Josip Juraj Strossmayer University of Osijek Faculty of Economics in Osijek Postgraduate specialist study of finance and banking Drago Dević Financial restructuring of a company in business problems Final thesis of postgraduate specialist study Osijek, 2018 Josip Juraj Strossmayer University of Osijek Faculty of Economics in Osijek Postgraduate specialist study of finance and banking Drago Dević Financial restructuring of a company in business problems Final thesis of postgraduate specialist study Osijek, 2018 Josip Juraj Strossmayer University of Osijek Faculty of Economics in Osijek Postgraduate Specialist Study Finance and Banking Drago Dević The Financial Restructuring of a Company in Financial Distress Postgraduate final paper Osijek, 2018. The Financial Restructuring of a Company in Financial Distress ABSTRACT Every company has a unique life cycle. Throughout the life cycle, companies are tracking successes and failures, depending on the various factors that affect their business. Situations such as financial distress , idleness, or bankruptcy represent the fundamental levels of a company's life cycle. The purpose of the paper is to present the financial restructuring of the company in business problems on the example of the Agrokor Group. This paper describes the operations of the Agrokor Group from 2007 to 2017, ie it is divided into business analysis prior to the extraordinary administration and in the procedure of extraordinary administration. The characteristics of Agrokor Group's operations prior to extraordinary administration are: low liquidity and negative working capital over the observed period, extended payment of obligations to suppliers ranging from 110 to 211 days, ie 156 days on average, increased indebtedness and high indebtedness and insolvency in 2016, solid Group's activity ratios , positive profitability by 2015. With the advent of extraordinary administration , inappropriate corporate governance has been identified, and audit results show that accounting irregularities and potential illegal actions have been identified. Claims recognized amounted to HRK 31.04 b illion , while disputed claims amounted to HRK 10.4 b illio n. The Group has a financial arrangement of EUR 1.06 billion with super senior status. In addition, the complex structure of claims is emphasized. Bearing in mind all the above, the Group's financial restructuring is possible with the new corporate structure, the new capital structure, the allocation of financial instruments to stakeholders. Returns to creditors should be defined by the entity's priority model. Group value would be distributed among stakeholders based on their legal rights, ie the model's rank. The value of each claim claimed is determined by the fraction of the total distributable value that it needs to receive. After that, it will determine how many depositary receipts and the exchangeable bonds each creditor receives. Key words : financial distress , bankruptcy , financial restructuring CONTENTS 1. Introduction 2. Theoretical background and previous research 2.1 Financial difficulties 2.1.1. Levels and types of business difficulties 2.1.2. Causes of financial difficulties 2.1.3. Eliminating financial difficulties 2.2. Bankruptcy Forecasting Techniques and Models 2.2.1. Financial ratios 2.2.2. Discriminatory analysis 2.2.3. Linear probability model 2.2.5. Logit model 2.3. Restructuring of companies 2.3.1. Restructuring scenarios 2.3.2. Participants in the restructuring process 2.3.3. Stages of the restructuring process 2.3.4. Advantages of corporate restructuring 2.3.5. Operational restructuring 2.3.6. Financial restructuring 2.3.7. Restructuring techniques 2.4. Bankruptcy Law 2.4.1. The tasks and objectives of bankruptcy law 2.4.2. Bankruptcy cost 2.4.3. An example of a good bankruptcy law - Singapore 3. Research description and research results 3.1. Bankruptcy Regulation in the Republic of Croatia 3.1.1. Bankruptcy Law in the Republic of Croatia 3.1.2. Law on the procedure of extraordinary administration in companies of systemic importance for the Republic of Croatia 3.2. Basic information and business characteristics of Agrokor Group before the extraordinary management process 3.2.1. Structure of Agrokor Group 3.2.2. Agrokor Group's performance indicators for the period 2007-2016 3.2.3. Agrokor Group business performance analysis based on business prediction model 3.3. Introduction of the extraordinary management and misstatement of the Agrokor Group's transactions in the financial statements of the previous period 3.4. Agrokor Group's operations in the extraordinary management process 3.5. Costs of operations and extraordinary administration 3.6. Debt analysis 3.6.1. Debt analysis as of 31.12.2016. years 3.6.2. Debt and claims analysis during the Extraordinary Administrative Procedure 4. Discussion 4.1. Restructuring of Agrokor Group 4.2. A model for determining the order in which subjects are settled 4.3. Financial restructuring of Agrokor Group 5. Conclusion Literature List of tables List of pictures List of charts 1. Introduction Each company has a unique life cycle. During the life cycle, companies record successes and failures depending on various factors that affect their business. Businesses can have four life cycle levels: establishment and promotion phase, growth phase, maturity and stabilization phase, a stage of difficulty or bankruptcy. The establishment and promotion phase is an early stage in which companies seek funding sources for product development and market testing. In many cases the commercialization of a company’s products or services is not fully recognized in the market. During this early stage of advancement, the goal is to market acceptance of