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Report of the Bankruptcy Administrator to the Creditors’ of Akcinė Bendrovė Bankas Snoras (in bankruptcy) 15 November 2012

Report of the Bankruptcy Administrator to the Creditors’ of Akcinė Bendrovė Bankas Snoras (in bankruptcy)

Contents

1 Introduction.................................................................................................... 1

2 The Bankruptcy Administrator and events leading up to the bankruptcy ............................. 2

2.1 Moratorium and nationalisation ................................................................... 2

2.2 Bankruptcy decision and appointment of bankruptcy administrator ........................ 2

2.3 Insurance event ..................................................................................... 2

3 Snoras corporate information and group structure ...................................................... 4

3.1 Corporate information ............................................................................. 4

3.2 Outline of scope of Snoras’ activities prior to bankruptcy .................................... 4

3.3 Subsidiaries and group structure .................................................................. 5

4 Bankruptcy process, statutory obligations and compliance ............................................. 6

4.1 Activities of the Bankruptcy Administrator ...................................................... 6

4.2 Notifications ......................................................................................... 6

4.3 Information via newspapers and the official journal .......................................... 6

4.4 Budget ................................................................................................ 6

4.5 Transfer deed ........................................................................................ 8

4.6 Termination of employees ......................................................................... 8

4.7 Termination/performance of contracts .......................................................... 8

4.8 Claims submissions .................................................................................. 9

4.9 Creditors’ meeting ................................................................................. 10

4.10 Creditors’ Committee ............................................................................. 10

5 Bankruptcy activities/workstreams ....................................................................... 11

5.1 Project Management Office ...................................................................... 12

5.2 Operational workstreams ......................................................................... 12

5.3 Asset Workstreams ................................................................................. 14

5.4 Liability Management Workstreams ............................................................. 17

6 Freezing order and assets seizures made against Snoras ............................................... 21

7 Employees ..................................................................................................... 22

7.1 Employees at commencement of bankruptcy .................................................. 22

7.2 Rehiring of employees ............................................................................. 23

7.3 Further reductions in employees ................................................................ 23

8 Creditors’ Financial Claims ................................................................................. 25

8.1 Submission of claims by potential creditors .................................................... 25

8.2 Details of claims received ........................................................................ 25

8.3 Submission of claims to the Court ............................................................... 26

8.4 Determination of claims by the Court ........................................................... 26

Report of the Bankruptcy Administrator to the Creditors’ of Akcinė Bendrovė Bankas Snoras (in bankruptcy)

8.5 Approved claims as at 26 June 2012 ............................................................ 27

9 Assets by balance sheet value ............................................................................. 28

9.1 Cash and cash equivalents ........................................................................ 28

9.2 Fair value financial assets ........................................................................ 29

9.3 Held-to-maturity financial assets ................................................................ 29

9.4 Liabilities from financial institutions and Loans ............................................... 29

9.5 Fixed assets ......................................................................................... 31

9.6 Investments in group companies ................................................................. 33

9.7 Intangible assets ................................................................................... 33

9.8 Other assets ......................................................................................... 34

10 Purchase, sales, writing off of fixed assets .............................................................. 36

10.1 Purchases of fixed assets ......................................................................... 36

10.2 Sales of fixed assets ............................................................................... 37

11 Transactions concluded during last 36 months .......................................................... 38

12 Income and expenses ........................................................................................ 40

12.1 Income – 7 December 2011 to 30 June 2012 ................................................... 40

12.2 Expenses – 7 December 2011 to 30 June 2012 ................................................. 42

13 Asset realisations ............................................................................................ 45

14 Key issues impacting recovery and estimate outcome ................................................. 47

Disclaimer:

This report is prepared by the Bankruptcy Administrator of ‘Akcine Bendrove’ Bankas Snoras (Snoras) pursuant to Article 11.3 (25) of the Enterprise Bankruptcy Law of the Republic of Lithuania (the Report) and in accordance with that legislation the Report has been provided to the creditors’ committee appointed by resolution of the first creditors’ meeting dated 12 June 2012 (the Creditors’ Committee). The information contained in the Report is based on the information and investigations undertaken by the Bankruptcy Administrator as at 30 June 2012. 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 the 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 Creditors Committee shall not be responsible or liable for the information contained in the Report or for reliance by any party on it. Except where otherwise stated, this Report speaks as of 30 June 2012.

Report of the Bankruptcy Administrator to the Creditors’ Committee of Akcinė Bendrovė Bankas Snoras (in bankruptcy) 1

1 Introduction

On 7 December 2011, the Vilnius Regional Court (the Court) ordered that bankruptcy proceedings be initiated in respect of Snoras. At the same time, the Court appointed Neil Hunter Cooper as Bankruptcy Administrator.

This Report has been prepared by the Bankruptcy Administrator pursuant to Article 11.3(25) of the Enterprise Bankruptcy Law (the EBL), for approval by the Creditors’ Committee under Article 85.6 of the Law on Banks of the Republic of Lithuania (the Law on Banks). References to statutes and laws in this report are references to statutes and laws of the Republic of Lithuania unless otherwise specified.

The Bankruptcy Administrator has already released a report to creditors dated 8 June 2012, which contained certain details of the work undertaken and progress made in respect of the bankruptcy during the six months from 7 December 2011 to 8 June 2012 (the Pre Meeting Report). This Report supplements the Pre Meeting Report and also contains information that is specifically required to be provided to the Creditors’ Committee pursuant to Article 11.3(25) of the EBL.

A timeline of key events and milestones leading up to and during the bankruptcy until the date of this Report is set out as Appendix 1.


2 The Bankruptcy Administrator and events leading up to the bankruptcy

2.1 Moratorium and nationalisation

On 16 November 2011, the Lithuanian Central Bank (the Bank of Lithuania) passed a resolution imposing a moratorium on the activities of Snoras (Moratorium) and appointing Simon Freakley as the temporary administrator (the Temporary Administrator) pursuant to its powers under the Law on Banks.

Additionally, on 16 November 2011, the Government of the Republic of Lithuania (the Lithuanian Government) resolved to acquire all of the shares in Snoras for public needs, pursuant to Article 8 of the Law on Financial Sustainability. Accordingly, as at the date of the Bankruptcy Order referred to below, the sole owner of Snoras is the Lithuanian Government, with the Ministry of Finance acting as Trustee of the Bank’s shares.

2.2 Bankruptcy decision and appointment of bankruptcy administrator

On 24 November 2011, the Bank of Lithuania passed a resolution to initiate the bankruptcy of Snoras on the grounds of insolvency and to withdraw Snoras’ banking licence. Shortly thereafter, on 28 November 2011, the Bank of Lithuania issued an application to the Court to place Snoras in bankruptcy and later proposed that Neil Hunter Cooper be appointed as Bankruptcy Administrator.

The Court made the order initiating bankruptcy proceedings in respect of Snoras on 7 December 2011 (the Bankruptcy Order). Pursuant to the terms of the Bankruptcy Order, Neil Hunter Cooper was appointed as the Bankruptcy Administrator of Snoras. Pursuant to Article 85.3(1) of the Law on Banks, the powers of Snoras’ management bodies were suspended and the Bankruptcy Administrator assumed control of the day-to-day running of Snoras.

The decision of the Court on the appointment of Neil Hunter Cooper as Bankruptcy Administrator was subject to an appeal. However, the appeal was dismissed (and the original Bankruptcy Order appointing Neil Hunter Cooper upheld) by the Court of Appeals on 19 January 2012. The Moratorium and temporary administration also terminated on 7 December 2011.

2.3 Insurance event

Pursuant to the Law on Insurance of Deposits and Liabilities to Investors of the Republic of Lithuania, the State Enterprise ‘Deposit and Investment Insurance’ (the DII), through the Deposit Insurance Fund (the DIF), insures certain depositors of Lithuanian banks up to a maximum value of EUR 100,000 (being LTL 345,280). The DIF covers deposits in Litas, US dollars, Euros and the national currencies of the member states of the European Economic Area. The compensation scheme does not cover deposits in Russian rubles. Also, certain prescribed persons are excluded from claiming insurance compensation from the DIF.

The DII is required to insure qualifying deposits on the day of an ‘Insured Event’. As a result of the announcement of the Bank of Lithuania, the DII determined that an Insured Event occurred in respect of Snoras on 24 November 2011. Accordingly, holders of eligible


deposits at Snoras at this time were able to apply to the DII for insurance compensation up to EUR 100,000.


3 Snoras corporate information and group structure

3.1 Corporate information

Snoras is a Lithuanian incorporated company with legal entity code 112025973, established on 17 March 1992, whose registered address is A. Vivulskio Str. 7, LT-03221, Vilnius.

Snoras was granted a licence to provide licensed financial services under Paragraph 6 of Article 2 of the Law on Banks pursuant to Decision No. 11 of 17 March 1992 issued by the board of the Bank of Lithuania.

As at 16 November 2011, immediately prior to nationalisation:

• The authorised capital of Snoras was LTL 494,217,107.

• The ordinary shares of Snoras were traded on the official trading list of NASDAQ OMX Vilnius.

• 68.1% of the ordinary registered shares of Snoras were owned by Vladimir Antonov and 25.31% of the ordinary registered shares were owned by Raimondas Baranauskas. The remaining 6.59% of the ordinary registered shares were held by minority shareholders.

• The supervisory board of Snoras was comprised of Vladimir Antonov, Adam Salim Habib, Maxim Anchipolovskiy, Alexander Antonov and Oleg Sukhorukov. The management board members were Raimondas Baranauskas, Aušra Ižičkienė, Jurgita Bliumin, Modestas Keliauskas, Naglis Stancikas, Gitanas Kancerevyčius and Romasis Vaitekūnas. The heads of administration of Snoras were Raimondas Baranauskas and Naglis Stancikas.

3.2 Outline of scope of Snoras’ activities prior to bankruptcy

Immediately prior to the suspension of its activities, Snoras was involved in both commercial and consumer lending and deposit taking, with operations in a number of countries. Prior to its bankruptcy, Snoras was the third largest bank in Lithuania by value of deposits and had a market leading position in retail lending and issued credit/debit cards in Lithuania.

The following facts and figures outline the scale of Snoras’ activities immediately prior to the suspension of its operations and subsequent bankruptcy. Snoras had:

• approximately 1.2 million retail customers;

• in excess of 400,000 financial contracts with customers;

• approximately 400,000 active deposits;

• over 220,000 active lending accounts in 17 countries;

• approximately 16,000 commercial contracts with suppliers of goods and services;

• 1,385 employees, who were mainly situated in Lithuania, but also a small number in other countries, including Latvia, Estonia and the UK;

• 388 safety deposit boxes spread across the branch network;

• 339 ATMs, 230 mini-banks, 10 branches and 15 sub-branches;

• 194 third party custody accounts with 410 individual security holdings and 8,040 Snoras bond accounts; and


• 114 nostro accounts with 55 correspondent banks in 25 countries and in 20 currencies.

3.3 Subsidiaries and group structure

Snoras has a number of subsidiaries, which together form the wider Snoras group – a corporate structure chart of the Snoras group is attached as Appendix 2 to this Report. The following subsidiaries are particularly noteworthy:

• AB ‘Finasta Holding’ and its subsidiaries (the Finasta Group): including in particular AB bankas ‘Finasta’ (a separate banking subsidiary) and UAB ‘Finasta Asset Management’. The Finasta Group forms a Baltic focused investment bank with significant asset management operations in Lithuania and Latvia, backed by a licensed bank, corporate finance activities and an established brokerage business in Lithuania. The sales process relating to the Finasta Group is in its final stages. Further information relating to the sale of the Finasta Group is set out in section 13.1.2.

• UAB ‘Snoro Lizingas’: a consumer finance leasing company. Progress in respect of the sale of the leasing business is set out in section 13.1.2 below.

