TIDMNWR
RNS Number : 5809G
New World Resources Plc
08 August 2016
Amsterdam, 8 August 2016
Update on the OKD Insolvency
New World Resources Plc ("NWR Plc" and together with its
subsidiaries, the "NWR Group") today provides an update on the
status of the insolvency of OKD, a.s. ("OKD") and it clarifies
various factually incorrect statements that have appeared in recent
Czech insolvency court filings and in media reports regarding the
NWR Group's 2014 comprehensive balance sheet restructuring (the
"2014 Restructuring").
Introduction
Further to the announcements on 3, 4 and 16 May 2016 regarding
the filing of and the impacts of the filing of an insolvency
petition by OKD, the shares in NWR Plc remain suspended from the
London Stock Exchange, Prague Stock Exchange and Warsaw Stock
Exchange.
As previously announced on 16 May 2016, as a result of the
insolvency petition being filed by OKD, the EUR 35 million super
senior credit facility ("SSCF") lenders and requisite majority of
holders of the EUR 352 million Senior Secured PIK Notes due 2020
("SSNs") have issued a demand upon the guarantees given by OKD for
payment of the SSCF and SSN liabilities (the "Guarantees").
Consequently, Citibank N.A., acting as the security agent on behalf
of the creditors under the SSCF and the SSNs (the "Security
Agent"), registered creditors' claims in respect of the Guarantees
in the total amount of approx. CZK 10.5 billion. The Security Agent
is the largest creditor in OKD's insolvency proceedings.
Update on the OKD Insolvency
Registered creditors' claims
On 18 May 2016, the Regional Court in Ostrava (the "Court")
delivered a notification to all known foreign creditors of OKD
inviting them to register their claims with the Court by a deadline
of 30 days after receipt of the notification.
As of 3 August 2016, according to the filings made with the
Court, approx. 550 creditors have registered their receivables
against OKD for a total amount of CZK 20,281,010,690.77 out of
which more than CZK 17 billion have been contested and denied by
the insolvency trustee. The filings suggest that all creditors are
unsecured, except for Zeppelin CZ, s.r.o. that claims to have a
secured claim of CZK 68,903,810.99 retention over machinery
belonging to OKD.
According to the filings registered with the court, the five
largest creditors (by value of the registered claim) of OKD as
follows:
Creditor Registered Comment
claim (CZK)
The Security 10.5 billion Guarantee claim
Agent in respect of SSN
and SSCF, being
contested by OKD
and insolvency trustee
Ministry of Industry 1.888 billion Contingent claim,
and Trade no funds have been
provided at this
time to OKD by the
Ministry of Industry
and Trade, being
contested by insolvency
trustee
Veolia Pr myslové 1.34 billion Apart from CZK 54
slu by million, being contested
by OKD and insolvency
trustee
Natixis 518 million ECA Facility under
which OKD is co-obligor
Advanced World
Transport group
creditors 462 million
------------------------ -------------- --------------------------
Temporary injunction and appointment of the members of the
interim creditors committee
On 25 May 2016, OKD filed a motion for a temporary injunction
against NWR Holdings B.V. ("NWR BV"), arguing that there is a
conflict between OKD's interests and the interests of Ashmore
Investment Management Limited, Gramercy Funds Management LLC and
M&G Investment Management Limited (together, commonly referred
to as the "Ad-Hoc Group" or "AHG") given that the Ad-Hoc Group
indirectly controls OKD and is, at the same time, its key
creditor.
On 26 May 2016, the Court decided ex parte that: (i) OKD's
operations may only be halted and/or restricted with the prior
consent of the interim creditors' committee (the "ICC") or, until
the ICC is appointed, the prior consent of the Court; and (ii) the
effectiveness of any decisions of NWR BV in its capacity of the
sole shareholder of OKD is conditional on the consent of the ICC
or, until the ICC is appointed, the prior consent of the Court.
On 1 June 2016, the Court appointed Advanced World Transport,
a.s., Czech Social Security Administration and the Coalfield
Brotherhood Cash Office, a health insurance company, as the three
members of the ICC. The Security Agent was excluded from the ICC.
