Report of the Bankruptcy Administrator to the Creditors of ... 7 4 - Annual report - FINAL.p… · Realisations • Gross asset realisations in the bankruptcy to 30 June 2013 stand

Report of the Bankruptcy

Administrator to the

Creditors of Akcinė

Bendrovė Bankas Snoras

(bankrupt) for the year

ending 30 June 2013

September 2013

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 last year ................................................. 2

2.2 Future strategy and next steps ...................................................................... 4

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

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

3.2 Expenses ................................................................................................. 7

4 Operational review ............................................................................................... 9

4.1 Size and shape staff review .......................................................................... 9

4.2 Other operating costs ................................................................................ 10

4.3 Operating budget ..................................................................................... 10

4.4 Assets by balance sheet value ..................................................................... 11

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

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

5.2 Loan workstream ..................................................................................... 16

5.3 Determination and payment of creditor claims ................................................. 17

5.4 Litigation ............................................................................................... 19

5.5 Sale of subsidiaries ................................................................................... 20

6 Next report ...................................................................................................... 23

Disclaimer:

This report is prepared by the Bankruptcy Administrator of ‘Akcine Bendrove’ 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 June 2013.

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.

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 the activities in the bankruptcy for the

year ending 30 June 2013, with additional emphasis on the three month period since 1 April

2013. However, where applicable, comments have been included to reflect achievements

and events following 30 June 2013.

There remain a significant number of issues and uncertainties 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 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 last year

Realisations

• Gross asset realisations in the bankruptcy to 30 June 2013 stand at LTL 1.66 billion,

comprising LTL 530 million since 1 July 2012 and LTL 135 million in the last three

months.

• Through active management of the loan book, default rates have been kept under

control and total loan servicing receipts (interest and principal) since appointment

amount to LTL 876 million, of which LTL 371 million relates to the period since 1 July

2012.

• A sale of the mini banks completed in October 2012 for total consideration of

LTL 3.1 million.

• A sale of Snoro Lizingas completed on 7 August 2013, realising a total of LTL 74 million

for creditors, being approximately 7 million LTL in respect of the shares of the company

and a further 67 million LTL in respect of the repayment of loans due to Snoras

• The Bankruptcy Administrator is continuing the sale processes of Finasta Group and

Snoras Media.

• A significant amount of effort has been put in to agreeing the steps required to realise

the Bank owned and foreclosed property with the Committee to ensure that maximum

value is returned to creditors. 84 of Snoras’ owned and foreclosed property assets have

now been independently valued at approximately LTL 185 million and the process of

selling these assets by way of public auctions is underway. As at 30 July 2013, a total of

28 foreclosed properties have been subject to forced auctions with six property sales

being achieved to date. Cumulative realisations total LTL 1.1 million.

• Assets including vehicles, foreclosed assets, firearms and office equipment with a value

of LTL 1.1 million have been sold in the period 1 April 2013 to 30 June 2013, bringing

the total since appointment to LTL 2.3 million.

Litigation

• Overall, the Bankruptcy Administrator is investigating various legal claims with a

potential value of approximately LTL 2.4 billion. At this stage, however, the level of

eventual recoveries remains uncertain.

• As we have previously reported, a number of investments had been transferred to

Cayman and BVI funds prior to the bankruptcy through a series of complex transactions.

The Bankruptcy Administrator has recently unwound these structures and in total,

assets with an estimated realisable value of approximately LTL 180 million have been

returned to Snoras. To date, LTL 48.5 million of loan servicing payments and LTL 24.5

million of historically invested funds have been collected.

• 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 for a value of LTL 1.7 billion

owned by one of the former shareholders. The Bankruptcy Administrator is progressing

this claim in order to seek to deliver significant value to creditors.

• The Bankruptcy Administrator continues to make substantial progress with a claim

against Julius Baer in Switzerland in relation to misappropriated assets. The value of

this claim is estimated at LTL 829 million.


• The Bankruptcy Administrator is investigating the role of the auditor, Ernst & Young in

the preparation and reporting of the statutory accounts of Snoras and its subsidiaries

for the years ended 31 December 2007, 2008, 2009 and 2010 given the additional losses

incurred by creditors as a result of ongoing trading.

• The claims against Julius Baer and Ernst & Young overlap with the claims against the

former shareholders, with the maximum amount of the overall claims being 1.7 billion

LTL.

Creditors

• Over 28,500 claims have been submitted and, having reviewed and processed them,

17,167 creditor claims have been approved by the Court with a total value of

LTL 6.7 billion. A further dividend has been paid during the three month period to 30

June 2013 totalling LTL 10,168 to one first ranking creditor. Previously the

disbursements have been made to all other first ranking creditors approved by the

court.

• As previously reported, the Court and a group of the Parliament members have lodged

requests to the Constitutional Court of the Republic of Lithuania, requesting it to

review whether the ranking of the DIF’s claim at second position and that of SODRA and

Tax authorities at the third position contradict the Constitution.

• Until the issue was not solved by the Constitutional Court of the Republic of Lithuania

the Bankruptcy Administrator has been unable make a distribution to the second

ranking creditor.

• On 5 July 2013 the Constitutional Court confirmed that the current ranking does not

contradict the Constitution. Following this decision the Court by its ruling of 29 July

2013 has approved rankings and claim amounts of the 2nd and 3rd rank creditors.