• AS ‘Latvijas Krajbanka’: a Latvian bank, which was declared insolvent pursuant to a decision of the Riga Regional Court dated 23 December 2011, with SIA ‘KPMG Baltics’ appointed as the insolvency administrator.

In addition, Snoras has a number of other subsidiaries and associate companies, including:

• UAB SNORAS Investment Management (SIM): 49% shareholding in a company holding 51% of the shares in three joint venture companies - UAB Nekilnojamojo turto gama, UAB Stelita and UAB NT Panorama – which have made real estate investments in Vilnius.

• UAB SNORO Valda: 100% shareholding in a company that was engaged in principally maintenance and administration of property owned by Snoras and its group companies.

• UAB SNORAS Media: a holding company which owns 34% of the Lithuanian newspaper and media company UAB ‘Lietuvos rytas’.

• UAB SNORAS Development: 48% shareholding in a company whose activities include development of real estate projects and property lease and sale. It has interests in four property developments in Lithuania.

• OU ‘Real Estate Investment Management’: an Estonian company in which Snoras has an 85% shareholding. The core activities of the company include property ownership, maintenance and administration.


4 Bankruptcy process, statutory obligations and compliance

4.1 Activities of the Bankruptcy Administrator

Set out below is a summary of the key steps in the bankruptcy process to date, along with the Bankruptcy Administrator’s compliance with the specific obligations applicable to this process.

4.2 Notifications

Following the commencement of the bankruptcy, the Bankruptcy Administrator was required to issue a number of formal notices to certain stakeholders to inform them of the bankruptcy.

Notices were sent to all known creditors of Snoras on 28 December 2011 informing them of the occurrence of the bankruptcy and inviting them to submit claims in the bankruptcy before 27 January 2012. This deadline was subsequently extended (in a Court ruling dated 13 January 2012) to 10 February 2012.

In total, approximately 135,000 letters were sent to potential creditors.

4.3 Information via newspapers and the official journal

Lithuanian creditors were informed of the initiation of the bankruptcy proceedings and the course of the bankruptcy by way of the general media coverage of the bankruptcy and in various newspapers.

International creditors were notified of the initiation of the bankruptcy proceedings and provided with information on how to lodge a claim in the bankruptcy proceedings by notice in the Official Journal of the European Union. This notice was published in the Official Journal of the European Union on 9 February 2012, pursuant to Directive 2001/24/EC of the European Parliament and of the Council of 4 April 2001 on the reorganisation and winding up of credit institutions.

Further advertisements on the initiation of the bankruptcy proceedings were also made in various newspapers in other member states of the European Union in which Snoras had rendered financial services.

4.4 Budget

Under Article 85(5) of the Law on Banks, the bankruptcy administrator of a bank must, within five days of the adoption of the court’s ruling to open bankruptcy proceedings, submit to the court for approval the amount of the bank’s funds which the bankruptcy administrator shall have the right to use to cover administration expenses pending the approval of an estimate of the administration costs (a Budget).

i. First Budget – court request

On 12 December 2011, the Bankruptcy Administrator submitted to the Court for approval a Budget of the amounts estimated by the Bankruptcy Administrator to be


required over an initial three month period in the bankruptcy of Snoras. Following a request by the Court for additional calculations, a revised Budget was submitted (the First Budget). On 27 December 2011, the Court approved the First Budget application in a total amount of LTL 60,943,866. The total amount of the First Budget comprised operational costs of LTL 29,868,666 and professional advisory costs of LTL 31,075,200.

The First Budget covered the period from 7 December 2011 to 7 March 2012. The actual operational costs for this period were LTL 21,778,021, a saving of more than LTL 8,000,000 compared to the proposed budgeted operational costs for this period. No amount was paid in respect of remuneration to the Bankruptcy Administrator in the period from 7 December 2011 to 7 March 2012.

ii. Second budget – court request

Following expiry of the First Budget period, an application was made to the Court by the Administrator on 9 March 2012 (the 9 March Application) for the approval of a second Budget for a further three month period from 8 March 2012 to 7 June 2012 in a total amount of LTL 57,198,545. The Budget proposal in the 9 March Application was made up of LTL 27,250,545 of operational costs and LTL 29,948,000 of professional advisory costs. As before, no amount of remuneration for the Bankruptcy Administrator was included in the proposed budget.

In its decision on 22 March 2012 (the 22 March Decision), the Court approved a total amount for operational costs of LTL 6,771,248 for the period to 30 April 2012, of which the amount of LTL 3,825,278 was to cover Snoras personnel expenses to 31 March 2012. The decision did not include approval of an amount for, among other things, Snoras personnel costs after 1 April 2012 or for advisory costs. In considering the Budget request, the Court stated that it was necessary only to approve costs to the expected date of the creditors’ meeting because thereafter the Budget could be approved by the Creditors’ Committee. At the time of the 22 March Decision, the Court assumed that the creditors’ meeting would be held on or before 30 April 2012.

The Bankruptcy Administrator submitted a revised second Budget application on 24 May 2012 (the 24 May Application), having regard to a revised Budget period as it became apparent that the creditors’ meeting would not be held on or before 30 April 2012 as assumed, and to provide additional information to the Court. The 24 May Application sought the following budgeted amounts for the periods:

• 8 March 2012 – 31 March 2012: a total of LTL 12,607,695;

• 1 April 2012 – 30 April 2012: a total of LTL 11,561,038; and

• 1 May 2012 – 31 May 2012: a total of LTL 16,666,761.

These figures included the amounts approved in the 22 March Decision and were not additional to them.

In its Order dated 4 June 2012, the Court requested additional information to be submitted by the Bankruptcy Administrator to supplement the 24 May Application. This was done in a further submission dated 22 June 2012 (the 22 June Submission).

In its decision on 26 June 2012, the Court rejected the 24 May Application (as supplemented by the 22 June Submission), on the grounds that, following the appointment of the Creditors Committee on 12 June 2012, it was a matter to be decided by the Creditors’ Committee, and forwarded the Bankruptcy Administrator’s application to the Creditors’ Committee.


iii. Budget - Committee approvals to 30 June

Since its first meeting on 21 June 2012, the Bankruptcy Administrator has been in ongoing discussions with the Committee regarding approval for operating and advisory costs.

On 27 June 2012 the Committee approved an Operating Budget of LTL 9,538,890 for 21 June 2012 to 31 July 2012, based on reports submitted to it by the Bankruptcy Administrator in pre-agreed formats. The amount approved represents the maximum level of expenditure allowed (net of any applicable VAT), with further approval required for any additional unplanned amounts.

4.5 Transfer deed

Pursuant to Article 10.4(6) of the EBL and the Bankruptcy Order, the management bodies of Snoras were required to transfer to the Bankruptcy Administrator the assets of Snoras according to the balance sheet drawn up on the basis of the data available on the day the Bankruptcy Order came into force. Accordingly, a Deed on Transference and Acceptance of Assets effecting this transfer was signed by the chief financial officer of Snoras and the Bankruptcy Administrator.

4.6 Termination of employees

Under Article 19 of the Law on Bankruptcy, within three working days of the Bankruptcy Order coming into effect, the Bankruptcy Administrator was required to terminate the employment of the Snoras employees on 15 working days notice. This applied to all employees of Snoras (approximately 1,385 people) other than board members, whose employment was required to be terminated on 15 calendar days notice pursuant to Item 2 of Clause 7 of Article 10 of the Law on Bankruptcy. Accordingly, the employment of board members was terminated on 9 January 2012 and the employment of other employees was terminated on 16 January 2012. The staff that were required to assist in the bankruptcy process were subsequently rehired under temporary employment contracts – see also section 7 below.

4.7 Termination/performance of contracts

Under Item 13 of Part 3 of Article 11 of the EBL, the Bankruptcy Administrator was required, no later than 30 calendar days after the Bankruptcy Order came into effect, to inform contractual counterparties whether he intended to continue performance of contracts entered into prior to the bankruptcy, or to terminate these contracts.

Deciding whether to perform or terminate contracts required a legal and commercial review of the contracts entered into by Snoras in a relatively short period of time. As at the date of the Bankruptcy Order, Snoras was party to approximately:

• 16,000 non-financial contracts; and

• 400,000 financial contracts.


The contracts included a wide range of commercial and financial agreements, including various types of deposit account agreements, savings account agreements, deposit certificate agreements, bond agreements, credit card agreements, internet banking service agreements, direct debit agreements, consumer and business loan agreements and various real estate services, IT, and other commercial contracts relating to the on-going operation of Snoras. Given the wide variety of terms and commercial contexts, reviewing these contracts was a challenging exercise in the permitted timeframe.

The decision whether to terminate or perform contracts took into account the desire to maximise recoveries for creditors, the need to preserve key bank operations to allow the operation of the bankruptcy process and the interest of potential investors in acquiring the operating banking platform of Snoras.

Following the completion of this exercise, on or around 18 January 2012, the Bankruptcy Administrator sent approximately:

• 10,000 notices to counterparties under operational contracts; and

• 43,000 notices to counterparties under financial contracts,

notifying the counterparties of the Bankruptcy Administrator’s decision in respect of the performance or termination of these contracts.

In broad terms, Snoras notified the majority of counterparties that their contracts (entered into prior to the bankruptcy) would not be further performed in the bankruptcy. The main exceptions (the contracts that would continue to be performed) were:

• agreements under which customers are obliged to repay money borrowed from Snoras (for example, loan, credit, credit/debit card, instalment purchase card, leasing and hire-purchase agreements). However, loan, credit and other analogous agreements (transactions) entered into by Snoras with legal persons where Snoras had an outstanding obligation to lend additional money to both corporate and retail clients were not to be further performed, although loan agreements for funds already borrowed remained in place.

• guarantees, warranties, pledges, mortgages and other security agreements granted in favour of Snoras;

• agreements under which Snoras has any right of claim or outstanding benefit (and under which Snoras has fully discharged its obligations or did not assume any obligations);

• confidentiality agreements and undertakings;

• correspondent account agreements, securities account agreements and payment account agreements;

• internet banking service agreements; and

• leases (and sub-leases, licence for use) of land in Lithuania, where Snoras acts as the lessee (sub-lessee or licensee).

4.8 Claims submissions

The process for the submission, review and determination of creditor claims in the Snoras bankruptcy is set out in section 8 below.


4.9 Creditors’ meeting

The first creditors’ meeting of Snoras was held at the ‘Siemens’ Arena (the Arena), in Vilnius on 12 June 2012.

As part of the planning and execution of the meeting, the Bankruptcy Administrator:

• sent notices of the meeting to all creditors approved by the Court, together with advance voting forms;

• collected in, counted and announced the results of the advance voting ahead of the meeting, under the supervision of the independent auditor, Grant Thornton Rimess; and

• held the meeting on the 12 June 2012.

The agenda for the meeting included formal items (appointment of chairperson, secretary and creditors’ committee) and informal items (a presentation by the Bankruptcy Administrator and a question and answer session). At the meeting, amongst other things, a resolution was passed by the majority of creditors (by value) appointing a creditors’ committee comprised of the following:

• V.Į. Indėlių Draudimo Fondas;

• Holten Investments Ltd;

• VSDFV Prie Socialinės Apsaugos Ir Darbo Ministerijos;

• Gusiatinas Martinas;

• Bikuvos Prekyba UAB; and

• Masolas Liudas.

4.10 Creditors’ Committee

Following its appointment on 12 June 2012, the first Creditors’ Committee meeting was held on 21 June 2012.

Since its appointment the Creditors’ Committee has, amongst other things, adopted by resolution certain regulations to regulate its activities during the bankruptcy process and a regulation on the provision of information to creditors.

5 Bankruptcy activities/workstreams

Following his appointment, the Bankruptcy Administrator put in place a new structure to deal with the functions of Snoras in the bankruptcy and to rebetween these activities.