The Creditors Meeting will appoint a regular creditors' committee
that should replace the ICC appointed by the Court.
On 9 June 2016, NWR BV filed its objection to the temporary
injunction.
On 16 June 2016, OKD filed its reply with the Court to NWR BV's
objection to the temporary injunction. In the reply, OKD also
asserted that the NWR Group "forced" OKD to assume the
Guarantees.
On 17 June 2016, the Security Agent filed a reply dated 9 June
2016 to OKD's motion for a temporary injunction against NWR BV. In
the filing, the Security Agent noted that (i) NWR Plc (and not the
AHG) is the entity controlling OKD and (ii) the Security Agent is
the largest creditor and not the AHG, therefore it is incorrect to
describe the AHG as both the controlling entity of OKD and the
largest creditor.
On 7 July 2016, the Senior Prosecutor's Office in Olomouc
supported NWR BV's objection in its statement filed with the High
Court. It concluded that:
'the contested decision of the Regional Court in Ostrava [is]
incomprehensible, unreviewable and based on an incorrect legal
assessment of the matter.'
On 15 July 2016, the High Court in Olomouc (the "High Court"),
in an un-appealable ruling, upheld the Court's 26 May 2016 decision
to issue the temporary injunction. The High Court noted in its
judgment that it will not examine who currently controls OKD as it
did not find it relevant for the assessment of the temporary
injunction. In the High Court's view, the relevant "material
reason", was the High Court's belief that, pursuant to the 2014
Restructuring, NWR BV and New World Resources N.V. ("NWR NV")
"burdened" OKD with the Guarantees. The High Court noted that Mr
Boudewijn Wentink signed on behalf of NWR NV, NWR BV and OKD the
2014 Restructuring documentation which burdened, among others,
OKD.
OKD's and the insolvency trustee's rejection of the Security
Agent's creditor claims
On 25 July 2016, the insolvency trustee of OKD published a list
of registered creditor claims which indicated that OKD and the
insolvency trustee did not recognise the Security Agent's claims in
respect of the Guarantees given by OKD for payment of the SSCF and
SSN liabilities. In the filing, OKD and the insolvency trustee made
certain statements, including that:
(a) The debts secured by the Guarantees do not exist;
(b) NWR NV forced OKD to assume obligations as guarantor of the Guarantees;
(c) The Guarantees were not duly and properly agreed and executed by OKD; and
(d) No consideration for the Guarantees was provided.
The above statements, and the reasoning given in the High Court
ruling, are factually incorrect, as follows from the overview of
the NWR Group's 2014 comprehensive balance sheet restructuring
below.
On 8 August 2016, the Security Agent filed a statement with the
Court responding to OKD's and the insolvency trustee's rejection of
its creditor claims.
2014 Restructuring Facts
Overview and benefits to OKD
As was publicly stated by the NWR Group at the time, the primary
objectives of the 2014 Restructuring were to:
(a) mitigate the risk of any of the NWR Group companies (in
particular NWR Group's key operating subsidiary, OKD) having to
file for bankruptcy or liquidation (or another formal insolvency
process); and
(b) implement a new capital structure so that the NWR Group will
possess a strengthened balance sheet and a more appropriate debt
service and maturity profile in light of the ongoing difficult
trading conditions in the global coal mining market.
As a result of the 2014 Restructuring, OKD's obligations as a
guarantor under the EUR 500 million old senior secured notes due
2018 were fully and finally released ("Old Guarantee"), and OKD
became a guarantor under the Guarantees. Accordingly, OKD's
exposure to liability as a guarantor was reduced by 33% from EUR500
million under the Old Guarantee to EUR335 million under the
Guarantees. In addition, immediately following the 2014
Restructuring, the NWR Group injected vital cash (via shareholder
loans) into OKD to ensure it continued as a going concern - EUR 64
million was injected into OKD between 2014 and 2016. Even prior to
the 2014 Restructuring, OKD received significant amounts of monies
from the NWR Group over the years. Between 2010 and 2016, OKD
received the benefit of EUR 650 million of shareholder loans -
funded by the issuance by NWR Group entities of bonds that were
guaranteed by OKD - of which EUR 586 million was converted into
equity of OKD and is never to be repaid by OKD. The evidence of the
inflow of these monies into OKD is contained in the independently
audited financial statements contained in OKD's Annual Reports,
which are a matter of public record and available on OKD's website
(http://www.okd.cz/en/about-us/annual-reports).
