Russian creditors of the largest Croatian retailer Agrokor, experiencing bad times, have long dreamed of returning more than € 1.5 billion of debt. Recently, these attempts have been posed a serious obstacle. On November 9, 2017, a judge of the High Court of England recognized the validity of the Croatian law (the so-called Lex Agrokor) introduced in 2015 solely in the interests of the bankrupt Agrokor and complicating the lives of those creditors who would like to obtain debt collection from foreign assets of the company. Is this a single case or an increase in protectionist tendencies as a new trend in the global economy? And what are the chances for foreign creditors to return a multi-billion dollar debt?

What is the essence of the conflict and the law of Lex Agrokor

Agrokor is the largest Croatian food retail company with an annual revenue of about € 6.5 billion. It accounts for about 15% of Croatia's GDP. The company employs about 40,000 workers in Croatia and about 20,000 in Slovenia, Bosnia and Serbia.

At the end of 2016 the company started financial problems, its suppliers and non-bank creditors began to sue for non-payments. In 2017, it became clear that the company should be rescued. As it turned out later, the owners and managers of Agrokor for a long time falsified the reporting, hiding financial problems. The head of the Savings Bank German Gref dubbed this practice an unprecedented fraud. Agrokor's debt is estimated at about € 7.7 billion, of which Sberbank accounts for € 1.3 billion. Among Agrokor's creditors, there are other major banks: VTB (about € 340 million in debt), Banca Intesa, BNP Paribas, Goldman Sachs, Credit Suisse.

The law on emergency management procedure for systemically important companies, which was unofficially called "Lex Agrokor", was adopted by Croatia in April 2017. After all, the national law on bankruptcy simply was not suitable for an adequate resolution of the predicament of Agrokor.

The key provision of the law is that in the event of a financial insolvency of a systemically important company, its management passes to the "emergency manager" appointed by the state court of Zagreb at the suggestion of the government of the Croatian Republic. The law also provides for the formation of an ad hoc committee of creditors. Within 12 months, the emergency manager is working out a settlement agreement that should take into account the interests of the creditors on the committee.

In mid-October, six former top managers were arrested in Croatia, and the main owner of the company, Ivica Todorich, was detained in London in late November. Extraordinary manager was appointed Ante Ramlyak. It is necessary to develop an amicable agreement by July 2018.

However, the most important thing in Lex Agrokor is a moratorium on the presentation of any lawsuits against the company, as well as all companies it controls and affiliated with (where it holds at least 25% of the shares). For creditors Agrokor (in particular, for Sberbank and VTB), this means that for the duration of the emergency management procedure, they are not entitled to apply to either state or arbitration courts - neither against Agrokor nor against companies belonging to its group. This measure is explained by the need to preserve the integrity of Agrokor and to ensure a more efficient process of its restructuring.

It is important to cancel that the law is valid only on the territory of Croatia, and Agrokor and its controlled companies have their assets in other countries. In this regard, some lenders, in particular Sberbank, have attempted to freeze Agrokor assets in countries such as Serbia, Bosnia and Slovenia. In Serbia, Sberbank was lucky: the bank appealed to state courts with a statement banning the sale of shares owned by Agrokor and its guarantors under loan agreements. Serbian courts sided with Sberbank and froze assets of Agrokor and Ledo (guarantor under Agrokor loan agreements).

In England, things are not yet in favor of Sberbank.

In July 2017, Sberbank appealed to the London International Arbitration Court (LCIA) with a lawsuit against Agrokor and eleven guarantors under loan agreements between Sberbank and Agrokor. The amount of claims reaches € 450 million.

However, consideration of the dispute in arbitration was suspended by mutual agreement of the parties, since on July 27, 2017 Ante Ramlyak filed an application with the High Court of England to recognize the consequences of the introduction of the emergency management procedure of Agrokor. As a result, Judge Paul Matthews acknowledged the consequences of the emergency management procedure for the company Agrokor and its controlled companies in England, in other words - the exclusive competence of Croatian courts in all matters related to the management of Agrakor.