Broadly, these workstreams can be divided into the following three categories:

• operational workstreams: these the bankruptcy as a whole, compliance with bankruptcy process requirements and the continued operation of certain key functions required in the bankruptcy;

• asset workstreams: these workstreamsassets of Snoras for the benefit of creditors; and

• liability management workstreamsmanaging the liabilities of Snoras, including the creditorsprovision of information to the

These workstreams work in a coManagement Office (PMO) so as to progress the bankruptcy efficiently in the best interests of creditors.

A simplified structure of the reorganised fu

Set out in the sections below is a responsibilities and the key activit

Bankruptcy activities/workstreams

Following his appointment, the Bankruptcy Administrator put in place a new organisational structure to deal with the functions of Snoras in the bankruptcy and to re-align reso

Broadly, these workstreams can be divided into the following three categories:

these workstreams relate to the conduct and coordination of the bankruptcy as a whole, compliance with bankruptcy process requirements and the continued operation of certain key functions required in the bankruptcy;

workstreams relate to preserving, recovering and realising the assets of Snoras for the benefit of creditors; and

workstreams: these workstreams relate to ascertaining and managing the liabilities of Snoras, including the creditors’ claims process and

nformation to the DII.

These workstreams work in a co-ordinated and integrated manner through the Project as to progress the bankruptcy efficiently in the best interests

A simplified structure of the reorganised functions is illustrated below.

below is a brief summary of the workstreams, their roles and responsibilities and the key activities and achievements since the bankruptcy commenced

organisational align resources

late to the conduct and coordination of the bankruptcy as a whole, compliance with bankruptcy process requirements and the

ecovering and realising the

relate to ascertaining and process and the

ordinated and integrated manner through the Project as to progress the bankruptcy efficiently in the best interests

summary of the workstreams, their roles and ankruptcy commenced.


5.1 Project Management Office

The role of the PMO is to provide an executive function to assist the Bankruptcy Administrator in the management of Snoras and the bankruptcy process as a whole. The PMO operates in place of the former senior management executive office and reports directly to the Bankruptcy Administrator.

Central to this role is coordination of communications, including facilitating sharing of information and communication across the various workstreams in the bankruptcy process, communicating with creditors, customers and the general public and co-ordinating interactions of the bankruptcy administration team with key stakeholders.

In addition, the PMO function manages the operations of the team as a whole, including prioritising and allocating issues for execution across the workstreams, managing time keeping and reporting functions, managing operational and professional costs within budget, ensuring security of premises, staff and physical records and managing core banking activities (to the extent applicable).

5.2 Operational workstreams

5.2.1 Finance and treasury

The treasury workstream covers two broad areas:

• providing the cash management and accounting functions for Snoras whilst in bankruptcy; and

• dealing with financial contracts and arrangements in place between Snoras and financial counterparties at the date of the bankruptcy (for example, the termination and unwinding of various derivative and securities contracts).

The treasury workstream was required to restructure the treasury function of Snoras following the bankruptcy and the withdrawal of Snoras’ banking licence. This involved, among other things, managing Snoras’ liquidity (by currency), preserving value in Snoras through control of its cash flows, finalising settlement of open treasury transactions, realising and collecting in financial assets and cash held with other financial institutions and ensuring timely payment of critical suppliers and retained employees (all payments have to be authorised by two members of the Bankruptcy Administrator’s team).

The treasury workstream and the Bankruptcy Administrator’s team also undertook the performance/termination of contracts review (see section 4.7 above). There has been no adverse impact on the operational aspects of the bankruptcy as a result of this process.

In broad terms, the treasury work stream has performed the following tasks:

• Cash accounting, including cash flow forecasts, and providing financial information required to submit budget applications to the Court – see section 4.4 above.

• Financial contracts, including the collection of monies held in nostro accounts, recovery of securities and closing of derivative contracts.

• Other budget related activities, including administering the loan book receipts and preserving Snoras’ other subsidiaries and infrastructure.

• Transfer of custodian arrangements, including overseeing the transfer of these securities to new custodians selected by clients. As at 7 December 2011, Snoras acted


as custodian for 160 clients in relation to third party securities. This represented over 400 security positions. To date, approximately 83% of these securities have been successfully transferred.

5.2.2 Systems and IT

The Systems and IT workstream has responsibility for securing Snoras’ systems to prevent unauthorised outflow of money or confidential information. In addition, this workstream ensures the maintenance of Snoras’ systems and data integrity during the bankruptcy to allow the Bankruptcy Administrator to fulfil his duties, and the securing of electronic data so as to assist in recovering the assets of Snoras.

The key activities and achievements of the Systems and IT workstream are as follows:

• full data backup of Snoras’ systems and information;

• continued maintenance of the IT systems;

• running periodic and ad-hoc reports for the various workstreams within the administration function;

• assisting with investigations undertaken for asset identification and collection;

• assisting in the collection of over 2 million SWIFT transactions for review by the Bankruptcy Administrator, as required by law;

• establishing a new platform for processing creditor claims and to facilitate the provision of relevant information to the DII for compensation claims; and

• establishing the system to calculate and record creditor attendance and voting ahead of, and at, the first creditors’ meeting.

5.2.3 Human resources, legal and security

The human resources, legal and security functions provided auxiliary support to the other workstreams. Of particular importance was the management of the significant termination and rehiring process, and the major reduction in Snoras staffing. This was managed in accordance with the applicable legislation. The Snoras internal legal team has continued to provide assistance across all areas of the bank, and they have played a significant role in the claims processing, loan book and disputes workstreams in particular.

5.2.4 Tactical response

The tactical response workstream deals with urgent or short term issues that require resolution that are not otherwise dealt with as part of the other workstreams (allowing other workstreams to focus on their core tasks). This has involved matters such as collecting in cash from branches and ATMs, providing customers with access to their safety deposit boxes, the practical aspects of planning, implementing and concluding the first creditors’ meeting, and the process of collecting in and counting the votes at that meeting (see further below).

On notification that Snoras would be placed into bankruptcy, the process began of collecting in all physical cash held in branches, sub-branches, kiosks and ATMs within Lithuania, and held in the branch in Latvia, to mitigate any security risks. Snoras held cash in its 90 standalone ATMs, 232 kiosks, 15 sub-branches and ten branches. In total, approximately LTL 139 million was collected and stored at the vault of the Bank of Lithuania, which was then credited to the corporate account of Snoras. Foreign currency,


totalling over LTL 51 million in 22 different denominations was sold to SEB bank at current market rates. The money from these sales was also credited to Snoras’ corporate account.

In addition, this workstream has overseen the return of the contents of 363 of the 388 safety deposit boxes, and returned physical holdings of precious metals held by Snoras as custodian in the branches to their respective owners. The remaining boxes and precious metals are secured and await collection by the clients.

Planning, organising and running the creditors’ meeting was a major exercise undertaken by this workstream. Given that there were approximately 17,400 approved creditors eligible to attend and vote, the logistics of hosting the meeting in Vilnius and arranging the various voting processes were substantial. As part of the planning and execution of the creditors’ meeting, this workstream undertook the following tasks:

• Venue organisation: use of the venue was negotiated and arranged.

• Pre-registration of creditors: creditors were given the opportunity to pre-register to maximise efficiency at the meeting.

• Pre-meeting voting: creditors were given the opportunity to vote prior to the creditors’ meeting and were permitted to come to the remaining open Snoras branches to cast their votes.

• Vote collection and counting: approximately 100 Snoras staff were utilised for the registration process to collect the votes in a controlled and efficient manner under the supervision of the independent auditor, Grant Thornton Rimess.

• Security and logistics: additional security and logistical expertise was utilised to ensure the meeting took place as safely as possible. This was overseen by security consultants, with additional assistance from Snoras security, both leading up to and during the creditors’ meeting.

In the period after the creditors’ meeting, this workstream has been primarily engaged in generating information and analysis for the Creditors’ Committee.

5.3 Asset workstreams

5.3.1 Loan Book

The loan book workstream is responsible for day-to-day management of, and resolution of issues relating to, the loan portfolio. This includes ensuring efficient collection of loan servicing, fees and repayments and taking steps to prevent or mitigate any loss in value. In addition, this workstream is responsible for developing and delivering the strategy for the wind-down (and/or sale) of the loan portfolio with a focus on maximising recoverable value for creditors.

The loan portfolio collectively comprises the largest asset of Snoras, and therefore the outcome of the bankruptcy is heavily dependent on the eventual realisations from the loan portfolio. Since the commencement of the bankruptcy, the Snoras loan teams have been reorganised under the central control and supervision of the Bankruptcy Administrator so as to:

• continue to administer loans and daily payments, transactions and record keeping;

• put in place new banking structures to facilitate borrowers to pay interest and principal on their loans as they fall due;


• respond to and, where possible, facilitate customer requests to pay down, repay or refinance their loans;

• actively manage any defaulting loans and, where applicable, take action to enforce Snoras’ rights in respect of such positions; and

• analyse the loan portfolio and consider strategic options to realise maximum value for creditors.

In addition the Bankruptcy Administrator has been reviewing those loans made to Snoras related parties and considering any appropriate action in respect of them.

The introduction of new provisions for set-off in the Law on Banks, which entered into effect on 1 January 2012, added a further significant complication to the administration of the loan portfolio. The loan book workstream, together with the Systems and IT workstream, worked to resolve the implications of the new rules of set off and their effect on the bankruptcy.

Active management of the loan portfolio is a substantial task as Snoras currently has approximately 100,000 loans and regularly processes thousands of transactions each day. Since the commencement of the bankruptcy, to 30 June 2012, LTL 480 million of loans servicing payments have been collected (including approximately LTL 48 million of interest payments on loan obligations).

Management of the loan portfolio through the bankruptcy process involves dealing with additional operational and legal complications including restrictions on regular banking activities.

5.3.2 Asset recovery

The asset recovery workstream is responsible for assessing the existence, ownership and value of assets of Snoras, and taking any necessary steps to secure those assets for the benefit of creditors.

In broad terms, this activity can be divided into recoveries in respect of financial assets (loans and securities subject to investigations, claims against former officers, etc) and tangible assets (real estate, cars, etc).

At the commencement of the bankruptcy, the Bankruptcy Administrator’s team began a major investigation into the assets of Snoras recorded in its financial records (both in Lithuania and abroad). This review has considered the assets recorded as held at the time of its collapse, and the events and activities leading up to the date of the bankruptcy. The primary purpose of this activity was to identify and verify the assets of Snoras recorded in its financial records that could be realised for the benefit of its creditors, and then to take the necessary steps to recover these assets.

This work has been time consuming because certain records were incomplete and, in some cases, misleading. To date the investigations have involved, among other things, detailed review and analysis of Snoras’ financial and transactional records, investigations of activities and correspondence of key individuals connected with Snoras and analysis and reconstruction of a number of transactions, structures and relationships created by Snoras and associated individuals and companies throughout the world. As the verification process continues to progress, the Bankruptcy Administrator’s team has contacted various organisations and counterparties to establish the ownership and location of funds and assets, and to discover the extent to which such assets have been provided as collateral for irregular transactions.


It became clear from the investigations that, prior to the collapse of Snoras:

• Various assets recorded in Snoras’ financial records as owned by Snoras had actually been transferred out of its ownership (in a number of cases through complex offshore structures).

• Snoras’ money and assets had been provided to third party banks as collateral for loans to companies believed to be related to key individuals connected to Snoras, but not recorded as such in the financial records. When Snoras entered bankruptcy, the third party banks called in the collateral, causing significant loss.

• Certain tangible assets had been purchased for amounts that were significantly above market value (from companies believed to be related to key individuals connected to Snoras) leading to unduly positive balance sheet valuations being adopted in respect of those assets.

As a result of these findings the Bankruptcy Administrator has taken a number of steps to protect assets and recover funds for creditors, as outlined below.

