What caused the bankruptcy of SNORAS?

This is currently subject to investigation. The findings to date have identified that there was a significant amount of assets that were recorded in the balance sheet of SNORAS but which are no longer available to SNORAS. The reasons for this included that:
Certain assets had been recorded in SNORAS’ financial records as owned by the bank but these assets had been transferred to third parties;
SNORAS’ money and assets had been provided as collateral for lending to third parties believed to be related to key individuals connected to SNORAS, but were not recorded as such. When SNORAS entered bankruptcy, the third party banks called in the collateral, causing significant loss; and
Certain assets had been purchased for amounts that were significantly above market value and were recorded in the accounts at these higher values, leading to unduly positive balance sheet valuations being adopted in respect of those assets.
It is believed that most of these transactions involved the former majority shareholders of SNORAS or parties associated with them. There are more details in the report dated 8 June 2012 published on the SNORAS website.
We are continuing to investigate these transactions and a large number of others in the lead up to the bankruptcy and will provide more details when possible.

What recoveries will I receive on my claim? How much money can I expect to be repaid?
Given the number of uncertainties remaining it is too early in the bankruptcy to provide a reliable estimate as to whether creditors will receive payment on their bankruptcy claims, or what any amount might be.
The key factors impacting on the level of creditors’ recoveries are summarised in section 5 of the report dated 8 June 2012 published on the SNORAS website. These include:

the recoveries on the loan book (which is the principal asset of SNORAS);
the recoveries from the assets that have been misappropriated from SNORAS; and
the recoveries from the other assets of SNORAS,
The recoveries by individual creditors will also be impacted by where that creditor ranks in the creditors’ priority established by law.

When will any payments be made on claims in the bankruptcy?
It is too early at this stage to be able to tell precisely when and if any payments to creditors will be made but it will not be in the near future. Payments can only be made once the bankruptcy has entered the liquidation phase, which may only be ordered by the Court. The majority of the value of SNORAS’ assets are contained in the loan portfolio. The loans are currently being collected but the portfolio comprises of debts owed to SNORAS which are payable in the future. The timing of any payment to creditors is likely to be impacted by the decision of the creditors’ committee whether to sell or hold the loan portfolio.

In any event, the Bankruptcy Administrator anticipates that no payments will be able to be made to unsecured creditors within at least the next 2 years. That does not mean the Bankruptcy Administrator will be making any payments after 2 years as that remains to be determined and, if there is any such payment, there could be further delays.

How are creditors ranked in any future return to creditors?
Creditor rankings in the bankruptcy are prescribed by law. In broad terms the law currently provides that the claims are paid in the following order:

(a) Employment related claims of employees
(b) Claims from state undertaking ‘Deposit and Investment Insurance’ (DII)
(c) Taxes, state insurance payments and state guaranteed loans
(d) Claims from general (unsecured) creditors
(e) Claims in relation to subordinated loans (and certain subordinated securities)
(f) Claims in relation to subordinated securities
(g) Claims of qualified shareholders (in respect of any creditor claims), members of the bank’s board or supervisory board and heads of administration
Claims are “pari-passu” within each category of claims.

More details in relation to creditor rankings are set out in the report dated 8 June 2012 published on the SNORAS website.

Will a new creditors’ committee be appointed if the constitutional court changes the ranking of the claim of state company “Deposit and Investment Insurance”?
The decision of the creditors’ meeting to appoint the creditors’ committee is based on a vote supported by a majority of approved claims by value. Creditors did not vote by ranking of claims at the creditors’ meeting – only by the value (or amount) of their claim. The constitutional court decision on the ranking of the DII’s claim is not expected to have any effect on the value of the approved DII claim as the court case only relates to the ranking of the claims. Therefore, the Bankruptcy Administrator does not expect that the constitutional court decision on ranking alone should impact on the composition of the creditors’ committee.

What is the status of the litigation regarding the money paid for the unissued SNORAS shares?
This litigation is concerned with the status of the money that was paid to SNORAS as a result of the share issue in 2011 that did not close. These matters are currently being considered by the Vilnius District Court. It will be for the Court to decide on whether the persons who paid such money should be refunded or if these persons are unsecured creditors of SNORAS. A court hearing regarding some of these claims was held on 7 June 2012, and the Court is expected to announce its decision in respect of those claims on 27 June 2012.

Why has an international Bankruptcy Administrator been appointed rather than a Lithuanian Bankruptcy Administrator?
The Vilnius Regional Court appointed Neil Cooper as the Bankruptcy Administrator. In its decision of 7 December 2011, the Court explained its reasons for appointing an international Bankruptcy Administrator, which are summarised in the report dated 8 June 2012 published on the SNORAS website. These reasons broadly related to Mr Cooper’s previous experience of dealing with large scale international bankruptcies. The decision of the Vilnius Regional Court was supported by the Court of Appeal.

