N1 television published on Tuesday two previously unseen e-mails exchanged between former economy minister, Martina Dalic, and finance consultant Branimir Bricelj from the Altera Corporate Finance consulting company, who was part of the mailing group which worked on drafting the controversial Lex Agrokor bill, dubbed in the media the Borg group.

According to N1 television, the e-mails, dated March 30, 2017, show that members of the group made adjustments to the bill before it was sent to parliament, designed to benefit Knighthead, a hedge fund they secretly held meetings with.

Along with Bricelj, another member of the group was Ante Ramljak, another consultant, who also took part in drafting Lex Agrokor, and who later became the state-appointed emergency administrator at the troubled food and retail Agrokor group which the law was written for.

In that capacity, Ramljak hired other members of the Borg group and gave them lucrative consulting contracts worth in total more than 500 million kuna (€67.4 million).

The annotated e-mails show that the changes entered by Bricelj, which later became part of the law, relate to some of the most controversial elements of Lex Agrokor, including rules used to hire consultants, the temporary creditors’ council, and the roll-up loan at the company.

The changes include separating debt claims of banks and financial institutions and bond holders from claims by company’s suppliers, with an exception added for “debt claims which have priority,” which seems to have enabled Knighthead hedge fund to make huge profits through the roll-up loan, while all other creditors of Agrokor had to incur massive losses through write-offs.

Thanks to this provision, Knighthead managed to get paid in full for bonds it previously bought for next to nothing from sellers who were not aware of Lex Agrokor. At that moment, most bond holders believed that claiming them would be nearly impossible considering the crisis at Agrokor, so their value sank to only 20 percent of their nominal value.

Because of this, Knighthead was in the position to buy bonds at 20 cents per euro, and solely thanks to the sentence in the draft bill added to Lex Agrokor, it later got paid in full during after the emergency administration has been appointed. This could not have happened before the change was entered by Bricelj on March 30, 2017.

Other changes entered by Bricelj also removed almost any supervision intended to control the emergency administrator. Although the law originally envisioned a supervisory body, Bricelj changed its name into “advisory,” and reduced its authority. In another place in the draft, he deleted the provision saying the administrator must get the Creditors’ Council approval to hire consultants, allowing him to do so at his own discretion.

Another issue is related to the Temporary Creditors’ Council, which many creditors who are currently challenging the debt settlement at Agrokor say was without legitimacy. In the original draft of the bill, the body was not supposed to exist, with the Economy Ministry supervising the process until a permanent council is formed to represent the company’s creditors.

But Bricelj added a provision about forming a temporary council, with members selected by Ramljak himself, and which later backed his decisions. The permanent council was eventually never formed.

Another article that was changed concerned deleting a provision saying that the emergency administrator should issue reports as long as he is in that post, and three years after the debt settlement is reached.

Another annotation entered by Bricelj mentions that the draft needs to be amended to influence the stand-still arrangement, which was Agrokor owner and CEO Ivica Todoric’s independent attempt to reach a deal with company creditors, and which did not fit Borg group’s plans, as heard from earlier published deposition of Martina Dalic that she gave to police investigators.
The changes also made it easier for somebody else to launch Lex Agrokor if Todoric for any reason refuses to do so, and in another section of the draft they added a provision that starting the Lex Agrokor procedure halts any bankruptcy proceedings.

The analysis of the draft and the history of changes added to the bill before it was passed by parliament in April 2017, sheds many doubts on whether who, under what conditions, would assume advisory roles for the emergency administrator, whether Knighthead would even take part in the roll-up loan, or whether Todoric would be left to deal with the company’s debt with its creditors.

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