Through Privatization to Bankruptcy

The Zrenjanin-based company Sinovoz is one of the 300 unsuccessfully privatized businesses in Serbia, but it stands a slim chance of being resold. Due to poor management on part of its new owner Nebojsa Ivkovic, the company has gone bankrupt, the sales contract has been annulled, and some 500 employees are waiting for the bankruptcy proceedings to be stopped so they can return to work.

The case has attracted more public attention than other previously voided privatization contracts because it is suspected that the new owner built up Sinovoz's debts by borrowing money from other firms he owned, all to completely take over the company as a creditor once it went bankrupt.

Reports filed by monitors of the Privatization Agency have raised additional suspicion because, according to them, the new owner was fulfilling all his contractual obligations until a receivership was introduced in Sinovoz. Bankruptcy proceedings began in November of last year, while company workers went on strike in December, demanding that state organs review both their reasons for introducing receivership and whether the sales contract was actually honored.

Sinovoz, a rail vehicle overhaul and steel construction manufacturing company, was sold by auction in March 2004, when Nebojsa Ivkovic from Belgrade bought 56 percent of the company's shares for 240 million dinars and obliged himself to invest 17.9 million dinars into the company within the following three years. The Privatization Agency's Novi Sad branch, in charge of monitoring privatization contracts for all businesses in Vojvodina, conducted five reviews up until December of last year and concluded that Ivkovic was meeting his end of the deal. Trouble at Sinovoz, however, began last year when Ivkovic became owner of 67.9 percent of the company by presenting as an investment five diesel engines received from the Serbian Railway Co as payment of 80 percent of its debt to Sinovoz, and which were intended as scrap metal. At the same time, he began pushing Sinovoz in the red by taking loans from IT Logistika and Jugopapir, two businesses he owned and which were the ones to launch bankruptcy proceedings against Sinovoz.

Sinovoz employees claim that Ivkovic intended to become sole owner of Sinovoz stock by collecting the loaned funds during the bankruptcy proceedings, thus leaving the workers, as minor shareholders, with neither shares nor jobs.

Having learned from the experience of neighboring company Jugoremedia, also from Zrenjanin -- whose employees after a two-year battle proved that the new owner had illegally increased his shares and was driving the company towards bankruptcy -- Sinovoz workers on Dec. 28 decided to go on strike until the proper authorities dealt with the issue. The protest began when the Privatization Agency decided to give Ivkovic additional time to submit proof he had met the contract.

Monitoring the Agency

During a meeting with Sinovoz employees, Economy and Regional Development Minister Mladjan Dinkic ordered that the actions of the Privatization Agency's Novi Sad branch be monitored, and that the Interior Ministry's Directorate for Combating Organized Crime become involved in the case, due to suspicion that Ivkovic intentionally caused Sinovoz's bankruptcy.

As protests of Sinovoz workers unfolded in Belgrade, their colleague Radislav Stojanovic passed away on Jan. 16, which additionally motivated them to persist in their resolve to re-open the factory's gates and return to work, by any means possible. On Jan. 18, the Privatization Agency gave Ivkovic an additional extension to prove he had fulfilled his contractual obligations, but he failed to answer, and the sales contract was annulled at the end of January.

According to the Privatization Agency, Article 41a of the Privatization Act lists cases in which the Agency can end a contract with a buyer and also stipulates that it is obliged to provide additional time for the buyer to fulfill the contract. The same article says that, in case the sales contract is annulled due to failure to honor the contract, the buyer, as the responsible party, is not entitled to a reimbursement, meaning that Ivkovic will not be returned his 240 million dinars.

The committee of the Center for Monitoring the Privatization Agency conducts regular reviews, two or three times a year, of privatization proceedings. Additional reviews, Agency representatives explained, are performed at the request of employees and minor shareholders, when it is clear that the contract is not being honored, or at the request of state organs.

The sales contract states that, without prior approval from the Agency, the buyer will not sell, transfer, or in any other way dispose of the company's basic resources to an extent which exceeds the percentage determined by the contract, and during the period specified by the contract. The document also stipulates that, without prior written permission from the Agency, the buyer will not put down as a security or mortgage the company's basic resources, unless to meet financial demands resulting from regular business operations, or to acquire resources which the company will use in the period determined by the contract.

The state secretary with the Ministry of the Economy and Regional Development, Luka Andric, told Argus that the Novi Sad branch of the Privatization Agency conducted contract fulfillment reviews based on the reports of an authorized auditor, and that it has been determined that these reports did not present the actual state of affairs at Sinovoz. He added that he expects that charges will be filed against this auditor.

Reviews of Sinovoz's business operations were performed by Milenko Andzic, who was hired by the auditing company Privredni Savetnik. Andzic told Argus he had heard that the Privatization Agency has issues with his reports, but denied they did not accurately represent Sinovoz's operation.

The Workers Wouldn't Work

"The owner of Sinovoz invested more than he was required to in the company. Problems began when the obsolete engines could not be registered as a basic equipment investment. The Privatization Agency required that registration documentation for the equipment be submitted as proof of mandatory investment, but the equipment couldn't be registered at the court without approval from the Privatization Agency," Andzic said. According to him, Sinovoz would have avoided bankruptcy had the workers wanted to work and overhaul the engines.

Andzic claims that Sinovoz's management made every attempt to motivate employees to come to work, but that most were busy with private jobs, which halted production and lead to accounts being blocked. "Had they agreed to work, the sale of just one overhauled engine would have covered all the company's debts," he said.

Once the contract was annulled, the workers expected that the High Trade Court would sustain their appeal and cancel the bankruptcy proceedings for the company, but the High Court confirmed the ruling and the Zrenjanin Commercial Court announced that the bankruptcy proceedings would continue. President of the Sinovoz Strike Committee Mita Lisac said that the workers would request an audition with Justice Minister Dusan Petrovic, so that he would initiate a review of why a receivership was introduced in Sinovoz.

Economy and Regional Development Ministry representatives said that it would be best if the company could continue operation, but that the court's decision, whatever it may be, must be honored. After the sales contract was annulled, Ivkovic's shares in Sinovoz were transferred to the care of the Share Fund, which is to represent the state during the bankruptcy proceedings for the company.

Former Sinovoz director Dragan Jevtovic said that "representatives of the factory's workers union and some politicians are dispelling untruths" because, according to him, Ivkovic invested several million euros into Sinovoz. He said that some 500 railway cars await overhaul at Sinovoz, which guarantees production for the next two years. The fact that the company's account has been blocked because of EUR30,000, Jevtovic claims, has stopped a job worth EUR200,000.

The Zrenjanin Commercial Court could halt the bankruptcy proceedings if it receives evidence that the bankruptcy was created artificially, and that there are ways to unblock the company's account. Sinovoz employees believe this could easily be done if the authorities would only do their job.

For now, Ivkovic prefers to remain silent. His representatives claim he spends most time abroad and that he left the management of Sinovoz to people he trusted. Whether they were following his orders or building up debt for the company on their own is to be determined by an investigation which will, at least according to announcements, include the financial police and experts in combating organized crime.