Category: ISSUE AND CRISIS MANAGEMENT

Hill & Knowlton Latvia (Latvia)Defending a leading retail chain against a hostile attackUAB PALINK

Summary

On January 5, Palink, operator of one of the largest retail chains IKI, was declared insolvent by Riga Kurzeme District Court (RKDC) after an ungrounded insolvency claim, which was used as a tool in a common economic dispute. The biggest challenge - RKDC verdict couldn’t be appealed. Only Prosecutor General's Office (PGO) could officially protest the court’s verdict. In order to fight the ungrounded decision and return to normal operations as soon as possible, H+K Strategies was invited to work with Palink on January 6. Therefore, immediate action was required, with little to no background knowledge about the case. To show that this case doesn’t have classical signs of insolvency and calm down the suppliers and employees, they were constantly informed about the real financial situation and legal proceedings. To publicly prove the ungrounded and disproportionate ruling of RKDC and attract the attention to the legal flaws of the Insolvency Law, Ministers, members of Latvian parliament and even European Commission got involved. On January 13, POG filed an official protest to the Supreme Court, with Palink subsequently being declared solvent on May 18. Palink’s case urged amendments to the Insolvency Law and uncovered the insolvency administrators’ plot.

Situation

RKDC declared Palink insolvent on January 5, following a lawsuit filed by Sergey Guschin - an unknown foreign citizen who never appeared in public. A fictitious trade union, 3 insolvency administrators and a lawyer, working in a disorganized group, tried to publicly poison public sentiments.Palink was fully solvent and able to settle all of its short-term liabilities – its net turnover in 2011 was 105,6 million Euros, but the claim was for 30 thousand Euros. However, Latvian Insolvency Law states that the RKDC verdict couldn’t be appealed. To stop the insolvency proceedings, a protest from PGO was required.

Objectives

Objectives: 1) to prove that the company is fully solvent to suppliers and partners in order to maintain the company’s operations 2) to get the PGO to protest RKDC’s decision and support position in the court; 3) to raise awareness of an ungrounded ruling and illegal actions taken by insolvency administrators among public authorities, policymakers.

Target Audience: 1) PGO and Supreme Court; 2) public authorities; 3) opinion leaders; 4) suppliers; 5) customers; 6) employees; 7) media.

Research undertaken: 1) Legislative investigation; 2) Research on previous leading case of Palink and parties involved behind the lawsuit; 3) Media monitoring by LETA.

Strategy

To promptly demonstrate that Palink case doesn’t have classical signs of insolvency and reassure the target audience.

To build support from third parties (suppliers, bank, auditor company), thus demonstrating Palink‘s financial capabilities and keep the stress of all suppliers, employees under control.

To show the seriousness of the case by involving Palink’s shareholders REWE Group and establish direct contact with high-ranking EU representatives.

Main messages: • RKDC’s ruling is ungrounded and harms the business of a fully solvent company.

Baltic PR Awards 2012

Category: ISSUE AND CRISIS MANAGEMENT• Legal flaws of the Insolvency Law threaten foreign investments in Latvia.

Communication channels:1) Media (national/regional); 2) Intranet; 3) Direct communication by e-mail, official letters, meetings; 4) The

Cabinet of Ministers, the Foreign Investors' Council in Latvia (FICIL), EU institutions, suppliers as messengers.

The assessment of results: Media message consistency and content of publicity. PGO protesting the RKDC’s decision within two weeks from January 5.

Execution

1.     Ongoing communication with the biggest suppliers and employees, explaining the real situation thus gaining trust to continue all the operations as usual. Largest suppliers agreed to publicly support Palink to limit stress of others.

2.     Ongoing dialogue with opinion leaders to invite them to issue official statements to Latvian authorities and media about the absurd situation (FICIL, Trader’s Association, the Cabinet of Ministers, institutions of EU and others).

3.     Media relations:3.1. Interviews with Palink management, shareholders and lawyers to raise the issue of mistakes made by RKDC and further - illegal and business-harming actions taken by the insolvency administrator.3.2. Media event with participation of Palink shareholders from Belgium and Germany, REWE Group, to stress the importance of the situation, build credibility of the company’s operations, inform about Palink investments, future plans in Latvia and to raise discussion about the general investment climate in Latvia.3.3 Ongoing consultancy.

Documented Results

On January 13, PGO filed an official protest to the Supreme Court over the RKDC ruling. On May 18 RKDC declared Palink to be solvent.Except a minor unease among suppliers in the beginning, they stayed trustful and were messengers to each other that Palink is fully solvent. Palink gained public support from the Prime Minister of Latvia, Minister of Justice, European Commissioner and others.Media sentiment leaned towards Palink very soon, with the target audience being shown that this was not a typical insolvency case. Therefore, the court’s decision was also positive for Palink, which shows that PR had a great impact on solving the case.The content analysis of Latvian media shows that the central messages were covered (ungrounded ruling, investment climate, Insolvency Law amendments). The Insolvency Law was amended, preventing other businesses from abusing the law in common economic disputes.

Baltic PR Awards 2012