• The Bankruptcy Administrator brought a claim in the English High Court against Mr Vladimir Antonov and Mr Raimondas Baranauskas on 18 May 2012 seeking damages of at least €492 million, for the benefit of Snoras’ creditors. In support of these proceedings, the Bankruptcy Administrator sought and was granted on 18 May 2012 a world-wide freezing order by the English High Court against Mr Antonov. The freezing order prohibits Mr Antonov from disposing of, dealing with or diminishing any of his assets anywhere in the world up to the value of the damages currently sought (€492 million). Following receipt of that Order specific requests were made to parties thought to have custody or control of assets. Efforts continue to require the principal former shareholders to make disclosure of assets so as to assist in securing assets in the event of a successful claim against them by the Bank.

• The Bankruptcy Administrator applied to the Swiss authorities to recognise the bankruptcy of Snoras in Switzerland. This is a preliminary step under Swiss law prior to the commencement of any civil proceedings in Switzerland and will allow the Bankruptcy Administrator access to information concerning Snoras’ accounts and assets in Switzerland with significant potential value, which will assist in determining whether further investigations or proceedings are required in that jurisdiction. Recognition by the Swiss courts was obtained on 13 July 2012 and proceedings commenced on 16 July 2012.

• Appointment of new legal advisors in Russia to assist in securing the bank’s loans, collateral and other assets held there.

Significant further work continues in respect of these matters.

In addition, the Bankruptcy Administrator has cooperated with the requirements of the Lithuanian public authorities, prosecutors and other agencies in respect of their own investigations into the collapse of Snoras, and has also cooperated with relevant regulatory authorities worldwide.

The Bankruptcy Administrator is aware that prosecuting authorities in Lithuania have issued a European arrest warrant for Mr Antonov and Mr Baranauskas in respect of the misuse and misappropriation of Snoras’ assets. In support of their criminal proceedings, the Lithuanian authorities have frozen assets located in Lithuania and in other jurisdictions worldwide of Mr Antonov and Mr Baranauskas, including assets to which Snoras has a claim.


5.3.3 Subsidiaries and infrastructure

The subsidiaries and infrastructure workstream is responsible for preserving value within the subsidiaries and the banking platform of Snoras itself, identifying the sales potential of those assets, and initiating and conducting appropriate sales processes for them.

The Bankruptcy Administrator made an initial assessment that there was value in certain assets that was potentially being threatened by the effect of the bankruptcy of Snoras, for example due to difficulty in retaining key staff or customers or recovering amounts payable. It was considered necessary to move promptly to examine the ways to preserve value in these assets for the benefit of creditors.

Accordingly, the Bankruptcy Administrator commenced disposal processes for the retail banking platform and infrastructure, the leasing subsidiary (Snoro Lizingas) and equity interests in the Finasta sub group. A rigorous marketing process was undertaken in respect of these assets, generating over 200 expressions of interest, from which approximately 60 parties signed non-disclosure agreements and received detailed information about the assets. The sales processes are reaching their final stages and the Creditors’ Committee will be consulted about the next steps in each of these transactions. Further information relating to the sales/subsidiary strategy is set out in sections 9 and 13 below.

In addition, the subsidiaries and infrastructure workstream has been responsible for managing and preserving value within its subsidiary and associate companies (excluding Krajabanka). Snoras has the following investments (all in Lithuania except for OU Real Estate Investment Management, which is based in Estonia):

• four wholly owned subsidiaries;

• one majority owned subsidiary (50% or more of voting shares); and

• two minority holdings (less than 50% of voting shares or non-voting shareholding).

In each case the bankruptcy team together with relevant Snoras personnel has undertaken a review of Snoras’ relationship with these entities, a value assessment and dealt with any critical corporate management issues. Typically, those critical matters included changes to board members to remove representation by the former shareholders, dealing with annual general meeting matters and annual audits.

5.4 Liability Management workstreams

5.4.1 Creditor claims and bankruptcy process

This workstream is responsible for assessing and processing creditor claims, providing the necessary information to the Court in respect of claims submitted, liaising with the Court in respect of queries on the claims submitted and providing information to creditors in relation to the status of their claim following the Court’s adjudication on the claims submitted.

Lithuanian bankruptcy law contains a statutory process for establishing the approved claims of creditors in the bankruptcy. That process involves notification to creditors of the bankruptcy, submission of claims by creditors, review of the claims by the Bankruptcy Administrator and adjudication on the claims by the Court. The creditors whose claims are approved by the Court are entitled to attend and vote at the creditors’ meeting. Approved claims provide the basis upon which bankruptcy distributions are eventually made.


The creditor claim process has been (and continues to be) a major exercise given:

• the very sizeable number and variety of financial obligations owed by Snoras to creditors in a number of jurisdictions;

• complexity of creditor claims, the need for re-calculation of interest and different currencies;

• the new provisions for set-off established in the Law on Banks, introduced on 1 January 2012, which provided for certain deposit balances owed to creditors be set off against amounts due and owing by those creditors to Snoras under loan agreements; and

• the role of the DII, which is required to compensate depositors and investors and is then entitled to submit a bankruptcy claim in place of those creditors.

Approximately 28,500 claim forms were submitted by approximately 17,400 individuals and businesses from 53 countries prior to the deadline on 10 February 2012. It should be noted that the Bankruptcy Administrator still received creditor claims submitted after the deadline established by the Court. These were all reviewed and processed by the Bankruptcy Administrator’s team with the benefit of new systems that were developed by the Bankruptcy Administrator’s team and Snoras IT staff for this purpose. The claims submitted by creditors were reviewed against Snoras’ records, and 180 bank staff, supervised by the Bankruptcy Administrator’s team, then contacted creditors to discuss and, where possible, resolve any significant discrepancies between these amounts. The Bankruptcy Administrator’s team, in conjunction with bank staff, also checked that the claims correctly accounted for deposit insurance payments.

Following this review, the Bankruptcy Administrator’s team compiled the list of creditor claims consolidating multiple claims relating to the same subject matter and excluding the claims that were reduced to nil (eg where set-off applied) or claims that were subsequently withdrawn.

The details of the claims received, submitted and approved by the Court are set out at section 8 below. The Bankruptcy Administrator’s team continues to deal with claims and with claim transfers.

In addition to the claims process, this workstream focussed on implementing many of the bankruptcy process requirements described at section 4 above.

5.4.2 DII claims

The Law on Insurance of Deposits and Liabilities to Investors of the Republic of Lithuania law required Snoras to provide information regarding deposits and investments that are eligible for insurance payments to the DII. This information was initially provided to the DII on 9 December 2011 (shortly after the bankruptcy commenced), allowing the DII to make insurance payments to over 300,000 depositors in mid-December 2011. Following discussions with the DII this information was then updated periodically by Snoras and provided to the DII. Since December 2011 significant work has been done in conjunction with the DII to identify and resolve a number of more complex issues relating to deposits, including the treatment of joint accounts, deceased depositors, custody accounts, escrow accounts and the impact of the new set-off law. Most major issues relating to deposit insurance have now been resolved, and over LTL 4 billion (or approximately 99% of those eligible) of deposit insurance payments has been made available to commercial banks for collection by depositors.

The deposit compensation process has been complex both for technical and legal reasons. The deposit compensation regime was largely untested in Lithuania, so the practical


processes involved in identifying the correct eligible deposit balances and the creditors eligible for compensation, providing this information to the DII and resolving ambiguities had to be quickly developed. In addition, new law was introduced on 1 January 2012 dealing with the set-off of loan balances which required analysis and implementation. Snoras’ computer systems, which record loan and deposit balances and calculate interest, fees and other charges, needed to be adapted to be able to record and correctly process these and other overarching legal requirements imposed by the bankruptcy.

5.4.3 Litigation and disputes

The bankruptcy team has been engaged in resolving a significant number of disputes with creditors and stakeholders, as well as enforcing the rights of Snoras against third parties. This has involved drafting court submission documents and attending a significant number of court hearings and meetings.

There is a substantial amount of litigation underway, both in the Lithuanian courts and internationally. This litigation can broadly be divided into two categories:

• Cases where Snoras is a defendant or has been attached to the case as a third party (Inbound Cases). As at 3 July 2012 there were around 100 Inbound Cases in the Lithuanian courts, and two Inbound Cases in the international courts (briefly, a claim in relation to the nationalisation of Air Baltic in Latvia and a civil claim brought against Snoras in Ukraine).

• Cases initiated by Snoras as a claimant (Outbound Cases). As at 3 July 2012 there were approximately 500 Outbound Cases in the Lithuanian courts and two Outbound Cases in the international courts (briefly, Snoras’ civil claim against Mr Antonov and Mr Baranauskas in the UK and the bankruptcy recognition proceedings in Switzerland).

Lithuanian inbound litigation – most of the Lithuanian Inbound Cases began after the bankruptcy commenced.

Such post-bankruptcy Inbound Cases include civil cases and bankruptcy specific cases.

The main civil cases include:

• claims in relation to the last share issuance of Snoras, in which purchasers of the unissued shares seek to claim that they have ownership of the money they paid for those shares, rather than being creditors of Snoras;

• claims in relation to deposit certificates issued by Snoras, and in relation to bond agreements, in which the holders of such certificates or agreements seek to claim that certificates/agreements must be acknowledged as void and money paid in respect of these certificates and agreements are covered by deposit and investment insurance;

• a claim by certain bailiffs for repayment of funds held in their deposit accounts; and

• claims against other persons where Snoras has been joined as a third party (for example, cases where claims are being made in respect of insurance cover against the DII or private insurers).

The bankruptcy-specific cases include:

• separate appeals in the bankruptcy proceedings (for example, the appeal against the Bankruptcy Administrator’s appointment, the appeal against the Court’s approval of administrative expenses, the appeal against the DII’s or other creditors’ financial claims approved by the Court); and

• disputed creditor claims, where the Bankruptcy Administrator disagreed with the initial amounts claimed.


Pre-bankruptcy Inbound Cases are Lithuanian cases where Snoras has been involved as a defendant before the bankruptcy case was opened. These include claims related to loan agreements (for example, a claim in which the claimant debtor applied for the terms of a loan agreement to be varied, and another in which the claimant debtor applied to have a loan agreement declared invalid), a claim in which damages were sought from Snoras in respect of an accident involving one of its employees, a claim over Snoras’ alleged misuse of a trade mark, and a claim in which Lithuanian authorities seek to challenge the ownership of land which has been pledged to Snoras as security.

Lithuanian out-bound litigation – most of the Lithuanian Outbound Cases are related either to debt recoveries under loan agreements and credit card agreements, or to cases in respect of those debtors of Snoras who are themselves undergoing restructuring or bankruptcy. The total value of the claims submitted by Snoras exceeds 4 million LTL.

Enforcement actions – there are also more than 1,500 cases handled by bailiffs throughout Lithuania in respect of uncollateralised loans. These enforcement actions arise from cases where Snoras was a plaintiff and where the relevant court issued a final decision in Snoras’ favour. Following this original judgement, Snoras has then sought to enforce it. The total amount of the claims to be enforced is nearly 15 million LTL.

Given the high volume of all these different cases, managing the litigation processes has been a major task involving both Snoras’ internal legal team and external legal advisors, both in Lithuania and in a number of other jurisdictions.


6 Freezing order and assets seizures made against Snoras

There are a number of freezing orders issued against Snoras for the seizure of Snoras’ assets.

There are two freezing orders issued against Snoras by Šiauliai Regional Court and Vilnius Regional Court. These seizures are issued in civil cases and are not directly linked with the bankruptcy of BAB bank Snoras. Šiauliai Regional Court has seized unidentified Snoras assets to the extent of LTL 2,102,546,20 and Vilnius Regional Court has seized seven flats at the address Kareivių str. 19, Vilnius. There are also seventeen freezing orders that have been issued in relation to the last share issue of Snoras and funds paid for them which are currently held in the bank account of Snoras opened in AB bank Finasta.

