Fortenova Grupa D.D. (as a Representative of the Interests of the Fortenova Group Companies, Pursuant to CPR 19.8) v LLC Shushary Holding
| Jurisdiction | England & Wales |
| Judge | Mr. Justice Michael Green |
| Judgment Date | 12 May 2023 |
| Neutral Citation | [2023] EWHC 1165 (Ch) |
| Docket Number | Claim No. FL-2023-000008 |
| Court | Chancery Division |
[2023] EWHC 1165 (Ch)
Mr. Justice Michael Green
Claim No. FL-2023-000008
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
FINANCIAL LIST (ChD)
The Rolls Building,
7 Rolls Buildings,
Fetter Lane,
London,
EC4A 1NL
Mr. Stephen Robins KC and Mr. Ryan Perkins (instructed by Akin Gump LLP) appeared for the Claimant.
Ms. Clare Sibson KC (instructed by PCB Byrne) appeared for the First Defendant.
Mr. Brian Kennelly KC (instructed by Sidley Austin LLP) appeared for the Second, Third and Fourth Defendants.
THE FIFTH DEFENDANT was not present and was not represented.
Mr. Edward Meuli (instructed by Morgan, Lewis & Bockius LLP) appeared for the Sixth Defendant.
APPROVED JUDGMENT
This is the expedited trial of a claim brought by Fortenova Grupa d.d., which I will call “the Company”, under Part 8 of the CPR. The trial was expedited by order of Edwin Johnson J on 17th March 2023 for reasons that I will explain. The company is represented before me today by Mr. Stephen Robins KC, leading Mr. Ryan Perkins, and I have had the benefit of their very helpful skeleton argument supplemented by short oral submissions.
The first defendant to the claim is LLC Shushary Holding, which I will call “Shushary”. It is a subsidiary of a Russian bank called VTB Bank PJSC (“VTB”). Because of the war in Ukraine, VTB and its subsidiaries (including Shushary) have been designated as being subject to sanctions under the various sanctions legislations in jurisdictions, including the UK, the US and the EU. As well as being highly relevant to the relief being sought, indeed it is the reason for the relief being sought, it has also meant that Shushary has had difficulty in instructing lawyers on its behalf.
On 5th April 2023, by one of its directors, a Mr. Egor Efimikov, Shushary applied to Zacaroli J to delay this trial, but that application was refused. I am pleased to say that Shushary has managed to obtain legal representation, both by solicitors and counsel. I assume this was through the extension of its general licence from OFSI (Office of Financial Sanctions Implementation) to allow it to pay legal fees in this jurisdiction. As a result, it has put in a witness statement from Ms. Elizaveta Suleymanova. Ms. Clare Sibson KC has appeared for it and she has made realistic and practical brief submissions on its behalf. That has also been of assistance to me.
The claim concerns loan notes with a face value, excluding interest, of approximately €400 million, which were issued by the Company and are held by Shushary. The notes are governed by English law and are subject to the exclusive jurisdiction of the English court. They are also secured over various assets owned by the Company and its associates. Because of a proposed refinancing, the Company wishes to redeem the notes held by Shushary before their maturity date in September 2023. The trouble is that because of the sanctions in place against VTB and Shushary, the sums required to redeem the notes cannot be paid to or for the benefit of Shushary. Accordingly, the Company is asking for an order that moneys be paid into court and it would then be for Shushary to apply for the moneys to be released from there, when and if sanctions are lifted. The Company also seeks a declaration that it is not liable for default interest on the notes because it has been unable to pay interest to Shushary in accordance with the Subscription Agreement while the sanctions have been in place.
The matter seems to me to be relatively straightforward as a way of dealing with the unfortunate situation in which the Company finds itself. It is not strenuously opposed by Shushary, recognising the difficult position that all parties are in as a result of the sanctions. Ms. Sibson has pointed to the fact that Shushary would obviously prefer payment to be made to a blocked account in its name within the EU, or indeed in rubles to a Russian account, but no suitable account or blocked account in the EU has been identified and the latter alternative of payment to Russia would clearly be unlawful and unacceptable. She does also tentatively, if I can put it that way, oppose the default interest declaration.
