When a loan is unpaid, a bank takes over the collateral. But when the borrower is in Ukraine, and is connected to a powerful member of parliament, things can go awry for the bank.
This is what Czech-based Expobank learned when it tried to foreclose on the collateral in a multimillion-dollar loan given to the Vilnohirske Sklo, a large Ukrainian glass producer.
In January 2012, Vilnohirske Sklo took out a loan worth of some $21 million from Expobank, a private lending institution in the Czech Republic.
The loan was insured by the Czech Republic’s Export Guarantee and Insurance Corporation, or EGAP.
The collateral on the massive loan was the glass factory building, located at 31 Promyslova St. in Vilnohirsk, a city of 23,000 people in Dnipropetrovsk Oblast, nearly 400 kilometers southeast of Kyiv.
Unpaid loan
The loan was to be repaid in quarterly payments from 2013 to 2017, but at one point, the borrower stopped paying. The factory management blames it on the economic crisis, hryvnia depreciation and the loss of a large share of the glass packaging market as Crimea, with its many wineries, was annexed by Russia in 2014.
So in 2016, the Czech Expobank proceeded to take over the factory’s building — only to find out that it is impossible to do.
Just months after the factory took the loan, the local authorities of Vilnohirsk legally divided the factory building in four different properties, giving each a separate address.
This meant that on paper the collateral property ceased to exist.
Expobank went to Ukrainian court to claim the division illegal. The bank accused the glass producer of dividing the building to avoid losing it to the bank.
Sergiy Oberkovych, a senior partner at GOLAW, a Ukrainian law firm representing Expobank, says that it is a popular way for Ukrainian loaners to avoid losing the collateral.
The management of Vilnohirske Sklo denies its involvement in the change of the building’s status. According to the factory’s director and co-owner Fedir Tkachman, the local authorities moved to change the factory’s address without the factory initiating it.
The factory’s other owner is Oleh Kryshyn, a lawmaker with the People’s Front party, elected in a single-member district in 2014. Kryshyn is a member of parliament’s special group for relations with the Czech Republic. He didn’t answer requests for comment.
The factory management denied trying to remove the collateral.
“The collateral is preserved in a good condition, and the bank’s representatives were able to check it numerous times,” reads the statement by the Vilnohirske Sklo.
The factory management also blamed Expobank for refusing to restructure the loan.
Vilnohirske Sklo also filed a counterclaim: They asked the court to terminate the mortgage agreement. The suggested reason was that the agreement didn’t include the glass furnaces installed in the building. The furnaces can’t be removed from it, thus both sides “made a mistake” when putting it on the agreement as the pledged property.
The factory management refused to comment on the counterclaim. In November, a court in Dnipropetrovsk ruled that the case shouldn’t be tried in the courts of Ukraine. The factory is appealing it.
But even if Expobank succeeds, it may not be able to seize the collateral.
According to the court register, in September one of the Vilnohirske Sklo’s managers went to police saying that the company was being blackmailed by an unidentified fraudster who obtained the property documents and threatened to change the property’s ownership. As a result, the police asked the court to freeze the company’s property to protect it — meaning that Expobank, too, wouldn’t be able to take over the buildings.
Expobank filed a complaint with the National Anti-Corruption Bureau of Ukraine regarding the case, which Oberkovych says was “fabricated.”
Second firm
Oberkovych is concerned that the borrower, Vilnohirske Sklo, could transfer its property into the ownership of Sklo Alliance — a different legal entity registered in the same address by several of the same owners.
Sklo Alliance was registered in 2012, soon after the loan was taken, and around the time the collateral was divided.
Sklo Alliance has showed up in a different loan dispute of Vilnohirske Sklo.
According to the court records, in 2016 Vilnohirske Sklo was refusing to repay a Hr 6 million loan to a Ukrainian lender, Pivdenny Finansoviy Partner in Kharkiv. Sklo Alliance was the guarantor on the loan.
When the lending company sued, Sklo Alliance filed a counterclaim to recognize the loan guarantee agreement invalid.
Sklo Alliance claimed that it didn’t know the details of the loan taken by Vilnohirske Sklo and was made its guarantor “through a fraud or a mistake.” The two companies are closely affiliated: they share owners and address.
In that case, the Ukrainian lender succeeded: In August a court in Poltava ruled that the glass producer must repay the loan.