The Prosecution Service of the Republic of Lithuania has issued a freezing order and seized LTL 161,814,528 which was paid by JFP Emerging Europe Momentum Fund, Vladimir Antonov and Raimondas Baranauskas for the last share issue of Snoras. The funds paid by JFP Emerging Europe Momentum Fund are also seized by the freezing order issued by the Court upon the request of the JFP Emerging Europe Momentum Fund.

The other sixteen freezing orders (including the freezing order issued upon the request of JFP Emerging Europe Momentum Fund) issued by the Court were applied by the request of the plaintiffs in the civil cases regarding the last share issue of Snoras (see section 5.4.3 above). The total amount of these freezing orders is LTL 94,549,033.

The above mentioned freezing orders restrict the use of the property or funds seized pursuant to these orders until the respective cases are resolved. Therefore, whilst the freezing orders are in place, the funds and property seized may not be, for example, used, transferred or sold by Snoras.

There are also several freezing orders against Snoras Developments, the most critical of which was the Public Prosecutor’s decision in March 2012 to restrict the use of Snoras Development property.


7 Employees

7.1 Employees at commencement of bankruptcy

At the commencement of the bankruptcy Snoras had 1,397 employees.

The details of those employees by bank function and monthly gross payroll cost is summarised below:

No of Salary Taxes Gross

employees LTL '000 LTL '000 LTL '000

Administration 33 243 75 318

Advisor to the President 2 82 25 107

Business Development Service 2 25 8 33

Change Management 1 20 6 26

Corporate Business Service 76 328 102 430

Finance Office 56 258 80 338

Human Resources 4 16 5 21

Internal Audit Service 16 76 24 100

Legal 4 40 12 52

Loan Management and Administration 1 5 2 7

Office of Investment Business 12 76 24 100

Information Technology 140 560 174 734

Retail Business Service 1026 2842 881 3723

Risk Management 24 85 26 111

Total 1,397 4,656 1,444 6,100

Bank function

7.1.1 Termination of employees

The EBL required the Bankruptcy Administrator to terminate the employment contracts of all employees shortly after the commencement of the bankruptcy. Accordingly, the contracts of:

• senior managers and board members were terminated on 9 January 2012; and

• all other employees were terminated on 16 January 2012.


7.2 Rehiring of employees

Although Snoras was no longer undertaking new business in bankruptcy and was no longer a licensed deposit holder, it had large and complex operations that required staff to assist in the winding down, asset realisation and bankruptcy process.

Accordingly, ahead of the employment terminations taking effect, a detailed exercise was undertaken to determine which head office staff would need to be retained for key bankruptcy processes including continuance of Snoras’ IT systems and functions, assisting with finance and loan book management and collections, managing the creditor communication and claim submission process, unwinding brokerage, custody and treasury positions (to the extent appropriate) and collecting in financial and cash assets from counterparties and correspondent banks. These employees were referred to as the Asset Management Company staff (the AMC staff).

Additionally, work was underway from the outset of the bankruptcy to determine the feasibility of the sale of Snoras’ retail platform. Staff in the branches and at head office were therefore also identified who would be required to keep the branch network (the Network) intact in order to allow it to be sold as a viable entity to potential bidders (the Network staff).

On the basis of this analysis, the Bankruptcy Administrator determined which staff were to be offered new temporary employment contracts to commence immediately following the termination of their previous employment contracts (on 9 or 16 January 2012). In the case of the AMC staff the new employment contracts provided that the temporary employment would expire 14 days after the first Creditors’ Committee meeting. This approach was taken so that any further extension of the employment of AMC staff could be further considered at that time by the Bankruptcy Administrator in conjunction with the Creditors’ Committee.

Initially, 888 employees were retained, comprising 516 Network staff and 372 AMC staff.

The Network staff were initially retained until 28 February 2012, while the initial stages of the retail platform sales process was underway. This allowed the Bankruptcy Administrator to gauge the attractiveness of the retail platform to potential purchasers and to decide whether to continue to retain these employees.

Towards the end of February 2012, the retail platform sales process was not complete and several interested potential purchasers were still actively considering an acquisition that included all or most of the Network staff. Consequently these contracts were extended until 31 March 2012 to enable the retail platform sales process to be further developed.

7.3 Further reductions in employees

The Bankruptcy Administrator was advised, in late March 2012, by the last of the bidders for the retail platform that they were no longer interested. As a result, the Bankruptcy Administrator decided to reduce the personnel headcount further. This resulted in a reduction of employees from 888 to 388 on 31 March 2012.

From that time, other staff members have resigned and, as at 4 July 2012, the number of employees was 367. Following consultation with the Creditors’ Committee on 27 June 2012, the temporary contracts for all remaining employees was extended until 31 July 2012, allowing further consideration to be given to the longer-term staffing needs of Snoras.


As at 4 July 2012, the 367 staff are engaged in the following functions:

• Change Management: 11 employees

• Retail network (in branches and sub-branches): 186 employees

• Creditor administration: 10 employees

• Loan administration: 43 employees

• Financial assets: 5 employees

• Other assets administration: 27 employees

• Finance: 25 employees

• Risk: 5 employees

• IT support (and payment cards): 36 employees

• Legal: 17 employees

• HR: 3 employees.


8 Creditors’ financial claims

8.1 Submission of claims by potential creditors

In December 2011, notices were sent to approximately 135,000 potential creditors of Snoras, inviting them to submit details of their claims. An initial deadline for the submission of claims was set for 27 January 2012, and although Snoras received a significant number of claims before the deadline, on 13 January 2012 the Court granted an extension of the deadline for submission to 10 February 2012. Creditors were able to submit claims either by post or by visiting one of the open branches of Snoras. They were also able to review the balances of their claims by reviewing their personal internet banking pages or by contacting Snoras’ call centre.

8.2 Details of claims received

As at 10 February 2012, being the revised deadline for the submission of claims, the Bankruptcy Administrator had received a total of 28,500 claim forms from 17,399 creditors, all of which were reviewed on an individual basis. Where possible, bank staff contacted customers to discuss queries on the claim forms prior to the preparation of the lists for the Court. The total amount of claims submitted by creditors at that date was LTL 9,394,807,980.

Claims were submitted in respect of:

• deposits held at the date of the Bankruptcy Administrator’s appointment;

• employees for their statutory entitlements;

• shareholder related claims;

• holders of deposit certificates and bonds;

• suppliers of goods or services;

• financial institution deposits;

• claims for non-registered paid shares;

• dividends;

• liabilities under leases;

• taxes; and

• premiums of compulsory State Social Insurance, compulsory health insurance and the DII.

Claims were submitted in a number of currencies including Litas, Euros, US Dollars, UK Sterling, Australian Dollars, Belarusian Rubles, Canadian Dollars, Swiss Francs, Czech Koruna, Danish Krone, Hong Kong Dollars, Japanese Yen, Latvian Lat, Norwegian Krone, Polish Zloty, Russian Rubles and Swedish Krone. All of these claims had to be converted to Litas for the purpose of the court list, using the rate applicable on the date when the Court opened the bankruptcy case of Snoras.


8.3 Submission of claims to the Court

From 10 February 2012, the Bankruptcy Administrator had a period of 30 days to review all of the submitted claims and to prepare two lists for the Court: one for claims which were recommended to be agreed (the Agreed List) and one for claims which were disputed (the Disputed List). Given the significant volume of claims received, the Bankruptcy Administrator was granted an extension to 14 March 2012 to submit the Agreed List and the Disputed List. Up to 180 bank employees in the branches and at the head office, together with six employees of Deloitte in Vilnius, worked closely with three of the Bankruptcy Administrator’s staff to review all of the claims received. The Bankruptcy Administrator also worked closely with the Change Management Team within Snoras to develop a sophisticated IT system to ensure that every claim could be reviewed within the prescribed deadline.

On 14 March 2012, the Bankruptcy Administrator submitted the Agreed List and the Disputed List to the Court. The Agreed List included 18,571 claims which the Bankruptcy Administrator recommended to the Court for acceptance at the amount as per the Bank’s records. The Disputed List included details of 221 claims which were disputed either in part or in full. These claims were submitted with copies of all relevant creditor claims forms received. In total, across the Agreed List and the Disputed List claims were submitted to the Court in respect of 17,399 creditors.

8.4 Determination of claims by the Court

On 22 March 2012, the Court approved the recommended Agreed List claims in full, and left the Disputed List claims to be determined on a later date.

There have been a number of court hearings between May 2012 and July 2012 regarding the Disputed List claims. The Court has already heard and solved, or is still solving approximately one hundred Disputed List claims submitted by natural or legal persons. Most of the Court’s decisions are in favour of Snoras. Until now, only one decision from the Disputed List has been appealed by the Bankruptcy Administrator. At this stage we are not aware if any other creditors from the Disputed List have appealed the Court’s decisions.

The most material appeal to date was the appeal against the claim by the DIF. That appeal has the effect of delaying the creditors’ meeting but was resolved in part by a decision of the Court on 27 April 2012.

A number of appeals were lodged previously by creditors regarding the Court’s decision of 22 March 2012 and subsequent court decisions. The Bankruptcy Administrator has responded to the appeals lodged. Some of these appeals have not been accepted for revision by the Court. However, after the second appeal, some were transferred to the Court of Appeals which will take decisions later. The Court of Appeals will consider a total of 6 cases regarding the decision of 22 March 2012 and further decisions to approve or disapprove claims with a total of 380 claimants in these cases. This may have an effect on the current status of their claims.

Also, by the decision of 27 June 2012, the Court has rejected a number of shareholders’ claims regarding the unissued shares. It is essential to note that in the ruling of 2 May 2012 the Court stated that the issue of the approval of the financial claims in the bankruptcy case shall be resolved when the case in relation to unissued shares has been finally decided. The claimants in this ‘unissued shares’ case have the right to submit an appeal within 30 days, until 27 July 2012. If the Court’s decision of 27 June 2012 enters into force (if the appeal is not lodged or after the decision of the Court of Appeals is introduced) this would


mean that shareholders’ claims should be approved as 4th ranking claims. The amount of the claim in this case is approximately LTL 90 million, so to this extent the total amount of the approved creditors’ claims may increase.

This was the biggest joint case by applicants for unissued shares. However, several other claimants litigate individually regarding these unissued shares. There are court hearings scheduled in August in respect of these.

Approved claims as at 26 June 2012*

*The ranking provided is according to the law in force as of the moment of drafting this report. There has been a claim lodged with the Constitutional Court of the Republic of Lithuania, requesting to review whether the ranking of the claim of DIF at second position does not contradict the Constitution. A positive decision in favour of the claimants may cause changes to the priority ranking of claims.

The Bankruptcy Administrator prepared a detailed master list of claims received up to 26 June 2012, reflecting all Court rulings up until that date, which is reflected in the table above. Between 26 June 2012 and the effective date of this report, 30 June 2012, there were a small number of further court decisions, but none of these have been reflected in the master list as the period for appeal against the Court decisions had not elapsed.

Since the original submission of claims to the Court on 14 March 2012, the Bankruptcy Administrator has received approximately 323 delayed claims which have been submitted to the Court pending approval. As at 26 June 2012, the Court had approved a total of 18,823 creditor claims to the value of LTL 6,183,119,425. The Bankruptcy Administrator continues to receive delayed claims and to make adjustments to existing claims for various reasons which will cause these figures to change over time. The main reason for the current difference is that some delayed claims have been ruled upon and the value of the originally agreed DIF claim was later revised by the Court.

In a ruling of 6 June 2012, the Court requested that the Bankruptcy Administrator reconcile records of creditors that have been allocated funds by the DIF and who have collected money from the DIF through the respective agent banks. This will be a time intensive task and has been the primary focus for this workstream since then. Ongoing reconciliations will be required until such time as all DIF payments have been withdrawn by insured creditors.

