On Friday, 27th December 2019, Fabris Peruško, Extraordinary Commissioner of Agrokor sent a letter addressed to Margrethe Vestager, Executive Vice President of the European Commission and Commissioner for Competition, Cecilio Madero Villarejo, Director of the Directorate General for Competition of the European Commission and heads of market competition authorities of all EU Member States and members of the European Network of Competition Authorities, advising them of the recent activities of the Slovenian Public Competition Agency (Javna agencija za varstvo konkurence) (Agency) related to the transfer of Mercator assets from Agrokor to Fortenova Group, which are contrary to the laws and practices of the EU and Slovenia.
The Extraordinary Commissioner sent the letter once he learnt that the appeal filed by Agrokor on 24 December regarding the decision on seizing Mercator shares was only forwarded by the Agency today, 27th December, via regular mail to the Misdemeanor Court of Ljubljana, which will hence start deciding not earlier than on Monday, 30th December, with the deadline for passing the decision being 48 hours.
Peruško has on behalf of Agrokor informed the European and national competition authorities in detail of the breach of investors’ legitimate expectations as to the application of law and practice to investments within the EU, discrimination on grounds of nationality regarding investments within the EU and breaches that amount to a denial of justice and an unlawful expropriation of intra-EU investment, committed by the Slovenian Competition Agency.
Stating that although these matters were currently subject to local litigation in Slovenia, Peruško noted that in this case it was likely that international court proceedings would be instituted as well. Hence, in view of the reputational and practical implications that they have for competition laws and policies and insolvency issues on the common market, Peruško thought it was necessary these matters be brought to the attention of the heads of national competition authorities, as well as of the EU Commissioner for Competition.
In that letter he briefly sets out the business ID’s of Agrokor and Mercator and describes the ownership connection of the Croatian retail chain with Poslovni sistem Mercator, a Slovenian legal entity and Slovenia’s largest employer as well as the largest customer to Slovenian suppliers, where Agrokor currently holds a share of around 69.6 per cent. He also states that in April 2017 Agrokor entered an Extraordinary Administration Procedure, within the scope of which it was planned to transfer the business share held in Mercator to the restructured Croatian legal entity, Fortenova Group.
„It appears, however, that the Slovenian administration wishes for national political reasons to prevent that transfer and instead to engineer that the 69.6 per cent stake be transferred to a third party. To that end, on 24 September 2019 the Agency fined Agrokor EUR 53.9 million for its failure to notify an acquisition in 2016, at a time when Ivica Todorić still managed the company and was its owner, for merger control approval. The Agency has utilised that fine as a pretext to freeze the 69.6 per cent shareholding to prevent its transfer to Fortenova Group. These actions breach local Slovenian law and practice, as well as EU law and practice and are international wrongs” – Peruško said in his letter, in which he highlighted some key issues with the transfer of Mercator assets that escalated over the last months.
The Extraordinary Commissioner stated Agrokor’s already well known standpoint that the fine imposed on Agrokor by the Agency was itself wrongful and that the scale of the fine was entirely unprecedented in Slovenian competition practice. He also reminded that Agrokor’s insolvency was recognized by the courts of the UK, USA and Switzerland and that within the scope of EU laws the extraordinary administration process was added to Annex A of the Recast Insolvency Regulation with effect from 26th July 2018.
“As such, the extraordinary administration process complies with, and is within the scope of, the Recast Insolvency Regulation and it should therefore be recognised in Slovenia. However, such recognition would have prevented the Slovenian authorities in taking and/or freezing Agrokor’s 69.6 per cent stake in Mercator, and by a decision of the Slovenian Supreme Court of 14th March 2018 such recognition was refused. That decision is impossible to understand and it is hence subject to assessment of the Constitutional Court of the Republic of Slovenia” – states the Extraordinary Commissioner of Agrokor.
Instead, on 16th December 2019 the Agency issued an interim freezing order with respect to Agrokor’s shares in Mercator and the letter describes the way in which the Agency proceeded, applying the provisions of the Misdemeanor Act which have historically never been applied in the way they were used against Agrokor. Indeed, the provisions of that Act, which are completely inapplicable to a corporate entity, in this case Agrokor, a substantial Croatian company, had only ever been applied to freeze assets such as motor vehicles where it was suspected that an individual was a flight risk.
“The decision of the Slovenian Agency is also impossible to understand, which is why we believe that the court will nullify it. Whilst the freezing order is said to be in support of the EUR 53.9 million fine, the fine is not yet payable pending the outcome of Agrokor’s appeal and the value of the shares frozen is over three times the amount of the fine” – Fabris Peruško states, reminding that, on a separate matter, in early December 2019 Agrokor and Fortenova Group both submitted complaints to the European Commission regarding a request emanating from the Slovenian government and a Slovenian state-owned and state controlled bank, SID Bank, that Slovenian suppliers be granted preferential access to Mercator shelf-space.
“On the facts this amounts to a clear breach of one of the fundamental principles of the European Union – the free movement of goods between Member States. The Slovenian state-owned bank indicated that, should Mercator not agree to favour Slovenian suppliers in this manner, it would then refuse to grant its consent, which is required under the relevant financing documents, to Agrokor’s share in Mercator being transferred to Fortenova. This would appear to amount to Slovenia, through the bank it owns and controls, acting in wilful violation of EU law as a means to apply unlawful pressure on Agrokor and Fortenova Group to favour Slovenian companies over those from elsewhere in the EU” – the Extraordinary Commissioner of Agrokor stated in the letter in which he cautioned that as a consequence of the above the current restructuring of Agrokor, including the transfer of Agrokor’s shareholding in Mercator to Fortenova, is likely to be delayed or de-railed.
„This may have very significant implications for creditors and also more widely for EU competition and insolvency regimes” – Fabris Peruško concluded on behalf of Agrokor in his letter to the heads of European and national competition authorities.
