DIU is forcing Interpipe into bankruptcy for the latter’s debt of US $2 mn

In DIU dissatisfied with the decision of the court on the installment plan and want to Interpipe to repay the debt in one payment

Photo: Bloomberg via Getty Images

As Capital learned, the Donbas Industrial Union, whose co-owner is Serhiy Taruta, and Interpipe Ukraine owned by Viktor Pinchuk failed to reach common ground regarding old debts and now are clarifying their relations in court. On November 25, the Commercial Court of the Dnipropetrovsk Oblast sympathized with Interpipe and extended the repayment of its debt of US $2 mn to DIU for 18 months, according to the court’s ruling which Capital has a copy of. The court ruled that Interpipe must repay its debt to the DIU from December 2014 to May 2016 in installments of UAH 1.8 mn every month.

The DIU is not satisfied with this ruling and demands cancelation of the extension and that the court keeps in force the collection of the debt in one installment. The Dnipropetrovsk Commercial Appellate Court adopted such a resolution on July 24, 2014 (on November 4, 2014, the Supreme Commercial Court of Ukraine confirmed this resolution). According to it, Interpipe should pay DIU UAH 28.8 mn of the main debt, a fine of UAH 1.7 mn and court expenses and accrued interest. 

How did the two sides lock horns

The subject of the dispute was the debt of UAH 19.6 mn (which at the exchange rate at the time was the equivalent of US $2.4 mn) pursuant to the agreement of supply of metal products between DIU and Interpipe Ukraine. This debt formed at the end of 2012, Director of the Legal Department of DIU Serhiy Tkachenko told Capital.

At the time, DIU delivered to Interpipe Ukraine pipe billets pursuant to a commercial contract without a pledge. The terms and conditions of the contract stipulated that the price of the product was pegged to the dollar and is subject to repayment at the exchange rate of the NBU on the date of payment (January 2013).

Over the course of several months the two sides met, discussed the structure and terms of possible repayment of the debt and at the start of 2014 the talks stopped. The dispute then went to the court. “We decided to exact from Interpipe around UAH 28.8 mn of the main debt and around UAH 3 mn in interest and penalty sanctions,” says Tkachenko. In August of this year a trial process was actuated. “Today, the bank accounts and property of Interpipe Ukraine have been frozen by the executor,” Tkachenko added.

However, on November 11 Interpipe Ukraine appealed to the court demanding an extension of the execution of the ruling for 48 months. “The court reviewed the request of Interpipe without our participation and passed down a ruling on the extension of the debt for 18 months. We feel this decision is absolutely ungrounded and on December 1 we filed an appeal,” said Tkachenko.

Pressure for compassion

“Interpipe was pitied by the judges of the Dnipropetrovsk Commercial Court through its submission of appeals for extension. As the document shows (Capital has a copy of it). Based on the results of 9 months of 2014, the volume of output of seamless pipes fell 18% and welded pipes – by 39%. Today, it is difficult for the company to sell its products. The fact is that Russia accounted for approximately 60% of the sales of these products. Now, duties on the pipe products of Interpipe are in effect “as a result of which the enterprise cannot compete with other producers” it is written in the company’s statement.

“Consumers are reneging on their orders and seeking other producers,” Interpipe complains. Besides that, the extraction of oil and gas has been practically suspended and many infrastructural projects have been suspended “as a result of which the demand for pipe products dropped to its minimum”. The debtor company summed up that one-time repayment of debt to DIU will lead to the suspension of operations of Interpipe as it has practically no turnover capital, though it is paying the plant’s employees and is taking care of those that are in the ATO zone. Interpipe did not find time to express its position to Capital in the dispute with DIU.

Bankruptcy

DIU says for the company the sum of US $2 mn is significant, which is why it intends to fight for its appeals in all ways possible, even if the matter comes down to the bankruptcy of the defendant. It also stressed that it resorted to appeal in the court only after many attempts to settle the dispute out of court.

“We have for quite some time viewed the financial difficulties of Interpipe Ukraine with understanding and sought ways of reaching a compromise. But at this stage we simply understood the non-constructive approach of the opposing side. In the current market conditions this is a fairly large indebtedness that is critical for supporting the DIU business group,” says Tkachenko.

He added that currently DIU is reviewing absolutely all legal ways of defending its rights, including further freezing of the bank accounts and assets of its debtor seeing as “the latter is not expressing any interest in resolving the dispute”.

Resolving the dispute should be amicable

The irony in this situation is that the plaintiff and the defendant have huge debts to other lenders in the billions of dollars. Last year, the debt of DIU to foreign banks was around US $2.5 bn (the corporation is currently holding talks on restructuring of this debt). Interpipe owes creditors around UAH1 bn.

As a rule, in companies of such a high level with such debts to creditors its assets are pledged, partner of the SLA firm Oleksiy Volokhov told Capital. “This complicates the compensation of debts through the bankruptcy procedure. This is typically a more long-winded process and ineffective way of being repaid old debts. The disputing companies are well aware of this,” says the lawyer, saying that DIU and Interpipe are better off reaching an amicable agreement out of court.