It is important to note that this is a case that started in the Lithuanian courts but it is not an ordinary Lithuanian bankruptcy. SNORAS has assets in over 40 jurisdictions and creditors in at least 53 jurisdictions. The outcome for creditors will depend in part on what is recovered from the assets and rights that SNORAS has in many countries around the world. The strategy to pursue recoveries is a matter that the Bankruptcy Administrator will discuss with the creditors committee because it is likely to involve lengthy and time consuming actions. For further information please refer to the report dated 8 June 2012 available on the SNORAS website.

Who determines how much is paid to the Bankruptcy Administrator and to the professional advisers?
The salary of the Bankruptcy Administrator is fixed by the creditors’ committee. The Bankruptcy Administrator has not been paid any salary to date.

The administrative expenses of the bankruptcy, including the professional advisers’ fees, are also approved by the creditors’ committee. Prior to the appointment of the creditors’ committee, the approval of certain administrative expenses, including some professional advisory fees, was considered by the Court. To date, the Court has provided two judgments approving specified amounts of certain administrative expenses and advisory costs.

Why are employees of SNORAS still employed by the Bankruptcy Administrator in the bank?
SNORAS is a large and complex organisation that requires a significant number of people to operate its functions, even in bankruptcy. The most valuable asset of SNORAS is its loan portfolio, comprising over 100,000 loans. A number of employees are needed to continue administering these loans and to collect the thousands of payments that are made every day. These employees help to ensure that the value of this asset (and other assets) is preserved.

Nevertheless, the total number of staff employed by the bank has reduced significantly since the bankruptcy began. At the start of the bankruptcy the bank employed 1,385 people and currently it employs 392 people. The position is continuing to be monitored to ensure that only the appropriate number of staff are employed.

Will people be required to repay their loans before term?
No. In most cases the bankruptcy does not affect the existing contractual loan relations between the bank as lender and the customer as borrower. Therefore, generally speaking the Bankruptcy Administrator is not requiring people to repay their loans before term. The loan agreements that were entered into between the borrower and SNORAS set out the basis upon which people are required to make payment and those repayment obligations extend into the future. However, the Bankruptcy Administrator’s team is working with customers who wish to voluntarily repay their loans early.

What will happen to the tangible assets of SNORAS, such as cars and real properties? Will they be sold? If so, when?
In due course the physical assets belonging to SNORAS will be sold. This will be done in accordance with the requirements of the bankruptcy law, which requires sale either by private treaty or auction depending on the nature of the asset and the views of the creditors’ committee.

In the meantime, the Bankruptcy Administrator’s team have taken steps to secure and protect these assets, pending the liquidation phase beginning and the approval of the creditors’ committee.

The general agreement for non professional clients states that deposits and securities insurance is applicable under the Law on Insurance of Deposits and Obligations to Investors. Will I receive an insurance payment in relation to SNORAS issued bonds/deposit certificates?
Deposit and investment insurance is applicable only in the cases specifically provided by law, and any decision to make payment is made by the state enterprise “Deposit and Insurance Investment”, rather than the bank or Bankruptcy Administrator.

The Bankruptcy Administrator is aware that certain groups of depositors and investors of the bank were not eligible to the deposit and investment insurance for various specific reasons and therefore only have a creditor claim against the bank.

The general agreement for non professional clients refers to the Law on Insurance of Deposits and Obligations to Investors, however, it states that deposit insurance is applicable only in cases specified by the Law on Insurance of Deposits and Obligations to Investors.

The Law on Insurance of Deposits and Obligations to Investors states that deposit insurance does not apply to the bonds or deposit certificates issued by the bank. However, the Bankruptcy Administrator is aware that some customers are disputing this approach.

Why does the report dated 8 June 2012 only include a balance sheet for 7 December 2011, but not an up-to-date balance sheet?
Work has been undertaken to ascertain a balance sheet at the opening of the bankruptcy. However, various investigations and recovery work are still underway in respect of many assets and funds on the SNORAS balance sheet. Therefore significant uncertainty remains regarding the assets recorded in the balance sheet. Many of these matters are mentioned in the report dated 8 June 2012 which is available on the website, including questions over the value of assets in the loan portfolio and transactions occurring prior to the moratorium.

Following the appointment of the Bankruptcy Administrator it became apparent that it was necessary to make significant provisions against some of the asset values contained in the SNORAS’ previous financial records. The Bankruptcy Administrator therefore considered it appropriate to provide creditors with a balance sheet based on the current information and analysis at 7 December 2011 so that creditors had a more realistic baseline of the assets position. The value of SNORAS’ assets will drive the recovery for creditors and therefore it is important that these are explained to the creditors.

The 7 December 2011 figures are still very preliminary and are likely to materially change as the bankruptcy progresses. Further updates will be provided to creditors as agreed between the Bankruptcy Administrator and the creditors’ committee.