products or services in the market. The foundation and advancement phase is followed by the growth phase. At this stage, companies employ experienced management and satisfactory sources of financing for growth are available. In the maturity stage, companies most often expand into new regions and / or grow through mergers and acquisitions in a vertical or horizontal direction. However, if there is a recession or crisis in a particular industry, the company faces business problems. Many economists find it impossible for a company to grow indefinitely. According to corporate finance theory, conditions such as financial difficulties, deafness or bankruptcy represent fundamental levels of a company’s life cycle that cause certain changes in the ownership structure and rights of management of a company . The Agrokor Group, which is currently undergoing extraordinary administration, has gone through similar phases, because by the number of employees and the amount of obligations, the company is of systemic importance for the Republic of Croatia. The purpose of this paper is to present the financial restructuring of a company in business problems by the example of the Agrokor Group. 2. Theoretical background and previous research Many authors have explored financial difficulties, and Altman made the most significant contribution to this topic. Financial difficulties may vary in level and type, their causes can be divided into several groups, and the remedy depends on their complexity. In order to avoid financial difficulties, a bankruptcy forecasting model can be prevented. If the business is at an unenviable level, it will be reflected in the financial statements and restructuring will be required. If the restructuring is done poorly, the company will face bankruptcy. 2.1 Financial difficulties There are several definitions of financial hardship . Chandrashekar (2008) considers financial distress as a deteriorating condition of a company to the extent that it cannot meet its financial obligations, while the first signals of financial distress are commonly regarded as breach of contract with suppliers and payment of dividends. Drescher (2013) believes that financial difficulties require classification. It defines a corporate crisis as an unwanted process of limited duration and control that can lead to adverse outcomes. The corporate crisis poses a significant and continuing threat to the normal business of a company or makes it impossible. The aforementioned has an adverse effect on the dominant goals of a company whose failure puts at risk the existence and independent business of the company. Ratner (2009) divides the difficulties into operational and financial. Operational difficulties may arise for some reasons, such as competition from other companies, competition for substitute products , departure of key employees and management, dramatic changes in raw materials (quality and availability), changes in cost structure that cannot be passed on to consumers, or changes in demand for products or services. This has financial effects such as declining revenue to lose market share. If a company in difficulty is unable to identify the causes of operational difficulties and reduce costs and increase revenues and equity (or a combination of the above), the company will experience financial difficulties in the near future, and depending on the continuity of the difficulties, insolvency. Financial difficulties arise when a company operates with high financial leverage and is unable to reconcile debts and payments. An example of this is a company that is the subject of a high leverage transaction. Financial difficulties are also evident in companies whose capitalization does not support the operational growth of the business. For example, when a company funds long-term assets (such as plant and equipment) with short-term sources of financing. Accordingly, the business will need working capital. It should be noted the term "good company with a bad balance" which describes a company that has a strong operating business but is in financial difficulty. If a company is unable to refinance its existing debt or sell assets that do not serve its core business to meet interest costs, then the company is likely to face insolvency. It should be noted that operational and financial difficulties are not mutually exclusive, that is, a company with a strong financial position may have poor operating performance and a company with a strong operating business may have a poor financial position. The business decline curve is a graphical representation of the challenges facing companies in difficulty during continuity. When faced with operational and financial difficulties, even experienced managers often assume that the decline is temporary and that performance will return to normal. During this phase, management will focus on monitoring the expected performance indicators and will not investigate and eliminate the main cause of business decline. This can be compared to treating the symptoms of the disease without identifying the cause. The time spent at this stage often allows the main cause to be manifest in the financial statements. Continued declines in revenue and often margins may result in increased leverage or a shortage of working capital. As the financial scope of difficulties increases, management becomes more reactive rather than proactive, and usually lacks the time and resources to address the underlying causes that led to the decline. Further decline in the curve gives the company less control over the outcome and control of the company can be taken over by creditors or stakeholders and continued in a judicial environment such as bankruptcy. Ratner (2009) considers that the most responsible variable on the business decline curve is management, which has wasted time in denying difficulties. Excessive time spent in the denial phase makes the rest of the journey, that is, a business crash down the curve inevitable. 