Following the appointment of the Bankruptcy Administrator, a number of creditors requested that Snoras transfer all or part of their claims to another party. Some of these took place prior to the appointment. All of these requests have been submitted to the Court for their consideration and we await their ruling for the majority of these claims.

Future requests for transfers will be submitted to the Court for consideration in the same manner, as and when they are received.

Priority ranking

Amount of approved

claims

Sum of approved

amount (LTL)

1 1,379 9,212,390

2 1 3,798,653,112

3 4 11,070,797

4 17,429 2,363,323,371

7 10 859,754

Grand total 18,823 6,183,119,425


9 Assets by balance sheet value

The table below details the assets by balance sheet value, both as at 16 November 2011 and 7 December 2011. The provisions and adjustments summarised in the table are explained in the sections 9.1 to 9.8 below.

9.1 Cash and cash equivalents

This asset class refers to three main asset types:

• Cash held in Snoras (both at the head office and at the branches).

• The mandatory reserve held at the Bank of Lithuania.

• Bank monies held in accounts at other banks throughout the world, which should be held in the normal course of business. These monies were used by Snoras to make payments on behalf of customers or Snoras itself in various currencies. These accounts are also known as ‘Correspondent’ or ’Nostro’ accounts.

The provisioning/adjustment movement during the period between 16 November 2011 and 7 December 2011 consisted of LTL 427 million of net provisions and LTL 17.8 million of net cash outflows.

The provisions and accounting adjustments consisted of the following:

• LTL 523 million which may not be collected because:

— LTL 331 million was recorded in the accounting records of Snoras as being deposits at third party banks, but it has since been discovered that these monies were used as collateral for loans to companies believed to be connected to the previous majority shareholders. These monies have now been ‘called in’ as collateral by the third party banks causing loss to Snoras.

— LTL 192 million is held in banks connected to the previous majority shareholders where collection of those monies is proving difficult.

• An existing provision of LTL 96 million has been removed from this asset class, having been reclassified to ‘Other Assets’ since this is where the corresponding impaired asset is recorded.

Position at Provisions/ Position at

LTL 000 16-Nov-11 adjustments 07-Dec-11

Cash and cash equivalents 1,142,804 (445,772) 697,032

Fair value financial assets 1,922,787 (1,757,650) 165,137

Held-to-maturity financial assets 278,301 (266,038) 12,263

Liabilities from financial institutions 346,578 (183,384) 163,194

Loans 3,395,139 (984,715) 2,410,424

Fixed assets 138,541 166,117 304,658

Investments in group companies 204,813 (197,952) 6,861

Intangible assets 23,259 (22,701) 558

Other assets 527,557 (374,350) 153,207

Total assets 7,979,779 (4,066,445) 3,913,334


Movements in cash between 16 November 2011 and 7 December 2011 arose as a result of:

• positive inflows during the period;

• outflows via the permitted ‘LTL 500’ cash withdrawals during the period amounting to LTL 44.6 million (the withdrawals were made before the insurance event and therefore decreased the balance on client accounts, based on which the insurance payment was calculated); and

• payments to the Temporary Administrator approved by the Bank of Lithuania.

Balance sheet values are continually reviewed by the BAs team and information relating to any future impairments/adjustments will be included in subsequent reports to the creditors.

9.2 Fair value financial assets

This asset class refers to Snoras’ holdings in trading and non trading debt, mainly comprising governmental debt of EU member states, and units in offshore investment vehicles.

This asset class has a significant provisioning adjustment (LTL 1,757 million against an asset value of LTL 1,922 million) as our investigations have found that:

• a large proportion of the trading and non trading debt assets have been moved out of Snoras’ beneficial ownership, for the benefit of the previous majority shareholders; and

• a series of loans to non resident corporate borrowers were sold in 2011 in exchange for a series of units in offshore investment vehicles. These units appear to be significantly overvalued in the records of Snoras when compared to the underlying assets.

9.3 Held-to-maturity financial assets

This asset class refers to Snoras’ holdings in non-derivative financial assets with fixed or determinable payments and a fixed maturity. During the period 16 November 2011 to 7 December 2011, there was a large diminution in value on these assets due to:

• a reclassification of LTL 185 million of assets which should have been classed as fair value assets;

• the sale of a number of Snoras’ assets (LTL 64 million) which were held by the Bank of Estonia as collateral for loans made to Snoras in the ordinary course of business. The sale of the assets correspondingly reduced Snoras’ liabilities to Bank of Estonia; and

• a LTL 17 million reduction representing items which matured between 16 November 2011 and 7 December 2011 (now part of other asset headings) and additional impairments posted after periodic revaluation of securities to market values.

As at 30 June 2012, LTL 51 million has been realised in relation to this asset class (see section 12.1 below).

9.4 Liabilities from financial institutions and Loans

The loan book (which is made up of loans to public authorities, corporate and retail customers) and the liabilities from financial institutions (which principally relate to loans made to subsidiaries of Snoras) comprise the largest asset of Snoras.


The table above provides a summary of the liabilities from financial institutions and loans, which make up Snoras’ loan book (the loan book), together with impairments made by Snoras in the normal course of business, and additional impairments made by the BA’s team based on assessments of recoverability in bankruptcy.

These impairment decisions reflect a comprehensive analysis of the loan portfolio carried out by the BA and his advisory teams. Whilst this reflects a prudent assessment of the portfolio the BA continues to pursue recovery of all outstanding amounts. The table below provides a detailed breakdown of the total loan book, showing:

• the original recorded balance of the loan book in Snoras’ records at 16 November 2011 (LTL 3,953 million) less the existing impairment of the loans recognised by Snoras (LTL 211 million) which equals the net loan book value of LTL 3,742 million;

• the additional provisioning adjustments included as at the date of the bankruptcy (7 December 2011) to reflect the reassessed realisation value of the loan book, leading to;

• the estimated realisable value for the benefit of creditors.

LTL million Exposure

Bank

impairment

BA

impairment

Net

balance

Large corporate loans 1,492 (70) (486) 936

Loans to subsidiaries and associates 506 (9) (203) 294

Loans to affiliated individuals and companies 98 - (91) 7

Cash collateralised loans 315 - - 315

SME loans 586 (44) (125) 417

Retail Loans 689 (87) (120) 482

Total Bank loans 3,686 (210) (1,025) 2,451

Subrogated loans, other 144 (1) (143) -

Leasing loans 123 - - 123

Total loan book 3,953 (211) (1,168) 2,574

Of the provisional adjustments as at the date of the bankruptcy, approximately half relate directly or indirectly to companies and individuals affiliated to the former majority shareholders. The provisions which have been made also reflect the high probability of litigation in relation to these loans. The provisions do not imply that the loans are not payable and the BA continues vigorously to pursue recovery of these funds. These provisions total LTL 575 million, made up of the following:

• loans to shareholders' affiliates made by subsidiaries – LTL 90 million;

• loans to affiliated individuals and companies (some included in corporate above) – LTL 195 million (almost half of which reflects loans to the shareholders);

LTL million Exposure

Bank

impairment

BA

impairment

Net

balance

Liabilities from financial institutions* 347 - (183) 164

Loans 3,606 (211) (985) 2,410

Total loan book 3,953 (211) (1,168) 2,574

*Approximately 95% of this balance represents loans to subsidiaries


• subrogated loans – LTL 143 million; and

• loans to BAS (Air Baltic) – LTL 147 million.

In addition, after reappraisal of other provisioning adjustments on loans to subsidiaries and other associate companies (in addition to those which the Bankruptcy Administrator’s team have found were immediately ‘on-lent’ to shareholders’ affiliates) increased by LTL 113 million over LTL 9 million on 16 November 2011.

Provisioning adjustments on corporate, retail and other loans were increased by LTL 475 million at the bankruptcy filing, over and above the LTL 211 million which was already recognised by Snoras.

Cash collateralised loans of LTL 315 million are unlikely to generate any further cash flow to Snoras, and will therefore further reduce the loan book realisation. The cash collateral balances held in Snoras in support of those loans are considered to be no different from any other deposits held in Snoras at filing. Their value as collateral should therefore be that of an unsecured claim in the bankruptcy. Investigations and some contacts with borrowers and collateral providers indicate very limited, if any, scope for successful enforcement action. Accordingly therefore the loans, although fully covered by collateral deposits which were held in Snoras, (with some exceptions) will not result in any ‘new’ cash flows into the bankruptcy estate.

At the time the impairment review was carried out in early December 2011, the new law on set off, which became effective on 1 January 2012, did not exist. In addition, loan book realisations are expected to be reduced by the application of set off by approximately LTL 50 million, which should also be deducted from the net balance shown in the table above.

9.5 Fixed assets

The fixed asset category consists of investment property: land, buildings, structures, equipment and vehicles. In addition, this category includes capitalised constructions and repair costs in relation to buildings and premises and investment property.

No impairment has been taken in respect of the value of fixed assets because no current valuations have yet been obtained. This will be done following approval by the Creditors Committee in due course. Impairments may be required once this valuation work is completed.

9.5.1 Investment property

This category consists of three apartments located in Vilnius. These properties are currently vacant.

Position at Provisions/ Position at

LTL 000 16-Nov-11 adjustments 07-Dec-11

Investment property 18,279 - 18,279

Land and buildings 66,829 166,117 232,946

Assets under construction 8,107 - 8,107

Motor vehicles 5,440 - 5,440

Equipment and other 39,886 - 39,886

Total fixed assets 138,541 166,117 304,658


9.5.2 Land and buildings

The land and buildings category consists of the following:

• the head office, Vilnius (including the main Vilnius branch);

• an IT department building, Vilnius;

• eight main branches, located in: Kaunas, Šiauliai, Klaipėda, Marijampolė, Mažeikiai, Tauragė, Utena, and Alytus;

• one sub branch,Visaginas;

• The Krajbanka headquarters and associated commercial building at 23 Pils Street in Riga;

• one part residential, part commercial villa, Nice, France;

• one residential apartment (currently being leased to a third party), Panevėžys;

• an old wooden construction built on Snoras owned land; and,

• various properties acquired by foreclosure on loans.

The land and buildings category had increased by LTL 166 million at 7 December 2011 compared to the 16 November 2011 balance sheet. This is due to a reclassification of two owned properties in Latvia (and related equipment) which was originally accounted under ‘Other Assets’ (please see section 9.7.4) below).

9.5.3 Assets under construction

This category mainly relates to the branch currently under construction in Utena. The balance sheet value for this property is LTL 5.8 million. Construction work has been halted during the bankruptcy period, until such time that the Creditors’ Committee determine a strategy for this development.

The remaining balance of approximately LTL 2.3 million relates to capitalised refitting and refurbishment costs, mainly in the London office. It is unlikely these amounts will have any value in the bankruptcy.

9.5.4 Motor vehicles

This category consists of 75 owned vehicles and three vehicles held on finance leases. The asset schedule now shows 82 vehicles in total, of which three are on finance leases and three are on operating leases. In addition, two vehicles situated in the United Kingdom have been sold, 21 vehicles on an operating lease have been returned and four vehicles on finance lease have been returned.

Snoras owned vehicles are mainly located in Vilnius. However, there were two vehicles located in the United Kingdom, being a Jaguar Daimler Super 8 and a BMW X5 (both sold, as described above), and one in the Netherlands, being a Spyker Aileron (the legal ownership of which is being challenged).

The seven vehicles held on finance leases were all leased from Snoro Lizingas, a wholly owned subsidiary of Snoras. Four of these have been returned to Snoro Lizingas, as the amount outstanding on the leases exceeded the value of the vehicles. These four vehicles were a Spyker C8, a Mercedes Benz CL65, a Maybach 67, and a Porsche Cayenne.