However some of the creditors have lodged separate appeals regarding this Court’s

ruling and until the outcome of these are known the Bankruptcy Administrator remains

unable to make a distribution to the second ranking creditor.

Operational review

• The Bankruptcy Administrator has regularly assessed the Bank’s operating costs,

reducing costs as far as possible whilst retaining critical services to maximise the

recovery of assets for creditors.

• The Bankruptcy Administrator continues to review employee requirements in line with

the overall strategy. Employee numbers have been reduced from 1,385 to the current

workforce of 139 over a number of phases.

• The Bankruptcy Administrator has determined that the branch network should be

retained for the time being in order to maximise recoveries from the loan portfolio.

• The contract for provision of IT services with Baltic Amber Solutions has been

renegotiated and renewed. This ensures continuation of current service levels at a

substantially reduced cost to the Bank. Other costs continue to be monitored, with a

view to improving efficiency.


2.2 Future strategy and next steps

The table below summarises the strategy by key workstream.

Workstream Future strategy

• Tangible asset

realisations:

Bank owned

properties

•

• Six Bank owned properties are in the process of being sold.

• The Bankruptcy Administrator will continue to regularly review

whether property used by the Bank is still required and finalise the

foreign property realisation strategy.

• The remaining 14 properties will be sold when no longer required by

the Bank.

Foreclosed

properties

• Foreclosed properties valued at less than LTL 1 million will continue

to be sold through first and second forced auctions. Any unsold

properties will be sold via free sale.

• Foreclosed assets valued at more than LTL 1 million will be sold

once the minimum sales price for each property has been set

following the Property Valuation Oversight Agency’s review of the

valuation reports prepared by the independent agents engaged by

the Bank.

• Foreign foreclosed assets will be sold following receipt of legal

advice on the optimum realisation strategy.

Moveable assets

•

• The available moveable assets will continue to be sold via public

auction.

• The auction results will be monitored to ensure the process is

maximising the return to creditors.

Loan

workstream

• The Bankruptcy Administrator will continue to review the optimum

realisation strategy for the loan portfolio and agree it with the

Committee by the end of September 2013.

• The loan portfolio will be actively managed to achieve the forecast

level of collections and manage default rates, whilst the realisation

strategy is finalised.

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 and

expedite disputed claims handling with the court.

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.

• Details on future strategy for specific claims are included on pages

18 and 19.


Sale of

subsidiaries

• The Bankruptcy Administrator will progress the sale processes for

Finasta banking group and Snoras Media’s shareholding in Lietuvos

Rytas.


3 Income and expenses

3.1 Income

The table below shows the breakdown of cash income over the year to 30 June 2013, by

quarter, together with the cumulative receipts since the start of the bankruptcy.

We have previously provided creditors with detailed income information for the first nine

months to 31 March 2013. Points to note regarding the income in the three month period to

30 June 2013 are as follows:

Loan servicing payments

Funds totalling LTL 69.5 million were received in the three months to 30 June 2013,

consisting of cash received from capital and interest payments by customers, and

realisations from loan restructuring and refinancing. In addition, there are asset

foreclosures exercised on terminated loans and the impact of residual set-off.

Total loan receipts since the date of appointment of the Bankruptcy Administrator total LTL

876 million. This balance includes LTL 371 million which was collected in the period

following 1 July 2012. The diminishing level of loan servicing receipts per quarter will

continue, as this reflects the gradual amortisation of the loan book.

Financial assets

Receipts from financial assets for the three month period to 30 June 2013 totalled

LTL 17.6 million, against which costs of LTL 5 million have been allocated resulting in net

realisations of 12.6 million LTL. The costs were incurred in liberating the Cayman funds.

Included within total receipts is LTL 9 million resulting from the return of invested funds

from the Cayman structure (in addition to the LTL 15 million received in March). The

balance of receipts was released from securities which have matured.

Financial asset realisations in the last twelve months amount to LTL 92 million, out of total

realisations since appointment of LTL 163 million.

Fixed assets, investments and other assets

During the three month period to 30 June 2013, receipts from the sale of moveable assets

totalled LTL 313,000.

LTL 000

Period to

30-06-2012

3 months to

30-09-2012

3 months to

31-12-2012

3 months to

31-03-2013

3 months to

30-06-2013

Cumulative to

30-06-2013

Loan servicing payments 504,141 112,005 101,645 88,632 69,548 875,971

Funds held by financial institutions 559,501 569 3,533 0 0 563,604

Financial assets 70,964 (187) 5,414 69,011 12,579 157,781

Fixed assets, investments and other assets 254 95 3,590 796 313 5,049

Cayman loan servicing payments (transferred

to frozen account)(11,060) 0 0 0 48,549 37,489

Interest received on securities and on cash

balances held1,682 506 2,171 1,651 1,495 7,505

Rental income 121 155 163 5,029 2,000 7,467

Litigation costs awards 0 0 0 0 894 894

Total cash receipts 1,125,603 113,143 116,516 165,119 135,379 1,655,760


Receipts during the last twelve months total LTL 4.8 million, with the majority relating to

the sale of the mini banks. Other realisations include moveable assets and cars.