2.1.1. Levels and types of business difficulties There are several levels of business difficulties for companies. Altman (2006) has listed four terms that are encountered in the literature: 1. 2. 3. 4. failure insolvency deaf bankruptcy Economic failure is considered when the realized rate of return on invested capital increased by provisions for risks is significantly and continuously lower compared to the returns on similar investments. It should be noted that different economic criteria can be taken such as insufficient income to cover costs or when the average return on investment is continuously less than the cost of capital of a company. Observed economic situations may be different in frequency and differently affect the survival of a company. Management decisions are based on expected returns and the ability of the company to cover variable costs. It is important to note that a company can be economically unsuccessful for many years, but that it never fails to settle its current liabilities due to the absence of debt or the absence of debt that can be recovered through legal means. Legal failure is considered when a company is unable to settle its legally enforceable liabilities. The term business failure was adopted by Dun & Bradstreet, which conducted various statistical surveys of unsatisfactory business conditions. A business failure is a company that has ceased operations after bankruptcy, one that voluntarily withdraws leaving arrears and one that is involved in some legal proceedings (eg reorganization), and one that compromises with lenders. Insolvency shows the negative performance of a company and is used in a technical sense. Technical insolvency exists when a company is unable to meet its current obligations, which indicates insufficient liquidity or lack of liquidity. For technical insolvency, net cash flow relative to current liabilities should be the primary criterion used to describe technical insolvency, not the traditional measure of working capital. Technical insolvency may be a temporary condition, but if it becomes frequent, it can cause a formal bankruptcy. Insolvency in terms of bankruptcy is a chronic condition, not a temporary state in which a company is located. Companies are in a situation where the total liabilities exceed the fair value of the total assets and the real net worth of the company is negative. Technical insolvency is readily apparent, while bankruptcy insolvency is a condition that requires a comprehensive analysis of the valuation of a company that is not normally conducted until it has decided to liquidate the assets. Deafness can be technical and / or legal and always involve a link between the debtor and the creditor. Technical deafness occurs when the borrower violates the terms of the agreement with the lender. This may be the basis for legal action. When a company fails to pay its liabilities on time, then it is a formal nuisance. One form of bankruptcy is described by the negative value of a company. Another form is the formal announcement of the bankruptcy of a company with a request to go into liquidation or to attempt reorganization in bankruptcy. Vance (2009) points out that companies can rarely go from successful business to business failure in one step. Companies in difficulty go through certain levels of business, which are gradually divided into early, mid and late levels. These levels are of diagnostic value and can assist management and interested stakeholders in preventing business difficulties. In the early stages of financial hardship, isolated production and distribution inefficiencies become frequent and become a pattern of behavior. Consumer complaints and complaints become more frequent, sales stagnate and margins decline. The company is beginning to experience cash flow problems and current liabilities are being paid more slowly. Management still believes that the difficulties are transient and that the situation will improve in the near future. The crisis was not recognized and no corrective action was taken. The medium level of financial hardship is characterized by problems in production and distribution that become acute. The decline in quality continued. There is a significant drop in gross margin. Material shortages occur as management seeks to increase cash flow by not procuring material and inventory. Companies are significantly late in paying suppliers, and they require prepayment. Banks are becoming concerned, therefore, requiring the development of a recovery plan. The company is technically bankrupt. Employee morale is falling and quality employees are looking for new employment. Rumors have been raised about the company's problems. At a late stage of financial hardship, management announces the difficulties it is in and the system breaks down. Deadlines are not respected. The company is required to pay promptly. Quality control is poor. Returns and finishing of goods have increased. Efficiency declines due to material shortages and frequent schedule changes. The equipment breaks down and becomes unusable due to lack of maintenance and a lack of spare parts occurs. Consumers refuse to pay for bad services. Sales are at low levels. Credit lines are disabled. The company no longer generates cash flow. Difficulties arise in the operational and financial business, and management does not use the appropriate business measures or use them at all. The banks are desperate to close the loans and at the same