On 14–15 December 2010 the English company The Law Debenture Trust Corporation p.l.c. concluded a settlement with Elektrim S.A. for payment of a significant amount of over EUR 185 million in claims.
In 1999 Elektrim Finance B.V., registered in the Netherlands, issued bonds guaranteed by its Polish parent company, Elektrim S.A. Elektrim used the bond proceeds to invest in IT, telecom and power companies in Poland. The bonds were purchased by banks, investment funds and other institutional investors around the world.
The original redemption date for the bonds was at the end of 2001, but neither the issuer, Elektrim Finance, nor the guarantor, Elektrim, could pay. In 2002 Law Debenture, as the trustee for the bondholders, filed a bankruptcy petition against Elektrim. Facing that threat, Elektrim agreed to debt restructuring, and the redemption date for the bonds was extended to December 2005.
Despite the restructuring, Elektrim committed several events of default under the trust agreement, and in January 2005 Law Debenture accelerated the bonds. Elektrim sought to escape payment by disputing the grounds for acceleration and the validity of the agreements giving rise to the trustee’s claims.
Moreover, in 2005–2006 Elektrim carried out a number of transactions in the company’s assets that could frustrate enforcement of the claims under the bonds and worsen the situation of the creditors. In early 2005 Law Debenture filed another bankruptcy petition against Elektrim, and then it commenced litigation against numerous Elektrim affiliates in order to secure the assets and set aside transactions that were detrimental to creditors and reduced the value of the debtor’s assets.
As part of its efforts to secure the debtor’s assets, Law Debenture seized Elektrim’s shares in Polska Telefonia Cyfrowa sp. z o.o., operator of the Polish mobile phone network Era. This in turn led to litigation against Law Debenture by Vivendi S.A. and Deutsche Telekom A.G., each of which claimed to be the owner of the seized PTC shares. In all of these lawsuits, the bond trustee was represented by Wardyński & Partners lawyers Paweł Ciećwierz, Konrad Grotowski and Jan Ciećwierz.
In October 2006 Elektrim transferred EUR 525 million to Law Debenture, thus paying down the principal amount of the claim under the bonds, and Law Debenture withdrew the bankruptcy petition against Elektrim. Nonetheless, for many months the trustee was prevented from forwarding the funds to the bondholders, because the French company Vivendi alleged that the funds for redemption of the bonds were proceeds from the sale of PTC shares which Elektrim had unlawfully “expropriated” from Vivendi. An English court finally rejected Vivendi’s allegations, and the funds were paid over to the bondholders.
However, the delay in paying over the funds to the bondholders prevented redemption of the bonds, and Elektrim’s debt rose due to mounting interest, the trustee’s fees and expenses, and litigation costs. By mid-2007 Elektrim’s debt to Law Debenture under the bond guarantee stood at EUR 36 million or more.
Recognising that it could not pay, Elektrim filed its own bankruptcy petition in August 2007, proposing a plan to write off part of the creditors’ claims.
Under a settlement with the administrator of the Elektrim bankruptcy estate, in April 2008 the administrator transferred over EUR 42 million to Law Debenture, which was then paid out to the bondholders, finally redeeming the bonds.
This left only a “Conditional Payment” of over EUR 185 million still outstanding, which was upheld by an English court while the bankruptcy was pending and was entered in the list of claims against Elektrim—the largest single claim against Elektrim confirmed by the bankruptcy court.
After many months of negotiations, a global settlement was hammered out overnight on 14–15 December 2010 among Elektrim, its controlling person Zygmunt Solorz-Żak, and Elektrim’s creditors—Law Debenture and the Polish State Treasury. The settlement also brought to an end the battle for PTC that had been waged since 1999 by Elektrim, Vivendi and Deutsche Telekom.
Law Debenture was represented in the settlement negotiations by a team of lawyers from Wardyński & Partners led by Konrad Grotowski, a specialist in commercial litigation and bankruptcy. Other members of the team included Marcin Smolarek and Łukasz Szegda, who specialise in securing claims and debt restructuring.
The team from Wardyński & Partners worked alongside Law Debenture’s English lawyers from the London firm Simmons & Simmons and the attorneys for the bondholders, from the Warsaw office of Clifford Chance and the London firm Bingham McCutchen.