Unwinding of Cayman structure

Before the bankruptcy the Bank sold a portfolio of Russian loans to an offshore structure of

SPV’s and funds located in Cyprus, Cayman and BVI, effectively in return for shares in the

Cayman/BVI funds. After extensive negotiations agreement was reached to collapse this

structure and return the loans to Snoras. In addition to the return of invested funds noted

under Financial Assets above, this released LTL 48.5 million of frozen loan servicing monies

in the quarter (received immediately before the filing and collected by the Bank’s loans

team thereafter). A summary of the Cayman recoveries is provided below:

Interest received on securities and on cash balances held

Interest totalling LTL 1.5 million was received during the three month period to 30 June

2013. This amount includes interest from securities, term deposits and saving accounts. The

amounts received per period fluctuate, depending upon the number of securities which

mature during the period and the level of funds held on deposit.

Since the appointment of the Bankruptcy administrator approximately LTL 7.5 million has

been received, of which

LTL 5.8 million has been collected in the period following 1 July 2012. Once the position on

creditor rankings has been resolved we will be in a position to make a substantial

distribution to creditors, following which interest receipts from investments and cash

deposits will naturally decrease.

Rental income

Rent totalling LTL 2 million was received during the three month period to 30 June 2013.

This includes LTL 1 million for Krajbanka rental charges in the period from March 2013 to

May 2013. Krajbanka has given formal notice to the Bankruptcy Administrator and exited

the property on 20 June 2013. A further LTL 1 million was received from Krajbanka in

respect of outstanding rent and contractual termination charges. The Bankruptcy

Administrator is currently considering the optimum realisation strategy for this property in

conjunction with the Bank’s staff and advisors.

The rental income collected during the last year totalled LTL 7.3 million. The primary

source of rental income has been the property occupied by Krajbanka and therefore future

rental income is largely dependent on the ability to re-let the property pending sale.

3.2 Expenses

Payments during the three month period to 30 June 2013 totalled LTL 16.9 million. These

payments included LTL 6.4 million of operating expenses, LTL 9.4 million of professional

fees (including VAT) and a distribution of LTL 10,168 to first ranking creditors.

Description LTL (millions)

Frozen loan servicing 48.5

Invested funds recovery - March 15.0

Invested funds recovery - April 9.0

Costs payable (5.0)

Total to date 67.5


The table below summarises the bankruptcy expenses on a quarterly basis for the last

twelve months, together with the cumulative costs since the start of the bankruptcy:

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. As can be seen in the table above, costs across all categories of operating expense have been substantially reduced.

Equally, 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. Again, professional costs can be seen to be falling over time and this trend is expected to continue.

Additional detail in relation to the recent quarter’s operating expenses is provided in Section 4 of this report. The non-operating expenses paid in the period are summarised as follows:

• Professional fees and disbursements: fees totalling LTL 9.4 million in relation to the

bankruptcy were paid in the three month period to 30 June 2013, all of which relates to

fees agreed by the Committee accrued prior to 1 April 2013.

• Payments to first ranking creditors: during June 2013, a further distribution was made

to one first ranking creditor totalling LTL 10,168.

LTL 000

Period to

30-06-2012

3 months to

30-09-2012

3 months to

31-12-2012

3 months to

31-03-2013

3 months to

30-06-2013

Cumulative to

30-06-2013

Operating expenses

Personnel 23,103 5,933 4,779 3,277 3,459 40,551

Premises 4,586 1,294 1,702 887 819 9,288

Assets 3,089 1,035 1,093 641 636 6,494

Communication and IT 4,045 2,275 2,562 1,959 1,230 12,071

Security and insurance 2,369 281 241 137 165 3,193

Other expenses 1,232 132 209 209 99 1,881

Total operating expenses 38,424 10,950 10,586 7,109 6,408 73,477

Non-operating expenses

Professional fees and disbursements 37,634 41,996 17,253 14,695 9,419 120,997

Payments to first ranking creditors 0 8,382 799 88 10 9,279

Other payments 35,539 2,836 520 913 1,036 40,844

Total non-operating expenses 73,173 53,214 18,572 15,696 10,465 171,120

Total payments 111,597 64,164 29,158 22,805 16,873 244,597


4 Operational review

4.1 Size and shape staff review

The Bank’s workforce has been reviewed on a regular basis in order to control costs whilst

critical services are still performed in order to maximise realisations from the Bank’s assets.

Having reduced employee numbers to 388 in March 2012, further reductions were made in

July 2012 and 206 employees were retained.

The ‘size and shape’ review conducted in December 2012 resulted in the categorisation of

employee roles and awarding of 153 employee contracts for periods of 6, 12 and 24 months

based on the requirement of the Bank for the particular role performed.

The first of the contract groups expired on 31 July 2013. After reviewing the Bank’s staff

requirements, the Bankruptcy Administrator extended some of the contracts by six months

so that critical services could continue to be provided. Overall there was a reduction of 14

full time equivalent employees following the review.

The table below summarises the number of full time equivalent employees at appointment

of the Bankruptcy Administrator compared with the staffing levels at 1 August 2013.

