Expert Examination
April 19, 2022

How to remove the ‘hostile’ official receiver by the help of examination

The energy company was declared bankrupt. Creditors were dissatisfied with the work of the bankruptcy receiver and filed a lawsuit in court to declare his actions as illegal. Before that, they applied to Veta experts for a study of the company's operations. The experts proved that the receiver was operating inefficiently: he merchandised energy to affiliates at low prices and flogged key assets. As a result, the company had practically no profit, although there were grounds for gaining it. The court found for the claimant.

Background

In 2016, the arbitration court declared the energy company bankrupt. Over the next year and a half, the bankruptcy receiver of the company increased new obligations instead of paying off old debts. Dissatisfied with his work, creditors filed a lawsuit: they demanded that the actions of the receiver shall be recognized as illegal, ineffective and leading to losses.

Creditors applied to Veta expert group for a reasoned justification for their position in court.

They asked to prepare an analysis of the thermal energy and electrical power market for the period of 2014-2016.

What did the experts face?

For the experts it was difficult to conduct the study, since the bankruptcy receiver concealed some of the materials for analysis. In particular, he failed to provide the required primary documentation.

The analysis was based on the study of those materials that were in possession of creditors. The impossibility of conducting a full and comprehensive study did not prevent the experts from obtaining reliable findings, which the court recognized as evidence in the case.

How the experts conducted the study?

Despite the existing difficulties, the experts managed to determine the ‘value’ of the deals concluded for the company and appraise the reasonableness of the manager's actions.

What the experts made:

  1. Income and expenses of the energy company were analyzed the and It was found that the financial performance for 3 years has considerably deteriorated, despite the increase in power rates by almost a quarter.
  2. It was found out that 80% of sales of an energy company are accounted for by two affiliate firms at the lowest market prices. While in turn, this firms merchandised the received energy at a higher price. As a result, in fact, a ‘loss center’ and a ‘profit center’ were created..
    In 2016, the company merchandised electricity at a price significantly below the market price. Underrated sales resulted in losses for the energy company in 2014 and 2016 and lead to minimal profit in 2015. With a higher tariff the company could make a profit..
  3. It was established that the production of the TPP was underloaded, and it worked at 30% of the design capacity.
  4. Indexes of account receivable were checked. For three years they have grown from 186.7 million to 690.1 million rubles. Based on its growth indexes, Veta experts determined that energy buyers – affiliated persons with the company and they did not pay for it. That resulted in a significant decrease of the company's operating capital.
  5. It was found out that the energy company sold the substation at a price below the market price, and the gas pipeline – at the minimum market price, but with an installment plan. Then the company leased this gas pipeline and actually partially paid the buyer the installment costs.

Thus, purchase-and-sale deals were carried out on non-marketable terms. Both assets of the company were strategic: using them the company received fuel and sold electricity.

What is the result?

With the help of examination, creditors have achieved the following results.

At first, the court accepted as evidence the findings achieved in the expert opinion and recognized that the bankruptcy receiver acted in bad faith and inefficiently.

In the second place, the availability of a pre-trial study became the basis for the refusal to conduct a forensic examination by the official receiver.

In the third place, thanks to this, the creditors achieved their main aim: the official receiver applied for his removal from the post.

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