In addition, the 2014 Restructuring was implemented through a
scheme of arrangement under Part 26 of the Companies Act 2006 (the
"UK Scheme of Arrangement"), which was sanctioned by the Chancery
Division (Companies Court) of the High Court of Justice of England
and Wales ("UK High Court"). In the UK High Court judgment of 5
September 2014, Mr. Justice Norris adjudged that:
"New World has raised debt finance for group operations by way
of two note issues, amongst other means. First, there are some
senior secured notes governed by New York law. These secured notes
are repayable in 2018 and are issued in the principle sum of
EUR500million. They are secured by pledges over the entire
shareholdings of OKD and Karbonia and are supported by guarantees
from these companies. (...)
Under the (...) scheme the claims of the senior noteholders will
be compromised and released and, in return, they will receive a pro
rata share of some new senior notes to be issued by New World at a
higher rate of interest, including a facility for capitalising
unpaid interest at a higher rate, secured by a new guarantee and
security package. (...)
The effect of the new scheme will be to provide additional
liquidity for the group's operations through the injection of new
equity. It will improve the capital structure of the group by
reducing its current debt burden (...) and it will reduce the
overall burden of interest rate payments. The company will
therefore have, and the group will have, a stable platform through
which to trade through the present reduction in coal prices
(...)"
Accordingly, the statement that the 2014 Restructuring
"burdened" OKD with guarantee obligations is factually incorrect.
The 2014 Restructuring significantly reduced OKD's guarantee
obligations by approx. EUR 165 million (by release of the Old
Guarantees), deferred all of OKD's remaining debt liabilities, and
raised vital additional liquidity that resulted in EUR 64 million
of fresh cash being injected by the NWR Group into OKD from
2014-2016 to enable the loss-making OKD business to continue
trading during this period.
OKD Guarantees
We set out some facts confirming that (i) OKD assumed the
obligations under the Guarantees independently and without
compulsion from any NWR Group entity, (ii) OKD duly and properly
agreed to enter into the Guarantees and (iii) consideration was
provided to OKD in respect of the Guarantees.
On 21 July 2014, OKD signed a deed of undertaking, in which it
agreed to be bound by and comply with the obligations expressed to
apply to it under the UK Scheme of Arrangement and the 2014
Restructuring documents. This included both the release of the Old
Guarantees and the granting of the Guarantees by OKD in respect of
the SSN and the SSCF.
On 2 September 2014, the board of directors of OKD (which
included two of the three current day OKD directors who now seek to
disregard the Guarantees), approved: (i) the UK Scheme of
Arrangement and the 2014 Restructuring documents (which included
the release of the Old Guarantee and entry into of the Guarantees)
and the transactions anticipated by the documents and (ii) the
authorization of Boudewijn Wentink (who was not an OKD employee nor
on the OKD board of directors nor on any of the boards of any of
the NWR Group entities at that time) to sign (on OKD's behalf)
under Power of Attorney any and all documents in connection with
the 2014 Restructuring. The Power of Attorney was granted on the
same day by OKD.
On 3 September 2014, the supervisory board of OKD took the same
decision; accepting the guarantee obligation freely as being in
OKD's interest.
On 5 September 2014, a hearing before the UK High Court took
place. During the proceedings, it was noted that the UK Scheme of
Arrangement (including the SSN and the SSCF pursuant to which OKD
was released from the Old Guarantee and assumed the
Guarantees):
"would be recognised by the Czech court as a foreign judgment
and/or as a settlement under the Brussels Regulation. Failing that,
and as an alternative, the scheme would be recognised as a foreign
judgment under the Czech Act".