The table also highlights the monthly cost savings that have been made since the start of

the bankruptcy. Average costs per employee have risen due to:

• the requirement to retain more experienced senior staff to manage departments and

oversee key operations within the Bank; and

Bank function

Employee

numbers

Total cost

(LTL 000)

Employee

numbers

Total cost

(LTL 000)

Administration 33 318 9 31

Tangible assets (this function was in Retail

Business Service and in Administration)

- - 12 69

Security (this function was in Retail Business

Service and in Administration)

- - 10 35

Advisor to the President 2 107 - -

Business Development Service 2 33 - -

Change Management 1 26 - -

Corporate Business Service 76 430 - -

Finance Office 56 338 15 112

Human Resources 4 21 2 17

Internal Audit Service 16 100 - -

Legal 4 52 11 71

Loan Management and Administration 1 7 55 452

Office of Investment Business 12 100 3 41

Information Technology 140 734 9 84

Retail Business Service 1,026 3,723 - -

Call centre (was in Retail Business Service) - - 6 30

Risk Management 24 111 4 57

Creditors administration (new function) - - 5 46

Total 1,397 6,100 139 1,045

At appointment At 1 August 2013


• the large number of lower paid employee reductions.

4.2 Other operating costs

Branch network

The Bankruptcy Administrator considers that it is beneficial to retain the branch network

whilst the collection strategy for the loan book relies on the in-house loan team. The branch

network strategy will, however, continue to be reviewed in conjunction with the wider

realisation options for the loan portfolio.

IT contracts

We have recently renegotiated the contract for provision of IT support with Baltic Amber

Solutions, lowering the monthly cost for the next twelve months to reflect the reduced

requirement for IT support services. We will continue to review all contracts to assess

whether cost savings can be made.

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

remaining, whilst asset costs are influenced by the loan portfolio administration activity,

including bailiffs’ expenses and enforcement costs, and the level of moveable assets.

4.3 Operating budget

As stated in our previous report, on 4 April 2013 the Committee was presented with a full

year operating budget based on which the operating budget for the period ended 30 June

2013 was approved at a level of LTL 6.6 million. The actual costs paid in the period total

LTL 6.4 million; however, the table below summarises the total costs including certain

accruals for the period (LTL 6.7 million), with a slight increase in costs against budget of

LTL 62,000.

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

• Premises: the higher costs are due to greater than expected utility costs in heating due

to the colder weather and deferred payment for property tax in Russia, which was

shown as a positive variance in the previous report.

Actual Budget Difference

Operational expenses LTL 000 LTL 000 LTL 000

Personnel 3,453 3,521 68

Premises 819 646 (173)

Assets 634 630 (3)

Communication and IT 1,532 1,537 5

Security and insurance 165 162 (3)

Other expenses 97 141 44

Total 6,700 6,638 (62)


• Personnel: there are small positive variances to budget due to fewer hours being

worked by employees and less holiday being taken than expected; personnel costs are

accrued on a monthly basis.

• Assets: although bailiffs’ costs were higher than expected, this was offset by savings in

statutory expenses (principally VAT and certain other costs).

• Communication and IT: spending more than budget on the BAS contract was offset by no

payment being made for Teo services this quarter. This cost will fall into the next

quarter.

• Other expenses: the savings are due to spending less than budget on sundry items and

not making payment of Finasta Holdings’ June salaries this quarter. This cost will fall

into the next quarter as it was paid in early July.

4.4 Assets by balance sheet value

As detailed in previous reports, impairment provisions were made that reduced the estimated realisable value of Snoras’ assets at 7 December 2011 to LTL 3.9 billion.

The table below shows the current realisable value of Snoras’ assets, following a recent review of the provisions. The current estimated realisable value of Snoras’ assets, excluding potential litigation claims, is LTL 3.2 billion. The movement in Snoras’ asset values is detailed below:

The material movements in the current period are detailed below:

• Loans: movements during the last quarter represent the net effect of Cayman loans

added back into the loan portfolio at a remaining recoverable value of LTL 114 million

minus loan principal repayments of LTL 60 million and a small movement in provisions.

• Financial assets: the increase reflects purchased new financial assets (bonds) with cash

generated in the three month period.

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

result of impairments on investment property totalling LTL 10 million following receipt

of external valuations, impairment to moveable assets totalling LTL 1.3 million and

general amortisation totalling LTL 1.3 million.

• Other assets: the increase is due to the addition of foreclosed assets following

enforcement action.

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

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

realisations from the property portfolio and other tangible assets.

LTL millions

Position at

07-12-2011

Position at

31-03-2013 Movement

Position at

30-06-2013

Loans 2,574 1,433 52 1,485

Cash and cash equivalents 697 689 (0) 689

Fixed assets 305 134 (13) 121

Other assets 153 155 7 161

Financial assets 177 698 65 763

Investments in group companies 7 6 0 6

Intangible asssets 1 - 0 0

Totals 3,913 3,114 110 3,224


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 ongoing. The

claims are discussed further in the next section; however, potential recoveries from the

claims have not been quantified due to the difficulty in estimating the quantum and timing

of realisations from this source.


5 Progress with the bankruptcy

A summary of the progress and next steps 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.

i. Bank owned property

Of the 20 properties owned by the Bank, 16 are in Lithuania, two are in Latvia, one is in

France and one is in the Ukraine.

Prior to this quarter the following actions have been undertaken:

• Regular reviews of the properties have been undertaken in order to establish the use

and ongoing requirement for each one. This includes a detailed cost benefit analysis to

establish whether it would be more cost effective for any of the properties to be sold

and the Bank’s operations relocated to cheaper, leased premises. This process has so

far resulted in the relocation of the Panevezys branch.

• Many of the properties, such as Snoras’ headquarters, remain in use and will only be

sold when they are either redundant or when it is preferable to lease alternative

premises. In the meantime we have sought to let areas of properties which are unused.