Before dealing with this in more detail, I should also mention the other parties. The second to fourth defendants are all members of the Kroll Group and are the administrative parties to the loan notes being the security agent, the payment agent and the calculation agent. They do not oppose the relief being granted in the terms sought so long as their rights to avoid breaching sanctions or the law are respected. Mr. Brian Kennelly KC has represented them before me today. The fifth defendant is the representative of the holders of the majority of the notes, that is 61.7% of them or approximately €651 million. I will call them “the HPS holders”. The representation order is sought pursuant to CPR 19.8(1). The sixth defendant, Banque Pictet & Cie SA, holds the balance of 0.4% of the notes. It is represented before me today, as I understand it, by Mr. Meuli, but no submissions have been made on its behalf. Both the fifth and the sixth defendants were joined to these proceedings in order that they should be bound by the order.
I will give a short background to the claim and I should say that I have read the witness statements of Mr. Fabris Peruško and Mr. Richard Hornshaw, on behalf of the Company, and I have already referred to the witness statement of Ms. Suleymanova.
The Company is part of the Fortenova group of companies, which is a major food producer in Central and Southeastern Europe. It employs approximately 45,000 people and it is the largest grocery retailer in Croatia and Slovenia and the second largest grocery retailer in Serbia, Bosnia and Herzegovina and Montenegro. The group is the largest group of private companies in Croatia, accounting for the source of more than 3.5% of the Croatian national budget.
The Subscription Agreement by which the notes were issued was originally dated 29th August 2019, but it has been amended from time to time. The Company issued a total of €1.157 billion worth of senior secured floating rate notes. As I have said, the Subscription Agreement is governed by English law and it is subject to the exclusive jurisdiction of the English court. That is provided for in clauses 42 and 43 of the Subscription Agreement. The final contractual maturity date of the notes is 6th September 2023, pursuant to clause 6.1(a) of the Subscription Agreement.
Pursuant to clause 7.3(a) of the Subscription Agreement, the Company is entitled to redeem the notes voluntarily, in whole or in part, prior to the final contractual maturity date “at a price equal to 100% of their principal amount, together with interest accrued to such date, and any amount due, pursuant to clause 17.2 (the tranche A redemption fee) or 17.3 (the tranche C redemption fee).”
As I have said, as regards the current holders of the notes, Shushary holds nearly €400 million, which is approximately 37.9% of the notes. The HPS holders, represented by the fifth defendant, hold €651 odd million, which is 61.7% of the notes. The remaining €4.5 million (approximately 0.4%) is held by the sixth defendant.
Pursuant to clauses 2.3(b)-(d)(i) of the Payment Direction Letter dated 29th September 2021, the Company must pay any sums due in respect of the Shushary notes to certain bank accounts with VTB and VTB Bank Europe SE in the names of Shushary and VTB, and these I will call “the VTB accounts”. In accordance with the terms of the Subscription Agreement, the Company and various other companies in the Fortenova Group granted security in respect of the notes including (1) pledges over the shares of certain of the company's subsidiaries; (2) intercompany receivables pledges; (3) real estate pledges; (4) floating charges; (5) promissory notes; and (6) mortgages. That security is subject to the terms of the Subordination Agreement, dated 29th August 2019, and that too is governed by English law.
The Company wishes to conduct a refinancing exercise. In order to enable the refinancing of the notes, the Company wishes to exercise its contractual right to redeem the notes under clause 7.3(a) of the Subscription Agreement. During 2021 therefore, the Company began exploring options for refinancing the notes. Amongst other things, the Company contacted various banks to gauge interest in participating in the refinancing. In addition, the Company commenced discussions in September 2021 with each of the ratings agencies (S&P, Moody's and Fitch) to explore a rating of the Group to assist with accessing the bond markets.
In January 2022, the Company agreed with UniCredit and Erste Bank that they would act as lead banks with respect to a syndication proposal to refinance the existing notes in full. That proposal assumed that the providers of the refinancing would benefit from first-ranking security over certain of the Group assets. UniCredit and Erste Bank began working on a commercial term sheet and proposal with a view to approaching other interested lenders to participate in the refinancing. In February 2022, meetings were scheduled with Erste Bank to discuss progress on the syndication process and...
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