What are the key issues impacting how much will be returned to creditors?
In summary, the key issues impacting on the return to creditors include:

Loan portfolio realisations and strategy as to whether to sell or hold the portfolio;
Asset recoveries and investigations into misappropriated assets, including the outcome of litigation;
Asset sales process, including the mini-bank network, the leasing business and the Finasta group, plus tangible and other assets;
Levels of creditor claims;
Proprietary claims, where creditors have claimed that they own the assets of SNORAS rather than having a bankruptcy claim; and
On-going costs involved in progressing the bankruptcy.
These issues are explained in further detail in the written report dated 8 June 2012 published on the SNORAS website and will be assessed further together with the creditors’ committee.

How much did it cost to hire the “Siemens” arena for the Creditors’ Meeting?
The “Siemens” arena requires that the cost of venue hire fees are kept confidential. However, the Bankruptcy Administrator can confirm that the budgeted cost of LTL 221,428 for holding the meeting was approved by the Vilnius Regional Court in its decision of 22 March 2012. The actual amount paid by the Bankruptcy Administrator to hold the meeting was much less than the budgeted amount. The arrangements for the arena included provision for costs to be reduced if full capacity was not used.

The main costs involved in holding the meeting were:

the hire of part of the “Siemens” arena and insurance;
the hire of certain equipment at the arena; and
tickets, printing and facility costs.
Most of the personnel running the meeting were bank staff, and therefore there were no additional expenses for their involvement. Professional advisers also assisted in arranging the meeting and their costs will be addressed separately with the creditors’ committee.

It should be noted that the Enterprise Bankruptcy Law requires the Bankruptcy Administrator to hold a creditors’ meeting and to invite all approved creditors to attend. SNORAS has approximately 17,300 approved creditors, but despite the pre-registration process it was not possible to know in advance how many creditors would actually attend the meeting. It was therefore necessary to hire a venue in Vilnius so that there was capacity to hold the creditors’ meeting safely, if large numbers of creditors did choose to attend.

Can I convert or exchange my SNORAS bond into a loan?
No, the SNORAS bonds do not provide for any conversion or exchange into loans or other instruments.

What is the status of the sale of Finasta and how much will be made from this sale?
The Bankruptcy Administrator has commenced the sales process for the equity interests held by SNORAS in Finasta. The sale was advertised publicly, then details were sent to approximately 90 interested parties and negotiations were entered into with a small number of parties. The Bankruptcy Administrator’s team are now at the final stages of the sale process which is expected to result in recovery of the book value of the asset. The timing for completing those deals will be agreed with the creditors’ committee. The negotiations of the sale of Finasta are confidential and accordingly further details cannot be published by the Bankruptcy Administrator at this stage.

Which specific document or law states that deposit holders can be named creditors and how do they become creditors?
A depositor becomes a creditor because a deposit represents an obligation of a bank to repay an amount equal to the deposited sum. The insolvency of the bank means that SNORAS is unable to repay that deposit therefore the depositor has a creditor claim against the bank for that sum. If you are a creditor and have a claim against SNORAS then you have the ability to submit your claim in accordance with the Lithuanian law.

What action is being taken regarding misappropriated assets?
The Bankruptcy Administrator’s team is currently investigating transactions relating to assets valued at approximately LTL 1.7 billion which are believed to have been misappropriated. The Bankruptcy Administrator has commenced legal proceedings against certain individuals and has been granted a worldwide freezing order against Mr Vladimir Antonov for assets to the value of €492 million by the English High Court. The Bankruptcy Administrator is assisting, where required to do so, with investigations in a number of jurisdictions. Proceedings in Switzerland have commenced to try to recover certain assets. For more details, please see the report dated 8 June 2012 which is available on the website.

Were there any amounts which were paid into the bank after the bankruptcy was announced?
The appointment of the Bankruptcy Administrator (and the Temporary Administrator on 16 November 2011) occurred part way through a business day and there were a large number of transactions in the course of being completed. It is a complex process shutting down a bank’s systems, particularly a bank the size of SNORAS. If creditors have specific questions relating to transactions (other than loan servicing payments) being processed around the appointment of the Temporary Administrator or the Bankruptcy Administrator, they are invited to contact the Bankruptcy Administrator’s team.

Is there any way for creditors (such as senior citizens) to obtain accelerated payments from the bankruptcy?
No. All payments from the bankruptcy will be made in accordance with the bankruptcy laws, and the order of priority at distribution. As mentioned above, there is no guarantee that there will be any funds available for fourth ranking creditors.

When will money for bonds issued by SNORAS start to be returned?
Where a bondholder has made a claim against SNORAS and is now a creditor, they will be paid any recoveries at the same time as other unsecured creditors. This applies even though the terms of the bond may have stated that the bond would be payable at a future time. Please see the question and answer above relating to timing of payments to creditors.

We purchased bonds only because we were told that they were covered by insurance. Who is responsible for this?
The background to the recent issuance of SNORAS bonds is still being investigated by the Bankruptcy Administrator. As previously stated, the eligibility for compensation for bondholders is a matter for the state enterprise “Deposit and Investment Insurance”.