2014 was set by court for this

hearing. This has again since been delayed.

The World-Wide Freezing Order remains in place, irrespective of the stay in the

proceedings, and the Bankruptcy Administrator’s team continue to monitor this as required.

5.4.3 Claim against Raimondas Baranauskas

Vilnius Regional Court upheld Snoras’ claim against Mr Baranauskas on 4 July 2013, and

ordered that Mr Baranauskas pay the amount of LTL 4.7 million to cover losses. Mr

Baranauskas appealed this decision, which was heard in the Court of Appeal on 24 April

2014.


The Court of Appeal rejected Mr Baranauskas’ appeal, and upheld the Vilnius Regional

Court’s decision. No appeal was lodged or accepted by the Lithuanian Supreme Court and

therefore the judgment against Mr Baranauskas is valid and may be enforced.

The Bankruptcy Administrator is considering the available options in recovering the award.

5.4.4 Judgment against V. Antonov, O. Jampolskaja, A. Antonov and T. Antonova

The Vilnius Regional Court upheld Snoras’ claim against Mr V Antonov, Ms O Jampolskaja, Mr

A Antonov and Ms T Antonova in full and awarded Snoras LTL 20.2 million (including interest

and contractual penalties) jointly from all parties.

The decision was open to appeal but the time for this has now lapsed and the judgment is

final.

The Bankruptcy Administrator is considering the available options in recovering the award.

5.4.5 Ernst & Young claim

During the Period, the Bankruptcy Administrator continued his investigations regarding the

Bank’s claim for losses arising from their historical audit of the Bank. Further, and in

addition to those investigations, negotiations were finalised with Ernst & Young Baltic (EYB)

regarding potential settlement of the claim(s).

As at 30 September 2014, the Bankruptcy Administrator has put a recommendation to the

Committee for consideration to accept the settlement offer from EYB, which the

Committee approved on 2 October 2014.

5.5 Sale of subsidiaries

5.5.1 The Finasta Banking Group

The Bankruptcy Administrator had previously been negotiating a potential sale transaction

with the LHV Group (LHV), who had approval from the Bank of Lithuania to acquire the

Finasta Banking Group (Finasta) by 30 April 2014.

Due to a change in the proposed structure of LHV’s proposal, the deadline set by the Bank

of Lithuania passed without a sale being completed.

During the Period however, the Bankruptcy Administrator was approached by new parties

who expressed an interest in acquiring Finasta. As such, the sale process was reopened to

interested parties, three of which ultimately obtained Bank of Lithuania approval. After

receipt of best and final offers from these parties in September, a recommendation was

submitted by the Bankruptcy Administrator to the Committee, which approved the sale to

the best bidder on 23 October 2014.


5.6 Bankruptcy Administrator procurement process

Mr Cooper confirmed his intention to retire from practice, meaning that a new Bankruptcy

Administrator had to be identified and appointed by the Committee.

Accordingly, a tender process was launched to assist the Committee in selecting a new

Bankruptcy Administrator.

As at the 30 September 2014 the Committee was deliberating over each of the candidates’

proposals, and reached a final decision on 16 October 2014.


6 Next steps

The objectives of the bankruptcy in the next period are to:

• finalise the sale of Finasta;

• progress the sale of the loan portfolio (completion expected early in 2015);

• progress the sale of the Bank owned real estate and foreclosed assets;

• continue to work with legal advisors and the Bank’s staff to resolve disputed claims and

submit amendments to the Court for changes to creditor claims;

• review and reduce operational costs where possible; and

• continue to progress all litigation claims available to Snoras where the potential

recoverable values are proportionate to the recovery costs and likelihood of success.

The Bankruptcy Administrator will issue a further progress report for the period to

4 November 2014 as soon as it is practical after the end of the reporting period.

Akcinė Bendrovė Bankas Snoras (bankrupt) A. Vivulskio Str. 7 LT-03221

Vilnius www.snoras.com

Documents

Report of the Bankruptcy Administrator to the Creditors of ...snoras.com/.../9_month_report_to_Creditors_Final.pdf · made by the creditors’ committee appointed by resolution of