time charge extra fees for defaulting on the loan. Additional collateral is required, and new loans are only possible at high interest rates. Secured creditors lose confidence in management. The best employees leave. Newton (2009) points out that the main symptoms of business difficulties are aggravated sales and sales decline, poor cash flow, inadequate product margin and profitability, and high levels of debt. The business difficulty levels are divided into: incubation period, lack of money - illiquidity, financial insolvency, total insolvency. The timing of each level depends on many factors. Most companies go through these levels, and only exceptions can skip a few levels. For example, some companies may be totally insolvent without being liquid. During the incubation period, it is emphasized that companies cannot suddenly become illiquid or insolvent. Some business problems can be like a cold and be cured with the right medication, while others, if left untreated, can result in fatal or death, bankruptcy and liquidation in the business world. During the incubation period, adverse conditions are difficult for management and stakeholders to see. Some of the unfavorable business conditions that can seriously impair the company's operations are: changes in product demand, continuous increase in production costs, outdated production methods, increasing competition, incompetent management in key positions, takeover of non-profit affiliates, excessive expansion with a lack of working capital, business with a small number of credit institutions. It is often seen at this stage that return on investment is significantly lower than average returns in the past. Management should identify the causes of deviations and correct them, and if they cannot be corrected, they should look for alternatives. Re-planning is very effective and efficient at this stage. Furthermore, business correction decisions are not as drastic as in the stages of progress of difficulties. Public confidence will not be undermined if corrective action is taken at this stage. This is crucial because with the disturbed confidence many participants will not look favorably on the business of the company. In the phase of liquidity or lack of money to settle current liabilities, companies for the first time encounter the inability to pay overdue liabilities. The problem may become even greater if the company owns illiquid and hard-to-market assets. Financial insolvency occurs when a company is unable to obtain the necessary funds to meet its obligations. This level can be adjusted. It should be emphasized that the resolution measures will be long-term and uncomfortable. These measures may include, for example, changes in financial policy, changes in management or share issues, and long-term borrowing. Total insolvency is a situation in which liabilities exceed the value of assets. At this stage, the general public and those lenders who have not yet observed the right situation for the first time realize that society is failing. Society can no longer deny ruin. At this stage, creditors may allow restructuring or take control of the company. According to Drescher (2013), the characteristics of the corporate crisis are: Failure to meet dominant goals such as maximizing shareholder value through two conditions. The first is long-term and implies competitive advantages of a company such as cost or production differentiation advantages or a unique combination of resources. The second is short-term and involves the signaling of insolvency and insolvency and excessive indebtedness that must be eliminated in order to preserve the company. Existential threats that imply the smooth running of a company is that it does not threaten it with difficulties that will threaten its existence. Ambivalent outcomes imply that the corporate crisis does not automatically lead to a company shutdown. Instead, the crisis can be an opportunity and a signal to create sustainable value for shareholders. Complex decision-making conditions imply decisions made under time pressure and a reduced degree of freedom. The decision-making environment is characterized by high uncertainty. The perspectives of the process imply that the return of a company under normal business conditions does not occur at one time, but has the characteristic of continuous progress in successive phases where each phase has specific characteristics. As each stage has its own peculiarities, so do the crisis indicators vary according to the different stages in which the company is located. Degree of existential threats over time. Degrees of existential threat can be divided into: normal and conditions, strategic crisis, profitability crisis, liquidity crisis, insolvency. Initially, under normal conditions, action opportunities are high and the need for action is small. As time goes by and the company progresses in the level of difficulty, action opportunities narrow and the need for action increases. 