• Colliers was instructed to value the properties and provide strategic recommendations

with regard to their disposal. The valuation reports, together with Colliers’ strategic

recommendations were completed in February 2013.

Progress in the last quarter

Lithuanian properties

The most recent review highlighted that six of the Lithuanian properties are no longer

required by the Bank and are therefore available for immediate sale. In accordance with

Resolution 831, the Bankruptcy Administrator obtained the necessary resolutions from the

Committee to allow the sale of the available properties to commence. Colliers are currently

marketing the properties for sale publicly in advance of the forced sale auctions

Foreign properties

As it is not possible to apply the requirements of Resolution 831 in certain foreign

jurisdictions, a review of the various disposal options available for the foreign based assets

is currently being undertaken. Once the optimum strategy has been identified and agreed,

those properties not required by the Bank and therefore available for sale will be sold,

subject to any Committee resolutions which may be required.

The Bank was never issued with a registration certificate for the property located in the

Ukraine, which is understood to impact the Bank’s ability to sell the property at an

acceptable value. The Bank has engaged Ukrainian lawyers to review the current position,

advise on the various disposal options available and confirm whether a registration

certificate can be obtained.


Future strategy and timeframe

The Bankruptcy Administrator will continue to review the Bank’s property requirements

and, as properties become available for sale, they will be sold subject to obtaining any

necessary resolutions from the Committee.

The first forced auction process for the six properties available for sale is expected to run

from 2 September 2013 through to 30 September 2013, with the second forced auction

process running from 16 September 2013 through to 18 October 2013. Should any properties

remain unsold they will be entered into a free sale process. Based on the advice received

from Colliers, the free sale process may take up to six months to complete.

The Bankruptcy Administrator anticipates that any required Committee resolutions for the

foreign properties will be obtained in September 2013. Our agents advise that, due to the

high value of the foreign properties, it could take up to 12 months to sell these properties.

ii. Foreclosed assets

Prior to this quarter the Bankruptcy Administrator engaged agents to provide valuation

reports for 64 Lithuanian foreclosed assets. These have all been received and reviewed by

the Bank’s Asset team and the Bankruptcy Administrator’s team.


Lithuanian foreclosed assets – valued at above LTL 1.0 million

At the Committee’s request, all valuation reports relating to the 13 Lithuanian foreclosed

assets valued at above LTL 1.0 million were submitted to the Property Valuation Oversight

Agency (PVOA) on 23 April 2013. The Bankruptcy Administrator is unable to commence the

sale of these assets until the minimum sales price for each property has been agreed with

the Committee following the PVOA’s review. In the meantime, Colliers are marketing the

properties so that we will be in a position to sell them as quickly as possible once the

minimum sale price has been set. We are currently liaising with the PVOA with regard to

their findings and hope to progress this as quickly as possible.

Lithuanian foreclosed assets – valued at below LTL 1.0 million

The Bankruptcy Administrator is pleased to report that the Committee passed a resolution,

in accordance with Resolution 831, to enable the sale of the 51 Lithuanian foreclosed assets

valued at below LTL 1.0 million. Marketing of the assets commenced on 29 May 2013 and

the first forced auction process commenced on 8 July 2013. The first forced auctions are

scheduled to complete on 23 August 2013. The second forced auction process, for any

unsold properties, will run from 26 July 2013 through to 10 September 2013. Any properties

which remain unsold after the second forced auction will immediately enter a free sale

process.

As at 30 July 2013, a total of 28 properties have been subject to forced auctions with six

property sales being achieved to date for a cumulative value of LTL 1.1 million.

11 foreign foreclosed assets

The Bank currently has 11 foreign foreclosed assets, nine of which are in Estonia and the

remaining two in Russia. The properties comprise residential properties, commercial

properties and an agricultural land plot.


In the last quarter agents have been appointed to value these properties. The valuation

reports were received at the end of July 2013 and they are currently being reviewed by the

Bank’s Asset team.

As with the foreign Bank owned properties, these foreclosed assets are unable to be sold in

accordance with Resolution 831, therefore the Bankruptcy Administrator is required to work

with the appointed agents and lawyers to establish the optimum disposal strategy. Once the

sale strategies have been finalised, the Bankruptcy Administrator will commence selling the

properties, subject to obtaining any necessary Committee resolutions.


Lithuanian foreclosed assets – valued at above LTL 1.0 million

Once we are in a position to formally commence the sale process Colliers will organise the

forced auctions necessary under Resolution 831. Any properties that are not sold will

immediately enter a free sale process. Colliers advise that the free sale process for these

higher value assets may take between six to twelve months to complete.

Lithuanian foreclosed assets – valued at below LTL 1.0 million

Any properties that remain unsold after the second forced auction will immediately enter a

free sale process. Colliers advise that the free sale process may take up to six months to

complete.

11 foreign foreclosed assets

Once the optimum disposal strategy for these properties has been established, the

Bankruptcy Administrator anticipates obtaining any required Committee resolutions in

September 2013. Based on the advice received by various agents, the sale process for these

assets may take up to 12 months to complete.

iii. Moveable Assets

Prior to this quarter, the following actions have been undertaken:

• In October 2012 the Committee and the Bankruptcy Administrator agreed a sale policy

which set out the accepted procedure for organising and carrying out the sale of all

property belonging to the Bank.