The remaining three vehicles under finance leases are Peugeot Partner vehicles. The amounts outstanding on the leases are below the values of the vehicles, therefore once the final lease payment is made they will become Snoras’ property and will be available to sell as part of the bankruptcy estate.

9.5.5 Equipment and other

Equipment consists of a wide range of assets including ATMs, mini banks, furniture, computer network and equipment and other items of equipment. The largest quantity of equipment is located at Snoras’ head office in Vilnius.

At the date of bankruptcy, Snoras owned approximately 230 mini banks, and an additional 90 ATMs, located across Lithuania.

9.5.6 Investments in group companies

This asset class comprises Snoras’ investment in all of its subsidiaries. Appendix 2 provides Snoras’ group structure at the date of bankruptcy.

Provisions were made against the balance sheet value at 7 December 2011 for several of these subsidiaries, as a result of the companies being deemed worth significantly less than the balance at 16 November 2011. These provisions are as follows, and represent a 100% write off:

• Krajbanka: now in administration, requiring a provisioning adjustment of LTL 197 million;

• Snoras Investment Management: provisioning adjustment of LTL 490,000;

• Snoras Media: provisioning adjustment of LTL 100,000;

• Snoras Paramos Fondas: provisioning adjustment of LTL 10,000; and

• Real Estate Investment Management: provisioning adjustment of LTL 7,502.

9.6 Intangible assets

This asset class relates to the capitalised development costs of software and purchased software used within Snoras such as FlexCube in the Latvian branch, FinArch – Financial Studio, Internet Banking, Estonian branch automation, BSAAS and SOA.

The balance sheet contains assets of LTL 37 million ‘completed project’ capitalised costs and LTL 1.7 million of unfinished capitalised costs. Amortisation of LTL 15 million had already been charged against these assets by Snoras.

The largest of these cost categories relates to the FlexCube software, which at the date of the bankruptcy was still under development. Therefore, although correctly recorded in a trading business, on entering bankruptcy the asset is no longer realisable and is therefore reduced to nil.

The remaining LTL 558,000 of value is the result of an accounting entry made in the temporary administration period after the impairment review was completed. It is likely that during any subsequent review, this will be written off too.


9.7 Other assets

Other assets relates to a variety of additional asset classifications, such as foreclosed assets and funds in transit accounts. The main assets within this class are detailed overleaf.

LTL 000 16-Nov-12

Provisions/

adjustments 07-Dec-12

Foreclosed assets 239,417 (66,988) 172,429

Deferred costs 23,601 (20,337) 3,264

Transit accounts 101,374 (107,897) (6,523)

Assets in Latvia Branch 173,155 (173,068) 87

Other (9,990) (6,059) (16,049)

Total 527,557 (374,349) 153,208

9.7.1 Foreclosed assets

These are the assets taken by Snoras from customers who have defaulted on their obligations. A provisioning adjustment of LTL 83 million was made following conversations with key bank staff. The adjustment is primarily against assets located in Russia over which the Bankruptcy Administrator is advised that there are ongoing ownership/registration issues. This continues to be investigated in more detail by Snoras’ legal team.

Additional foreclosures during the period 16 November 2011 to 7 December 2011 resulted in the net adjustment of LTL 16 million. Snoras currently has 124 properties of various descriptions as a result of foreclosing on defaulted loans.

9.7.2 Deferred costs

These costs relate to Project Oyster, being the work undertaken to merge Snoras and Krajbanka into a single bank. This is obviously no longer a viable option so the deferred cost asset is valueless, hence the LTL 11 million provisioning adjustment.

A provisioning adjustment of LTL 10 million has been made to reflect the negligible value of the FlexCube software recorded in Snoras’ accounting records.

9.7.3 Funds in transit accounts

The funds in the transit accounts category includes foreign currency transactions in operation, payment card processing, and pending security transactions. These balances can be both positive, where money is owed to Snoras, and negative, where Snoras owes money on a transaction, hence the balance is shown as net in the balance sheet.

At 7 December 2011, this balance was LTL 107 million prior to any provisioning adjustments. The provisioning adjustments were an increase of LTL 6 million compared to 16 November 2011. However, the Bankruptcy Administrator’s team has identified an ownership issue in relation to securities held at Julius Baer, Switzerland. As such, the full balance of LTL 113 million has been provided for. Part of this provision was originally posted to ‘Cash and cash equivalents’, but has been reclassified to ‘Other assets’.


9.7.4 Other long term assets

Other long term assets included LTL 173 million of net assets in Latvia, which has been reclassified across a variety of other balance sheet asset and liability categories, and includes the two owned properties in Latvia transferred to fixed assets (see section 9.5 above). Refurbishments of the London office, provision for severance pay to employees and other movements are also included here.


10 Purchases, sales and the writing off of fixed assets

During the 36 month period prior to the appointment of the Bankruptcy Administrator, a significant number of purchases, sales and write offs of fixed assets occurred.

10.1 Purchases of fixed assets

Property purchases during the 36 month period are composed of capitalised reconstruction works with a total Net Book Value (NBV) of LTL 4.6 million, three construction projects with a total NBV of LTL 8.2 million and the acquisition of two buildings for a total of LTL 166.6 million.

Total property purchases during the 36 month period therefore totalled LTL 179.4 million.

As well as these properties, which were purchased for the use of Snoras in day to day trading activities, Snoras made a number of property investments, detailed as follows:

In certain cases, customers with bank loans provide collateral against the loan in the form of property. Where these customers default on their loans, Snoras can seek possession of this collateralised property. During the 36 month period, Snoras took possession of the following properties:

• 2009 - 27 properties with a cost price of LTL 42.6 million;

• 2010 – 14 properties with a cost price of LTL 9.8 million; and

• 2011 – 24 properties, six plots of land and six lots of equipment with a total cost price of LTL 210.2 million.

In addition to property purchases during the 36 months prior to the bankruptcy, a significant number of purchases in other fixed asset categories were made. Given the high volume of these transactions, it is not practical to provide a detailed analysis of individual transactions. However, set out below is a summary of non-property fixed asset purchases during the 36 month period:

Category Address Date

Cost

LTL 000

Flat Gaono 8-9, Vilnius 21/08/2009 6,650



Reconstruction Gaono 8-9,10,17 858

Total Total 18,408

No of purchases Cost LTL 000

Vehicles 16 5,592

IT equipment 1,145 9,197

Office equipment 866 5,727

Total 2,027 20,516


10.2 Sales of fixed assets

Sales of fixed assets, including property taken as collateral, during the 36 months are detailed below:

10.2.1 Write offs of fixed assets

During the 36 month period, a large number of fixed asset write offs were made, often where the fixed assets had reached the end of their useful economic life. As such, the comparative net book value to the number of units written off is not a material value. Below is a summary of the write offs during the 36 month period.

Category Name of asset

Proceeds of sale

LTL 000

Property taken as collateral Living house - Vilniaus m. Garsioji g.47 500

Property taken as collateral Flat - Laisvės pr 77C-13 Vilnius 260

Vehicles ŠKODA FELICIA LX1.31 1

Vehicles MAZDA MPV 1

Vehicles VW Passat 8

Vehicles TRANSPORTER 4

Vehicles BMV530 7

Vehicles ŠKODA FELICIA LX1.31 1

Vehicles MAZDA MPV 1

Vehicles VW Passat 8

Vehicles TRANSPORTER 4

Vehicles BMV530 7

IT equipment 608 individual units 318

Total 1,120

Category

Number of

write offs

Amount written

off

Property - -

Vehicles 3 114

IT equipment 2,845 7

Office equipment 1,505 61

Total 4,353 182


11 Transactions concluded during last 36 months

Under Article 11.3(8) of the Republic of Lithuania Enterprise Bankruptcy Law the Bankruptcy Administrator shall, within six months of appointment:

• examine the transactions entered into by the enterprise in bankruptcy within a period of at least 36 months before the initiation of bankruptcy proceeding; and

• bring an action for the invalidation of any contract which is contrary to the objectives of Snoras’ activities and/or which could have led to the inability of Snoras to settle with creditors

The circumstances in which actions can be brought to invalidate contracts are set out in Lithuania’s civil code and the law on enterprise bankruptcy.

By the nature of the operations of Snoras, a large number of transactions were carried out prior to the appointment of the Bankruptcy Administrator. Therefore, given the high volume of transactions, and their complex and international nature, the Bankruptcy Administrator has obtained from the Court an extension beyond the initial six month period. The majority of the transactions carried out, by both volume and value, are financial transactions. Due to bank secrecy laws, details of individual transactions cannot be provided in this Report. However, below is a preliminary summary provided by the Snoras finance department of the volume and value of these transactions by type:

In addition to financial transactions, there have been a significant number of operational and commercial transactions, i.e. commercial arrangements incurred in running Snoras. Snoras kept a centralised listing of non-financial contracts entered into which the Bankruptcy Administrator’s team is currently verifying as accurate and up-to-date. This listing contains the following number of contracts which are being reviewed:

Type

Number

of contracts

Value

LTL 000

Commercial loans 5,732 3,065,405

Private loans 71,199 363,407

Bond agreements 12,012 375,294

Deposit certificates 6,464 496,595

Total 95,407 4,300,702


Type

Number of contracts in force during the 36 month

period ended 6 December 2011

Contracts with employees 1,153

Purchase - sale agreements 520

Leases 792

For use contracts 64

Construction contracts 414

Service contracts 1,665

Subordinated loan agreements 7

Credit agreements 9

Partnership agreements 3

Peace treaties 4

Support contracts 117

Copyright contracts 148

Advertising agreements 123

ATM comission agreements 1,151

Collection of conributions 2,722

Collection of cash services 95

Direct Debit agreements 87

Distribution of remuneration agreements 4,197

Other contracts 516

13,787

The financial obligations and payment details for these contracts are not listed in the centralised listing, so these are being compiled. As a validation exercise we have also analysed all payments totalling LTL 539,513,000 made by Snoras to its suppliers and payees based on information extracted from Forpost, the accounting system used by Snoras:

The Bankruptcy Administrator’s team continues to review transactions (both operational and financial) that have taken place prior to bankruptcy.


12 Income and expenses

During the period since the date of his appointment, the Bankruptcy Administrator’s team undertook a number of actions to recover as much of the bankruptcy estate as is allowable prior to the formation of the Creditors’ Committee. In order to achieve this, operational expenses were incurred. However, the Bankruptcy Administrator’s team has sought to minimise these expenses to ensure maximum possible returns to the creditors.

At 7 December 2011, Snoras had an opening cash balance of LTL 3,002,014. During the period from 7 December 2011 to 30 June 2012, the Bankruptcy Administrator’s team oversaw receipts of approximately LTL 1,091,297,000 and payments of approximately LTL 111,597,000.

The net result is a closing cash balance of LTL 979,700,000 as at 30 June 2012. In order to spread the cash exposure, whilst also ensuring interest can be earned on cash held on deposit, this amount has been split between several large commercial banks.

Below is a summary of total income and expenses for the period 7 December 2011 to 30 June 2012, being the last full month of activity which has been reconciled at the date of this Report.

12.1 Income – 7 December 2011 to 30 June 2012

The table below summarises all cash income into the bankruptcy estate since the date of appointment to 30 June 2012.

12.1.1 Cash held in the branch network and the Bank of Lithuania

As noted in section 9 above, Snoras held physical cash across its branch network, including ATMs and mini-banks. Immediately following the appointment of the Bankruptcy

7 December 2011 to 30 June 2012 LTL '000

Cash held in the Branch network and in Central Bank 337,177

Funds in financial institutions 131,348

Funds held in Correspondent accounts - under query (22,539)

Fair value non trading debt 98,112

Fair value trading debt 142

Held to maturity financial assets 50,971

Interest received on securities 2,735

Liabilities from financial institutions 535

Interest received on cash balances held 474

Realisation of fixed assets 172

Other assets 764

Rental Income 235

Total income excluding loans 600,127

Repayments received from customers 440,654

Non-loan receipts refunded to customers (28,633)

Unclassified Receipts 79,149

Total income 1,091,297


Administrator, plans were put in place to remove all cash from these sites and, where the physical currency was Lithuanian Litas, deposit it in the Bank of Lithuania.