2.1.2. Causes of financial difficulties The causes of financial difficulties are specific to each individual company. It is very often not possible to isolate just one cause of financial difficulty due to its high complexity. One of the reasons is the complexity of multiple-causation ( pluricausality ) because many factors interact in causing financial difficulties. The second reason is the hierarchical relationship between different patterns. It should be noted that the causes cannot be attributed solely to endogenous or exclusively exogenous factors. Drescher (2013) divides the causes of financial distress into endogenous and exogenous ones. By endogenous factors, he considers the internal issues of an individual company, which may be for example operational efficiency or leverage, attributable to managerial responsibility. By exogenous factors, it considers what is happening outside the company and affect a larger group of companies in the market. They can be categorized into several groups. Therefore, exogenous factors may be: economic changes, competitive changes, government restrictions, social change, technological changes. It should be noted that management's responsibility can also be considered as exogenous factors, because the role of management is usually considered to be the prediction of adverse external factors and reactions to them if at some point possible. It is pointed out that several studies investigate the impact of endogenous and exogenous factors. A large group of studies cites poor management performance as a major driver of financial distress. Some authors investigate the financial difficulties caused by adverse exogenous factors. The aforementioned studies investigate the dominant reason leading to financial difficulties, however, as noted previously, there is an interaction of these factors that must be considered. Some studies analyze the causes of financial distress as an interaction of endogenous and exogenous factors depending on the economic cycle and external shocks. The aforementioned results should be interpreted with caution as the selected sample of companies and the economic environment should be taken into account. Gaughan (2015) states that, based on Dun & Bradstreet's research on the causes of business failure presented in Table 1, three common factors have been identified. The factors listed in order of frequency are: economic factors (weakness in the industry), financial factors (insufficient capitalization), managerial inexperience (insufficient management knowledge). The last factor concerns the role of managers in management skills in preventing bankruptcy. Table 1 . Causes of Company Failure Economic factors 41.0% Financial factors 32,5% Experience factors 20,6% Negligence 2.5% Fraud 1.2% A natural disaster 1.1% Strategic factors 1.1% Source: Gaughan, PA, 2015. Mergers, Acquisitions, and Corporate Restructurings. Sixth Edition hours Hoboken, New Jersey: JohnWiley & Sons, Inc., p. 436. The age of a company is also affected by failure. According to Dun & Bradstreet's research, it is also concluded that 30% of companies fail in the first three years of their operations. Gaughan (2015) points out that financial difficulties and bankruptcy are related to high leverage acquisitions that occurred in the 1980s. The same author points to the research on recapitalization through leverage that took place from 1984 to 1988. It defines leverage through equity as a transaction of new debt for payment to shareholders. The results show that 31% of leveraged companies found themselves in financial difficulty. Other research has led to the conclusion that high leverage transactions failures are due to overpayments and poor financial structure. Surveys conducted in 1990 and 1991 indicate that recession and legal regulation are very important factors in the failure of companies. It was also concluded that firms in difficulty have similar characteristics, which are higher debt levels and low interest coverage. Companies in difficulty also require more money than those in difficulty. This leads to companies in difficulty having to sell an average of 6.3% of their assets compared to those that are not in difficulty requiring the sale of 3.6% of their assets. Companies in difficulty had to achieve major business improvements after agreeing with creditors. For example, they should have achieved an average increase in operating income of 41.8% relative to firms in difficulty (18.9%). The recession of 2008 and 2009 indicates that debt pressures affect cash flow, that is, its lack, because the re-generation of cash flow through the sale of assets takes place in poor conditions to achieve the optimal price of the assets from which the cash flow would be repaid. Newton (2009) points to a similar pattern when exploring recessions over the years. Bankruptcy was felt in 1991 and continued to decline until 1996. In the same year and 1997, the number of bankruptcies increased slightly. However, during 1998 the number of bankruptcy claims dropped to the lowest levels in 20 years. Economic growth continued for the next eight years. The lack of liquidity in 2007 caused a 44% increase in bankruptcies and a 40% increase in bankruptcies in 2008. According to research relied on by Newton (2009), the causes of financial difficulties are: - lack of good business planning - 78%, - Excessive optimism about required funds and sales - 71%, - not recognizing or ignoring weaknesses and not eliminating them - 70%, - insufficient and irrelevant business experience - 63%, - insufficient skills in managing and understanding the importance of cash flow - 82%, - under-capitalization - 79%, - sales at an inappropriate price - 77%, - insufficient marketing activities - 64%, - misunderstanding and ignoring the competition - 55%, - Excessive exposure to one customer - 47%, - inadequate job delegation - 58%, - employment of inadequate staff - 56%. Other research it relies on as causes: 1. 2. 3. 4. 5. 6. 7. 