• A total of 43 vehicles have been sold. The majority of the remaining vehicles are

currently in use and are therefore unavailable for sale.

• 102 of the Bank’s ATMs were sold on 31 October 2012.

• All firearms which are not currently required have now been sold.


The Bank staff undertook the time-consuming process of creating a detailed inventory for

all remaining moveable assets (fixtures, fittings & IT equipment), in order to identify which

assets remain in use and which assets are available for immediate sale. This process

highlighted that the Bank has a large volume of low value moveable assets that are no

longer required by the Bank. Following completion of the inventory, the Bankruptcy

Administrator concluded that the optimum realisation strategy would be to sell these assets

via public auction. Following an intensive two week marketing campaign, the first public


auction was held on 3 July 2013 and additional auctions will continue to be held each

Wednesday until all available moveable assets are sold.

The Bank’s two Spykers were placed in an online auction, organised by Troostwijk Auctions

in Holland. We are pleased to report that one of the Spykers was sold for LTL 376,000. The

remaining Spyker has been entered in to a second auction organised by Troostwijk Auctions,

with a deadline of 24 September 2013.

Other moveable assets, including non-luxury vehicles and commemorative coins, continue

to be sold in accordance with the relevant Committee resolutions. Total realisations to date

amount to LTL 2.3 million.


The majority of the Bank’s remaining available moveable assets will be sold via weekly

public auctions. It is anticipated that all assets will be sold at auction by the end of

September 2013.

Sale of the remaining available vehicles and commemorative coins is estimated to complete

by the end of October 2013.

The disposal strategy relating to all assets currently in use will be considered when the

assets become available for sale.

5.2 Loan workstream

The Bank’s loan book value, net of provisions, at 1 July 2012 was LTL 1,896 million. Loan

servicing payments (interest and principal) during the period from 1 July 2012 to 30 June

2013 amounted to LTL 371 million. In addition LTL 18 million of collateral was seized during

the same period. The loan book value at 30 June 2013 was LTL 1,484 million.


Loan servicing payments during the last quarter reached LTL 70 million and additionally

collateral to the value of LTL 7 million was seized.

Actions of the Bankruptcy Administrator’s team resulted in a portfolio of loans with a total

exposure of LTL 509 million, which were sold to Cayman structures before the bankruptcy,

being returned to the Bank. Cayman loan portfolio collections recognised at the date of the

loan transfer amounted to LTL 48.5 million and loans with an estimated remaining

realisable value of LTL 114 million were added to the loan portfolio of the Bank.


Proactive loan portfolio management will continue to be one of the key priorities of the

bankruptcy process.

In addition, active consideration is being given to potential sale of the corporate, retail and

mortgage loan books. The loan portfolio realisation strategy will be discussed and agreed

with the Committee by the end of September 2013.


5.3 Determination and payment of creditor claims

Prior to this quarter the Bankruptcy Administrator’s staff have continued to work alongside

the Bank’s in-house legal team and legal representatives to ensure that new claims have

been submitted to Vilnius Regional Court (the Court) in a timely manner, reconciled the DIF

claim on a regular basis and made appropriate representations to court in respect of the

various claim types as and when hearings have arisen.


Approximately 151 disputed claims remain to be determined by the Court, the Court of

Appeal or the Supreme Court. The majority of the remaining claims are currently awaiting

hearing dates from the Court. An updated list of the remaining disputed claims was

submitted to Court during the period, and this list will assist the Court to adopt rulings and

schedule the court hearings for the remaining part of the disputed claims.

There have been hearings in various courts during the period relating to lists of disputed

claims and more complex claims including:

• VĮ Indėlių ir investicijų draudimas (DIF): on 5 July 2013, the Constitutional Court ruled

that the law allowing DIF to become a second rank creditor and the Lithuanian Tax

authority and Sodra as third ranking creditors does not contradict the Constitution,

accordingly the claim submitted by the DIF should remain as a second ranking claim and

the claims of the Lithuanian Tax authority and Sodra should remain as third ranking

claims. Furthermore, it was ruled by the Court previously on 20 June 2013 that the

Estonian Tax authority’s claim is fourth ranking. The ruling in relation to the Latvian

Tax authority has been adopted by the Court on 29 July 2013 and this creditor was

approved as a fourth rank creditor. It should, however, be noted that a number of

appeals have been lodged against the Court’s ruling in relation to the ranking of

creditor claims. These Court rulings that have been appealed have not entered into

force, and as such the position with these claims remain uncertain at this stage.

• Lismark Holdings Limited: the Court adopted a ruling to reject the claim submitted by

Lismark Holdings Limited of USD 79.9 million . The ruling was not appealed.

• Snoras Development: following a Court hearing on 31 May 2013, Snoras Development

agreed to accept the withdrawal of the disputed part of their claim valued at

approximately LTL 2.1 million. The ruling approving claim withdrawal was not

appealed.

In addition, Virmanius Holdings Limited and Eaglus Peak Investments Limited agreed to

withdraw their claims of LTL 40.7 million and LTL 69.9 million, respectively, as part of the

Cayman settlement.

There are two first ranking employee claims yet to be finalised, both of which have the

status of ‘Disputing’. These claims are yet to be listed for hearing at Court, however the

Bankruptcy Administrator considers both claims to be from related parties and therefore

should be seventh ranking.