At the same time, Agrokor refused to recognize Sberbank's requirements, excluding it from the creditors' council.

In the Savings Bank did not respond to the request of Forbes with a request to comment on the decision of the High Court of England. German Gref, addressing journalists on November 14, regarded the behavior of the company manager as blackmail.

What are the prospects for Sberbank

Sberbank has the right to appeal against the decision of the English court and to obtain recognition of its right to consider the dispute in arbitration, which undoubtedly played an important role in the loan of Agrokor. Perhaps the appellate court will give this law more importance than Judge Paul Matthews.

In addition to the appeal, Sberbank's prospects also depend on whether the LCIA arbitrators, who are not bound by the conclusions of the judge of the High Court of England, agree with the recognition of the consequences of the Agrokor Act directly in the arbitration. The arbitrators themselves determine their competence to consider the dispute and have the right to disagree with the position of the state courts. If the requirements of Sberbank are satisfied in arbitration, the company will be able to execute the arbitration award in accordance with the 1958 New York Convention in countries that refused to recognize the Croatian law (for example, in Serbia, Slovenia and Bosnia). Thus, despite the fact that on November 9, 2017 the judge of the High Court of England sided with Croatia, Sberbank still has the opportunity to reverse the course of events.

When the state adopts separate laws to protect domestic companies to the detriment of foreign counterparts, the state itself can be held accountable. It is noteworthy that Croatia is not the first to face investment arbitration. In 2016, the Vienna branch of UniCredit Bank initiated an investment arbitration against Croatia in connection with the introduction of the law on the forced conversion of loan agreements concluded in Swiss francs in euros. The law aimed at protecting Croatian consumers, stipulated that all costs associated with such conversion lie on the creditors. As a result of this measure, UniCredit, Raffeisen, Erste Group, Sberbank and others suffered. This trial is not yet complete.

In the context of the above trial, Argentina's actions aimed at resolving the financial crisis in 2001 are recalled, which served as the basis for more than 40 investment disputes. In 2002, Argentina introduced an emergency law, according to which electricity tariffs were no longer allowed to calculate tariffs at a rate of one Argentine peso - one US dollar. This law inflicted considerable damage on US investors, who in 1998 decided to invest in Argentina only because of the favorable exchange rate fixed at that time in Argentina's legislation. In most cases, the arbitrators decided in favor of foreign investors, recognizing that Argentina's actions are not in line with international standards.

The situation with Agrokor differs in that in this case it is a question of granting loans, and not about, investments in pure form. At the same time, given the extremely important importance of this company for the economic stability of Croatia, as well as the volume of loans granted to Agrokor, it is clear that Lex Agrakor was accepted in public, that is, state interests, which may serve as a basis for applying to investment arbitration. However, Russian creditors need to understand that the bilateral agreement on investment protection between Croatia and Russia, although signed, has not yet entered into force, and therefore the mechanism of such treatment is not available to them. At the same time, this does not prevent other foreign creditors or foreign subdivisions of Russian creditors from trying to appeal to the investor and recover from Croatia the losses incurred if they are recognized by foreign investors affected by the state's protectionist measures.

Thus, the opportunities and prospects of Sberbank and other creditors to collect debt from the Croatian company Agrakor while mixed. First, it is important that the court of appeal in England will decide. Will he retain the decision of the High Court judge or consider that the right to arbitration in the global economic perspective is more important than the state's protectionist measures. Secondly, the state courts have not the last word in this dispute - the LCIA arbitrators, not bound by the previously adopted decisions, have the right to satisfy Sberbank's claims (taking, incidentally, into account the financial crisis in Croatia). In any case, if the results of commercial arbitration do not add to the creditors of Agrakor, they can try to take advantage of the protection of international agreements and initiate investment arbitration against Croatia. Despite the crisis in the state, depriving creditors of the right to independent and impartial arbitration and the transfer of disputes on the collection of multi-billion debt in state courts is too extreme measure, the legitimacy of which is in doubt.