8. starting a business without clearly defined reasons, insufficient management skills, lack of capital, bad location, lack of planning, excessive business expansion, no internet access, or website, poor product quality. That is, to prevent financial difficulties, he states: - operating at a proven location, - tried / true product, - good management. Taking all of the above into account, Newton (2009) divides the causes into internal and external causes, which are shown in Table 2. Table 2 . Causes of business difficulties 1) Internal causes 2) over-financing with loans 3) inefficient management a) failure to adapt to market changes b) lack of operational control c) over-expansion d) inadequate sales e) inappropriate pricing f) inadequate management of receipts and expenditures g) Excessive spending and high operating costs, major changes in interest rates on longterm debt h) over-investment in fixed assets and inventory i) lack of working capital, including poor cash flow j) an imbalanced capital structure, an unenviable debt-to-equity ratio k) inadequate insurance coverage l) inadequate accounting methods m) uncontrolled and poor growth management n) Excessive risk exposure o) inactive management p) lack of management depth q) bureaucratic management r) an unbalanced strategic management team s) a passive board of directors t) lack of capital 4) Malpractice and fraud 5) other external causes a) change in competition b) government influence c) social change d) technological changes Source: author development by : Newton, GW, 2009. Bankruptcy and insolvency accounting. Seventh Edition hours Hoboken, New Jersey: John Wiley & Sons, Inc., p. 34-43. Failure to approve loans by companies may result in deafening of its debtors. This may cause the creditor company to be unable to pay its obligations to its own creditors, which may cause a domino effect. Manufacturers usually credit distributors to increase sales. In order for distributors to be able to repay debts to the manufacturer, they must credit customers. Buyers must offer lower and lower prices in order to use and hire their equipment and machinery. Accordingly, the credit chain is progressing and increasing. If only one link goes bankrupt, a serious problem arises for all links in the chain. Failure to establish adequate credit margins can also lead to a crisis. The answer to these potential problems would be to increase the exploration of borrowing options and, if possible, to prevent the sale on credit. Many companies believe that this would lower their sales volume even more than the cost of the loan. An unusual bankruptcy can cause serious financial problems for a company, and could be avoided by a more careful credit policy. Management's decision to approve loans without discrimination or conditions causes a serious risk to the financial stability of the company. Unusual credit losses can severely weaken a company's financial structure so that it is unable to continue operating. Similarly, high yields on bonds cause an increase in bankruptcies. Companies often end up in bankruptcy due to lack of managerial experience, skills, initiative. Indicators of companies' failure opportunities include management's failure to monitor technological change, lack of education and lack of experience in the business sector they deal with. Inefficient management is the cause of most business failures. This category also includes the lack of coordination of management in effective communication with experts. Given the high complexity and specialization of the business, complete alignment and cooperation becomes necessary. All management services must be integrated to maximize profitability. Research often shows that business failure could be avoided by appropriate effective managerial control. Today's environment can change in a very short time. Failure to adapt to technological advances in production can result in higher production costs compared to competitors. At the same time, companies may become overconfident and not overly concerned about manufacturing innovation. Likewise, companies should not ignore improving marketing strategies. Many companies concentrate marketing and production opportunities on the wrong product or the wrong product group because of inadequate cost information. An accounting-based costing system can help management choose the right product and / or product line and eliminate unprofitable ones. Businesses need to maximize profits by maximizing their engagement with the highest-earning products, rather than those that are most involved in sales volume. Most authors consider excessive expansion to be the number one cause of company failure. Over-expansion can be a strategic cause of failure through over- diversification in many unknown areas. After losing losses in diversified areas, large companies decide to focus on what they are best at. Complex business can become vulnerable to the business of small and specialized companies. If something goes wrong, knowledge of one's business becomes crucial. Excessive operational expansion exists in companies that have an internal growth problem. Many bankrupt companies have focused on increasing volume at the expense of margin and profitability. However, growth is a key goal for successful businesses that have the right managerial, financial and physical resources. Inadequate sales may be the result of poor location or inappropriate sales organization, poor promotion or inferior product or service. This may mean an inability to generate profits for a business to continue in business. Improper pricing refers to a price that does not cover production costs. Excessive operating costs result in high levels of coverage, which means that a company has to sell a relatively large number of products before it can make a profit. Inadequate working capital values are often the result of high short-term debt that has been used to invest in fixed assets. Lack of working capital often results in a deafness in the payment of liabilities to creditors. It also mentions an inappropriate dividend policy because the company runs out of cash that it gives to shareholders and thus results in cash outflows. An imbalanced capital structure