As noted in previous reports, the remaining admitted claim related to a deceased former

employee. The deceased descendants had been contacted and, after initially indicating that

the dividend would not be claimed, they have recently submitted the necessary documents

and the claim has been settled.

As detailed in the last report, AB Finasta Bank continues to hold monies totalling

LTL 189.9 million in relation to subscription payments for Snoras shares that were not issued


prior to the bankruptcy. Snoras has successfully defended the majority of these claims in

the Court and the Court of Appeal; however, a number of the claimants have now lodged

cessation claims with the Supreme Court. Snoras will continue to defend its position and,

should it be successful, these funds are expected to flow into the bankruptcy estate. This

will also result in creditor claims of a corresponding amount if the claimants lodge financial

claims as creditors in the bankruptcy.

The table below reflects the number and value of claims admitted at Court as at 30 June

2013, excluding amounts already distributed to first ranking creditors:

Since our last report the agreed first ranking claims have been paid, and have therefore not

been included in this table. A number of fourth ranking claims have been withdrawn and

the court has accepted additional delayed claims, resulting in a net reduction of three

fourth ranking claims.

A number of cession claims were heard and determined in the period. The Bankruptcy

Administrator has received a total of 72 cession requests. Of these, 40 requests have been

approved, three have been cancelled, six have been rejected and 23 are currently listed for

hearing by the Court.

Deposit Certificates and Bonds

On 7 May 2013, a claim comprising 286 deposit certificate and/or bondholder claimants was

heard by the Court. The Court partially satisfied the claim and ruled that only 16 of the 286

claimants have the right to claim the relevant amount of deposit insurance. The remaining

claims were rejected. The Bankruptcy Administrator and the DIF have appealed the decision

in respect of the partially satisfied claims.

A small number of additional individual claims from these claimants have been heard and

have each been considered on their own merit by the Court.

During the period, seven new bondholder claims were dismissed by the Court and there are

upcoming Court of Appeal hearings in respect of these claims.


The Bankruptcy Administrator’s staff will continue to progress this workstream until all

claims are settled.

The timing of the disputed claim hearings will be dependent upon the Court. In order to

speed up the process, the Bankruptcy Administrator has worked alongside Snoras staff to

identify a number of currently disputed cases which they consider the Court can deal with

relatively easily. During that process, a number of creditors have agreed with the Bank’s

claim amount, therefore these agreements have also been submitted to the Court for

consideration.

Priority ranking Amount of approved claims Sum of approved amount (LTL)

1 - -

2 2 3,982,363,320

3 6 13,029,606

4 17,138 2,510,585,316

7 20 204,895,373

Grand total 17,166 6,710,873,615


5.4 Litigation

5.4.1 Cayman fund redemption

As detailed in the last report and the Loans section of this report, during March 2013 the

Bankruptcy Administrator agreed redemption of the investments in the Cayman and BVI

funds, and negotiations continued with the Cypriot companies that owned the underlying

loans.

Negotiations with the Cypriot companies were completed in May 2013. This resulted in the

return of the underlying loans to Snoras, which now form part of the Bank’s loan book.

In total the negotiations resulted in assets with an approximate value of LTL 180 million

being returned to Snoras at a cost of approximately 7.3 million LTL, of which 5 million LTL

has been paid to date with the remainder held in an escrow account to be paid in October

2013.

5.4.2 Switzerland

A number of potential claims have been identified in Switzerland against third parties. In

November 2012, the Bankruptcy Administrator successfully applied for all claims against

third parties in Switzerland to be assigned to Snoras.

One significant claim is being finalised at this time and the Bankruptcy Administrator

interrupted the Swiss statute of limitations against the identified third parties to allow

future claims to be brought.

In addition, the Bankruptcy Administrator has obtained recognition as a victim on a related

criminal investigation conducted by the Swiss Prosecutor.

Progress in the last quarter and future strategy

The Bankruptcy Administrator and legal counsel have completed drafting one claim which is

ready to be served, but is pending the interrogation of a witness in Switzerland on a related

criminal investigation.

The Bankruptcy Administrator has instructed legal counsel to attend the interrogation of

the witness in the related criminal investigation being conducted by the Swiss Prosecutor.

The recognition also provides the Bankruptcy Administrator with access to the criminal

investigation file, which will be reviewed for evidence that may strengthen Snoras’ claims.

The Bankruptcy Administrator and his legal advisors seek a cost effective and timely

resolution of the Swiss claims. This process is ongoing and the Committee will be provided

with an update in due course.

5.4.3 The civil claim against Messrs Antonov and Baranauskas

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

supported by a World-Wide Freezing Order obtained on 18 May 2012, for a value of LTL 1.7

billion. As reported in previous creditor updates, Mr Antonov applied to the UK Court for,

amongst other things, the civil claim to be stayed pending the determination of the

extradition proceedings against him and for the World-Wide Freezing Order to be varied

and/or amended or discharged.


Mr Antonov’s applications were heard in November 2012 and judgment was handed down on

4 February 2013. All of Mr Antonov’s applications were dismissed. The Bankruptcy

Administrator applied for Snoras’ costs to be awarded against Mr Antonov for the appeal,

which was successful. As part payment on account, Snoras received GBP 220,000

(approximately LTL 880,000) in April 2013.