The UK High Court, taking into consideration, amongst other, the
Guarantees, adjudged that the UK Scheme of Arrangement was fair and
sanctioned this scheme in its judgment of 5 September 2014 (the "UK
Court Order").
On 9 September 2014, the United States Bankruptcy Court for the
Southern District of New York recognised the UK Scheme of
Arrangement as a foreign main proceeding pursuant to Chapter 15 of
the US Bankruptcy Code. US Bankruptcy Judge Stuart M. Berstein
adjudged that the UK Court Order, the UK Scheme of Arrangement and
the restructuring documents (including the SSN and the SSCF
pursuant to which OKD was released from the Old Guarantee and
assumed the Guarantees), as applicable, are:
"recognised, granted comity, and entitled to full force and
effect against all entities in accordance with their terms and that
such terms shall be binding and fully enforceable."
Furthermore, in 2014, Ernst & Young provided an independent
valuation in respect of the Guarantees, which was used as the basis
of guarantee fees due to OKD in respect of the Guarantees. Between
2009 and 2015, OKD received approx. EUR 15 million in guarantee
fees, in consideration for providing the Old Guarantee and the
Guarantees.
Accordingly, the statements that: (i) NWR NV or NWR BV forced
OKD to assume obligations as guarantor, (ii) the Guarantees were
not duly and properly agreed and executed by OKD and (iii) no
consideration for the Guarantee was provided, are factually
incorrect.
Please see the NWR website for copies of the authorising
documents and the various Czech court filings referred to
above.
Creditors Meeting on 11 August 2016
On 10 August 2016, a day before the Creditors Meeting, all (with
very few exceptions) registered claims of OKD will be reviewed at a
hearing before the Court. The insolvency trustee and OKD will be
given the opportunity to contest the registered claims. The
creditors will also be given the opportunity to contest the
registered claims of other creditors (but only if the written
contesting petition is delivered to the court at least three
business days before the court hearing).
In the event that the insolvency trustee denies a registered
claim, the respective creditor may exercise his voting right at the
Creditors Meeting only if the Creditors' Meeting adopts a
resolution that the creditor is entitled to vote. No creditor is
allowed to vote in his own matter. If the Creditors' Meeting does
not adopt such resolution, the insolvency judge may decide upon the
voting rights of that denied creditor. A denial by another creditor
or by OKD does not affect voting rights of the creditor with a
contested claim.
We understand that the Creditors Meeting scheduled for 11 August
2016 is likely to decide the following matters:
(a) should OKD's insolvency be conducted through bankruptcy
(i.e. ultimately OKD would be liquidated) or through a
reorganisation;
(b) should the ICC continue with the same members or whether new
members will be voted in (alternatively the number of creditors may
be increased from 3 up to 7);
(c) should the current insolvency trustee be replaced and by whom; and
(d) should a licensed appraiser be appointed (in case a reorganization is the agreed approach).
The resolution of the Creditors Meeting requires a simple
majority of votes present or duly represented creditors, calculated
according to the amount of their claims (every CZK 1 of the
receivable represents one vote).
Concluding Remarks
It is not yet clear what will happen regarding the Security
Agent's creditor claim in respect of the Guarantees, what will
happen at the Creditors Meeting, and what implications the outcome
of these two proceedings will have on OKD and the NWR Group. So
long as OKD continues to operate, there remains a possibility that
OKD as an entity will emerge from insolvency. We will continue to
monitor the situation closely, however, given the current status,
the analysis set out in our 16 May 2016 announcement regarding the
likely impacts of OKD filing for insolvency on the NWR Group and
its creditors remains unchanged.
- End -
Investor and Media Contact:
Email: info@nwrgroup.eu
Website: www.newworldresources.eu
About NWR Plc:
New World Resources Plc is a Central European hard coal
producer. NWR Plc produces quality coking and thermal coal for the
steel and energy sectors in Central Europe through its subsidiary
OKD, the largest hard coal mining company in the Czech
Republic.
This information is provided by RNS
The company news service from the London Stock Exchange
END
MSCSSWFLAFMSEDA
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