"Agricultural holdings, when approaching the year’s close with negative indicators, were compelled to enter into a direct conflict with creditors"said Ivan Mishchenko, managing partner of the Trusted Advisors Law Firm
— What trends are being observed on the agricultural market this year?
— Perhaps it is no surprise that the outgoing year was one of the most difficult for the Ukrainian economy over the course of Ukraine's independence. The turmoil, caused by military operations in the east and the annexation of Crimea, not only destabilized the banking system, but also affected all sectors of the economy, including the agricultural sector. Among the existing economic realia the agricultural business is the only economic sector that saw increasing output even under the conditions of war and financial collapse. It continues to function. Though not thanks to the existent conditions, but in spite of them.
— What do agrarians experience great difficulty in?
— One of the distinct features of the agrobusiness is the direct dependence on bank lending. At a time when the dollar exchange rate tripled and the world agricultural market environment showed a tendency towards negative dynamics, many Ukrainian agricultural companies faced colossal financial and industrial problems.
The rising costs of seeds, fuel, fertilizers and other "components", purchased in a foreign currency, far from always effective government intervention in the agricultural sector’s regulation, resulted in business unprofitability and payback products, making business too precarious. Because of the above- mentioned factors agricultural holdings approached the yearly close with negative indicators and due to their inability to pay off debts, and consequently -—replenish current assets with new loans, had to enter into a direct conflict with creditors.
— Could you provide specific examples?
— One of the most outstanding and resonant examples is the MRIYA Agro Holding with total debt exceeding 1 million US dollars. Unfortunately, many banks, in the current situation, did not determine the following strategy: not to negotiate with debtors and not to seek ways of surmounting the crisis, but to collect whatever and for any money sell "live" assets under pledge and/or mortgaged, and thus somewhat improving their financial status. However, this strategy leads to deadlock, as the situation with MRIYA has showed, because the largest agricultural holding, in fact, halted its business operations.
There are also positive examples of solving such-like conflicts. At the end of the previous year the agro holding Technological Agricultural Company United faced the same problems: its debt to five of the largest banks exceeded 100 million US dollars against the background of an acute shortage of working capital for repayment. There were only two reasonable ways out of this situation. The first one assumed to follow the path of the MRIYA Agro Holding. That is, to keep away from creditors, unload assets and, as a result, go out of business. The second way, much more difficult, aimed at reaching agreements with the main creditors, carrying on business, saving working capital, assets and technology, as well as restructuring the existing debt. I cannot say that the project was quite easy. I cannot say that there were no tense situations in the process of negotiating with banks (and in the course of court proceedings). We had some conflict situations, but we managed to choose an optimal strategy that involves the pursuit of debtor's interests in insolvency proceedings and when negotiating with banks in order to reorganize the debt formed.
— What exactly has been done to regulate the conflict?
— The project encompassed about 100 legal proceedings with several law firms, on many sides, simultaneously engaged in it. Of course, the key role belonged to the standpoint of the top managers of creditor banks, who tuned in to business and made advances. I am referring to the teams from e UniCredit Bank, CREDIT AGRICOLE BANK, and I would like to highly appreciate the professionalism of the PUMB bank team, headed by the executive vice president Konstantin Shkoliarenko. What I want to add is that the hardest task was negotiating with Raiffeisen Bank Aval. This must be due to the fact that the corporate structure itself requires that all decisions of Ukrainian management be approved by the chief executives in Vienna, and this essentially complicates any communication. However, due to the correct strategy and specific result-orientation we managed to reach preliminary agreements with Raiffeisen Bank Aval and its separate branch Raiffeisen Leasing Aval, currently and fully run by the agro holding. As a result, the agro holding was able to preserve its existence, discharge its outstanding liabilities, maintain the technological process of the company and continue operating. I'd like to make a pointed reference to our fellow lawyers who at the beginning of the project were our opponents, but, consequently, we started work on reorganization as a team. They are the Absolut and Alekseev, Boyarchukov & Partners Law Firms. We believe this project is our "2015 success story", illustrating that even under rough conditions the "win-win" strategy is the best way out of a conflict.
— What other difficulties arose in the negotiation process? In judicial disputes?
— We want to warn our colleagues in the legal and banking sectors from unconsidered use of journalistic investigation. I must admit that in the course of this conflict some publications appeared in the press, which not only complicated the negotiation process, but also came down to the accusation of using "black PR". We understand such situations and think all of this is dictated by emotions. However, we would like to note the inefficiency of such a mechanism, as it only complicates and casts doubt on the results reached by the parties in the negotiation process. Certainly, situations of this kind will occur in diverse sectors of economy. However, we believe that this example encourages some optimism and belief that even in tough conditions it is possible to reach an agreement and find the instruments that will improve the situation, without going to extremes. We would rather our approach applied to a specific project was momentarily and conceptually supported by the remaining market participants, banking institutions and business itself. In our opinion, the prediction for next year is a rather pessimistic one, and in this context we expect another tidal wave of business bankruptcies on the one hand, and the other hand, the exit of insolvent banks. This will only lead to an increased number of judicial disputes. At present the bulk of judicial disputes are initiated by banks (bearing in mind the cases featuring the Deposit Guaranteed Fund) on the one hand, and by their debtors, on the other hand.
— Should we expect changes in the dispute resolution practice in view of ongoing judicial reform?
— We have reasonably high hopes for judicial reform. It is called to become the cornerstone for the development of competitive and open business communities. An important element of this reform should be the adoption of the Law on private agents. According to the latest statistics of the Ministry of Justice of Ukraine, about 80% of judicial decisions are in force; therefore, this law can improve the performance of the public enforcement service (Bailiffs) and introduce new approaches and instruments to increase the performance of judicial decisions.