The Bank of Lithuania then transferred the full amount to the bankruptcy estate corporate bank account, together with monies previously held on deposit at the Bank of Lithuania.

Where the physical cash was in foreign currency denominations, these were collected and sold to SEB at the prevailing market rates, less commission fees.

12.1.2 Funds in financial institutions

Snoras had relationships with more than 55 banks in over 25 countries. At the date of bankruptcy, there were significant levels of Snoras’ funds held by these banks. The Bankruptcy Administrator’s team has made contact with the vast majority of these banks and requested that the funds be released to the bankruptcy estate.

12.1.3 Funds held in correspondent accounts

In the period 7 December 2011 to 30 June 2012, the total amount collected from correspondent accounts was LTL 131,156,588. However, LTL 22,538,969 of this is held separately, pending legal clarification as to whether this is Snoras’ money.

12.1.4 Securities portfolio

This category contains receipts from maturing government and corporate bonds, as well as the interest on these securities.

A total of LTL 149,224,833 has been received from interest and maturing securities during the period.

12.1.5 Interest received on securities

The amount received to 30 June 2012 is LTL 2,735,228 and relates to interest paid (coupons) either annually or six monthly on some of the Snoras securities, both matured and still to mature.

12.1.4 Liabilities from financial institutions

This item relates to the cash bond held by American Express which has been released to Snoras after the cancellation of the agreement and settlement of outstanding charges.

12.1.5 Interest received on cash balances held

This is the interest which has accrued on the funds held by the Bankruptcy Administrator on behalf of the creditors.

At the start of the bankruptcy, the Bankruptcy Administrator’s team opened up accounts with SEB bank and all receipts and payments are processed through these SEB accounts. As the cash balances in the estate began to increase, accounts were opened with other banks to spread the risk.

12.1.6 Other assets

This mainly relates to the net receipt due to Snoras after the close out of a foreign exchange transaction.


12.1.7 Rental income

Snoras owns a number of properties and this amount reflects the rent received from these tenants in these properties.

12.1.8 Non-loan receipts refunded to customers

Customers have been able to service their loans since 28 December 2011 after the Bankruptcy Administrator entered into a contract with the Bank of Lithuania which allowed the Litas system to be used to receive customers’ loan payments.

This amount includes both capital and interest elements, regular loan instalments and amounts received from customers who have refinanced their loans.

12.1.9 Non-loan receipts refunded to customers

As Snoras no longer has a banking licence, the Bankruptcy Administrator is unable to hold money from customers which does not relate to a loan or other liability. The contract referred to at 12.1.8 included a clause which obligates the Bankruptcy Administrator to return such funds within two days of receipt.

12.1.10 Unclassified receipts

In any given period there are receipts which cannot immediately be identified and allocated to the appropriate accounts. These are reviewed and cleared as quickly as possible but there is always a backlog of a few days worth of transactions.

12.2 Expenses – 7 December 2011 to 30 June 2012

The table below summarises all cash expenses from the bankruptcy estate since the date of the Bankruptcy Administrators’ appointment to 30 June 2012.

7 December 2011 to 30 June 2012 LTL '000

Personnel (23,103)

Premises (4,586)

Assets (3,089)

Communication & IT (4,045)

Security & Insurance (2,369)

Other expenses (35,539)

Statutory Notifications (1,232)

Professional fee in relation to the Temporary Administration (815)

Professional fee in relation to the Bankruptcy Administration (30,294)

VAT on Bankruptcy Administration professional fees (6,525)

Total expenses (111,597)

12.2.1 Personnel

Personnel costs include all the wages, salaries and associated taxes which have been paid to Snoras employees in Lithuania and overseas.


All 1387 employees were paid from the date of Bankruptcy until 16 January 2012 when all contracts terminated. From 17 January 2012 until 31 March 2012 there were 888 employees, which reduced to 388 employees from 1 April 2012.

12.2.2 Premises

These costs are for the rental due in respect of leasehold branches and sub branches, mini banks and ATMs, and all utilities costs for Snoras premises.

12.2.3 Assets

The main cost in this category is for expenses incurred to protect and preserve asset realisations, such as legal fees (but not Eversheds Lithuania or Linklaters costs), valuation fees and notary costs. Also included within this category are the costs of non property leased assets, such as motor vehicles and also general office consumables.

12.2.4 Communication and IT

Snoras is heavily reliant on IT in order to operate all its systems. The costs in this category include hardware support, IT software licences, broadband and telephone costs.

12.2.5 Security and insurance

This covers the costs of keeping all Snoras’ physical property and assets insured and secure for the benefit of creditors.

12.2.6 Other expenses

This amount comprises a security payment of £5 million required to be made to the English court in respect of the world-wide freezing order obtained against Vladimir Antonov (see section 5.3.2 above) and monies expended in respect of asset protection.

12.2.7 Statutory notifications

This is the cost of notifying all known creditors of the bankruptcy, both by letter, and by advertisements in national and international newspapers where Snoras had a presence.

12.2.8 Professional fees in relation to the temporary administration

The amount of LTL 814,588 was paid from the bankruptcy estate in relation to outstanding approved professional fees incurred by the professional advisors engaged by the Temporary Administrator of Snoras.

12.2.9 Professional fees in relation to the bankruptcy administration and VAT on these amounts

During the initial stages of the bankruptcy period, the Bankruptcy Administrator applied to, and gained approval from, the Court for a budget for the three month period from 7 December 2011 to 7 March 2012 (see section 4.4 above).

Within this budget was an amount in relation to the time costs of those professional advisors engaged by the Bankruptcy Administrator. The total amount per the budget was LTL 31,075,000, which was fully utilised by those professional advisors in carrying out the work noted in sections 4 to 8 above.


As at 22 August 2012, no further amounts have been paid to the principal bankruptcy advisers, nor has any amounts been paid to the Bankruptcy Administrator since the commencement of the bankruptcy. Both the fees and the Bankruptcy Administrator’s remuneration will be for agreement with the Creditors’ Committee.


13 Asset realisations

13.1.1 Assets sold in bankruptcy to date

The following assets have been sold by the Bankruptcy Administrator since the commencement of the bankruptcy:

• Storage costs and ongoing depreciation of two vehicles located in the United Kingdom made a sale necessary to preserve value. Accordingly, these two vehicles were sold for £31,708.60 after accounting for the agreed agents fees of 9.5% plus expenses.

• Snoras vacated the London office, and the other occupants in the building purchased the fixtures and fittings of the London office for £15,000, which avoided removal and storage costs which would have eroded any value in those fixtures and fittings.

• Air conditioning equipment has been sold to new tenants at four of the vacated sub-branches, for a total of LTL 27,497. The market value of these assets under the alternative option of an ex-situ sale was assessed to be LTL 18,150. In this case, extraction costs of LTL 23,903 would have led to a loss of LTL 6,254.

In addition, steps have been taken to secure the tangible assets of Snoras, including a number of properties and automobiles situated both in Lithuania and abroad. Now that these assets have been secured, the appropriate sale methodology and realisation strategy will also be discussed with the Creditors’ Committee.

13.1.2 Sale processes in progress

There are three sale processes presently in progress, relating to:

• Finasta: this comprises seven legal entities, all wholly owned by Finasta Holding, a wholly owned subsidiary of Snoras. The scope of this transaction includes Finasta Bank, Asset Management, Brokerage, Corporate Finance and the pension funds, with activities both in Lithuania and Latvia.

The sales process of Finasta is in final stages with a preferred bidder identified, and a conditional agreement signed. The closing of the transaction will be subject to approval of the investor by the Lithuanian Central Bank, fulfilment of a set of closing conditions stipulated by both the investor and Snoras and ultimately final Creditors’ Committee approval.

• Snoro Lizingas: a wholly owned subsidiary of Snoras, providing predominantly consumer leasing products via a network of distribution partners in addition to limited financial leasing activity. A preferred bidder had been identified and a conditional agreement signed.

The closing of this transaction might be subject to approval by the Lithuanian Competition Council, the fulfilment of specific closing conditions and ultimately will require final Creditors’ Committee approval.

• Mini-Banks: an agreement has been entered with Lietuvos Pastas on the sale of 221 mini-banks (including all equipment) as well as selected IT infrastructure. The transaction is currently in pre-closing preparations and is expected to be able to close within several weeks, subject to final approval by the Creditors’ Committee.

For more information on the subsidiaries, see section 3.3, 5.3.3 and Appendix 2.


13.1.3 Future sale strategy

The strategy to be adopted in respect of any further asset realisations (including in particular, any disposals relating to the loan portfolio) will be discussed with the Creditors’ Committee in due course.


14 Key issues impacting recovery and estimate outcome

It should be noted that there remains a significant number of issues and uncertainties to be resolved in the bankruptcy, and therefore any estimated outcome statement is likely to change materially as the bankruptcy progresses.

Whether particular creditors receive any payment on their claims, and, if so, the amount of such payment, 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.

More specific factors impacting creditor recoveries were set out in the Public Report.

In addition, the law prescribes the order of ranking in which creditor claims are to be paid from available funds in the bankruptcy. The Bankruptcy Administrator is aware that claims have been lodged with the Constitutional Court contesting the priority ranking of the DIF claim.


9 Dec 2011Initial deposit

informationsubmitted to

state company ‘Deposit and

Investment Insurance’ (DII)

24 Nov 2011Announcement by

Bank of Lithuania of intention to apply for bankruptcy of

Snoras, ‘Insured event’ date for

deposit insurance

16 Nov 2011Moratorium imposed,Temporary Administrator appointed, shares in Snoras taken for public needs.

13 Dec 2011First deposit insurance paymentsmade by DII

9/16 Jan 2012Snoras staff employmentcontracts terminated. Certain staffrehired

19 Jan 2012Court of Appealrejects appeal against the appointment of N Cooper as Bankruptcy Administrator

29 Dec 2011Notice ofbankruptcy sent to creditors

7 Dec 2011Bankruptcy proceedingscommenced, Bankruptcy Administrator appointed

27 Dec 2011First bankruptcy

budget approved by the Court

18 Jan 2012Deadline for Bankruptcy

Administrator to elect to continue or terminate

existing Snoras contracts

1 Jan 2012New law on

set-off came into effect

Appendix 1 – Timeline of key events (November 2011 – January 2012)


14 Mar 2012Creditors’ claimslist submitted to

Court

1 Apr 2012Further

reduction in Snoras staffing

levels

27 Apr 2012Initial judgment on

the appeal against DII claim (published 30

April 2012)

21-22 May 2012Notices regarding the

Creditors’ Meeting sent to creditors

10 Feb 2012Final day for creditors to submit claims

22 Mar 2012Court assessed and approved claims, partial second budget approval

3 Apr 2012Appeal lodgedagainst DII claim

12 Jun 2012Creditors’Meeting

18 May 2012English court ordered a world-wide freeze on the assets of the former majority shareholder, Mr Antonov

27 June 2012 Second Creditors’

Committee meeting

20 June 2012 Announcement of

voting results from Creditors’ Meeting

21 June 2012 First Creditors’ Committee Meeting

Timeline of key events (February 2012 – June 2012)

Appendix 2 – Snoras group structure

Snoras group structure (7 December 2011)

Akcinė Bendrovė Bankas Snoras A. Vivulskio Str. 7 LT-03221 Vilnius www.snoras.com

http://www.snoras.com

Report of the Bankruptcy Administrator to the Creditors ... Statutory... · The compensation scheme...

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Transcript of Report of the Bankruptcy Administrator to the Creditors ... Statutory... · The compensation scheme...