Mr Antonov and Mr Baranauskas provided their defence to Snoras’ claim, which we continue

to review and, as anticipated, Mr Antonov made an application to the Court of Appeal

against the judgment handed down in February 2013 in relation to the World-Wide Freezing

Order which was due to be heard on 8 July 2013. However, this was dismissed by mutual

consent in June 2013, after Mr Antonov chose to withdraw the appeal.

Mr Antonov has now disclosed details of his assets, in compliance with the WWFO. Under

the terms imposed on the Bankruptcy Administrator by the court we are unable to provide

any details of these assets. The Bankruptcy Administrator will have a better understanding

of the future viability of the claim and how best to locate, secure and recover Snoras assets

once the asset list has been fully reviewed.

The Bankruptcy Administrator and his legal team remain of the opinion that, on balance and

notwithstanding the delays caused by Mr Antonov, the Civil Claim has a good prospect for

recovery from Mr Antonov and consider it to be the best option available to recover assets

from Mr Antonov and Mr Baranauskas for the benefit of creditors.

5.4.4 36 month contract review

As previously reported, the Bankruptcy Administrator completed the exercise of reviewing

the contracts entered into by Snoras for the 36 months leading up to the Bankruptcy Order

date, as required under Lithuanian Law. The results were presented to the Committee and a

number of claims were lodged with the courts in Lithuania and Latvia.


During the last quarter, the claims progressed through the courts.

On 4 July 2013, a case brought under the 36 month contract review in respect of a claim

against Mr Baranauskas for damages of EUR 1.35 million was adopted by the Court. Mr

Baranauskas had 30 days to appeal against this decision. The appeal was submitted to the

court and the Bankruptcy Administrator was obliged to submit the response to the appeal.

The response was duly submitted. The Court of Appeal has not yet appointed the date of the

hearing.

The Bankruptcy Administrator continues to monitor the progress of the claims through the

courts, and any further results will be reported as soon as possible to creditors.

5.5 Sale of subsidiaries

5.5.1 The Finasta banking group

The Finasta banking group comprises seven legal entities, all directly or indirectly owned by

Finasta Holding, in turn a wholly owned subsidiary of Snoras.


The sale of the Finasta banking group has been challenging. Various credible and well-

funded interested parties have been reluctant to incur the necessary time and costs to

complete their applications to the regulatory authorities. Whilst the sale process has not

been successful to date, the stability and performance of the group has improved since the

appointment of the Bankruptcy Administrator, notably an increase in Finasta Bank’s assets

from approximately LTL 289 million at 31 December 2011 to approximately LTL 414 million

at 30 June 2013, together with a continuing decline in operating costs.


The Bankruptcy Administrator continued to encourage interested parties to complete their

applications to the Bank of Lithuania and the Latvian Financial and Capital Markets

Commission to obtain the necessary approvals for the acquisition. On 3 May 2013, the Bank

of Lithuania announced that EurEst Capital OU’s application was sufficiently complete to

allow their review to formally commence. Unfortunately, on 19 July 2013, the Bank of

Lithuania announced that it would not be providing an approval to this investor to acquire

the shares of the group.

In parallel to the Bank of Lithuania’s review of EurEst Capital OU’s application, the

Bankruptcy Administrator has been actively engaging with other interested parties. To date

no other applications have been finalised, however we remain hopeful that a submission

will be completed in the near future.


Following the Bank of Lithuania’s announcement that it would not be providing an approval

to EurEst Capital OU, the Bankruptcy Administrator has re-evaluated all options for the

Finasta banking group and continues to discuss the advantages and disadvantages of each

option with the Committee. The realisation strategy continues to be evaluated, however at

this stage we expect to continue the sale process with a view to achieving a sale in 2013.

5.5.2 Snoro Lizingas

Snoro Lizingas was a wholly owned subsidiary of Snoras, principally providing loans to

consumers to support the acquisition of household appliances.

In addition to progressing a sale of the subsidiary, the Bankruptcy Administrator worked

closely with Snoro Lizingas to ensure stability of the business. This stability, together with

strong growth of the Snoro Lizingas’ loan portfolio ensured that the sale proceeds from this

subsidiary were maximised.


Following extensive negotiations with various interested parties, the Bankruptcy

Administrator signed a sale and purchase agreement with KŪB RAZFin and AS LHV Group on

16 May 2013 for the sale of Snoro Lizingas. Since this date, we have worked alongside the

buyer to resolve the outstanding matters to achieve a sale, including obtaining Competition

Council clearance. This transaction completed on 7 August 2013 for a total consideration of

approximately LTL 74 million, which includes the full repayment on completion of the

outstanding funding lines provided by Snoras to Snoro Lizingas of approximately 67 million

LTL and a payment of approximately 7 million LTL in respect of the share capital.


5.5.3 Snoras Media

The Bankruptcy Administrator’s team launched the Snoras Media sale process in April 2013.

During the process a large number of potential acquirers of the 34% stake in Lietuvos Rytas

were contacted.

During May and June 2013, ten potential investors have entered the sale process and have

obtained information package required to provide non-binding offers. Discussions and

negotiations with potential investors are in progress and a number of offers have been

received. The Bankruptcy Administrator will shortly be agreeing the next steps in the sale

process with the Committee.


6 Next report

The Bankruptcy Administrator will issue a further progress report for the three months

ending 30 September 2013 in November 2013.

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 ... 7 4 - Annual report - FINAL.p… · Realisations • Gross asset realisations in the bankruptcy to 30 June 2013 stand