indicates an unenviable debt-to-equity ratio. If the capital structure is dominated by bonds or similar debt securities, the firm's fixed expenditure will be high. This can be a positive thing if the company makes a profit on a sound basis. However, if a company runs into difficulties, this can reduce its cash flow. High leverage acquisitions may end up failing several years after the acquisition is complete, due to a lack of working capital and an imbalanced capital structure. Insufficient insurance coverage relates to losses resulting from force majeure such as natural disasters but also theft. If previous events occur and the company has not adequately protected its assets by securing it, it will incur significant losses. Unless the company has clear document retention procedures and accounting methods, management will make decisions based on the wrong information. Extremely large business growth also requires large amounts of cash, ie adequate cash flow management. The stated demands of society cannot be fulfilled in a short time. Under these conditions, meeting predefined requirements is often achieved at high costs. Poor management of interest costs, over-indebtedness and lack of support for sales and production result in inadequate use of resources and failure. Businesses that grow at steady rates are more likely to succeed than those that grow at very high growth rates. Excessive exposure to one client or a smaller group of clients may cause business difficulties if one of the clients goes bankrupt. Some authors believe that inactive management is a greater cause of financial distress than poor management. In other words, failure is caused more by inaction than by bad action. Symptoms of inactive management are incomprehensible and unfinished business plan or business strategy, lack of timely decisions, high rate of leaving the company by competent employees, limiting knowledge of their clients and market conditions, and inadequate delegation of authority. Lack of management depth is about reducing the number of managers. If companies reduce the number of managers, they may face a shortage of managers who have the appropriate knowledge, skills and experience at all levels of the organization. Too much bureaucratic management develops most often with mature companies. The signs of such management are: low criticism tolerance, business is safe and stable, not enterprising, limiting capacity to solve challenges and problems, old wisdom is passed on to younger management, forcing the way of thinking in an outdated way, relying on old ways to solve problems in new situations, actions are carried out without thinking of the consequences. Imbalanced strategic management is most commonly encountered in companies whose management consists of the type of personnel that is homogeneous. An example of this type of management structure is that of Chrysler in the 1970s, which consisted mostly of engineers. Turnover management specialists often point out that imbalanced management lacks a finance specialist. Lack of capital is an internal cause of financial difficulties and is explained in the analysis of the causes of financial difficulties in previous authors. Fraud is the cause of a small number of bankruptcy proceedings. The reasons for false bankruptcies are that many dishonest persons want to profit from the beneficial benefits of bankruptcy proceedings without fear of prosecution. There are some external reasons that cannot be influenced by a company. Current decisions that lead to failure are not the essential reason for failure. Companies often refuse to file for bankruptcy until they are forced by creditors. Banks can block a company account and settle debts from a company account. Normally, banks will not use this option until the company is financially in a very weak position. Changes in competition often cause failure and financial difficulty for successful companies whose competition comes from unforeseen sources. A good example is Wal-Mart, which has driven small businesses out of the market and when it introduced toys sales over the holidays, has taken over Toys R Us consumers . Governmental influence on business often occurs when business regulations, standards, and other business conditions change. Companies that are slow to adapt to changing business rules due to the nature of their business may find themselves in financial difficulty and even bankruptcy. Combining social change with competition changes can easily push companies into bankruptcy if the company does not adjust. For example, one of the social changes is the relaxed attire of business people, which has affected the manufacturers of suits that, if they did not adapt to these changes, could easily end up in bankruptcy. Technological changes often cause corporate bankruptcies due to the inefficiency of management in adapting and using them. The impact of technological change can often be controlled, but in some situations management may lose control and be unable to adapt to them. For example, sometimes technological changes do not improve products, but bring product substitutes into the market that are much more efficient, cost-effective and costeffective. Chandrashekar (2008) points out that the causes of financial difficulties are: Short-sighted management, Internal controls failed, Capital structure, Currency and interest rate shocks. Myopia management refers to the problem of the agent and the principal, that is, the agency problem. With this problem, management can benefit shareholders. In the literature, remuneration of the management of the stock package is considered as a solution to this problem. When management owns the shares of a company it manages, it begins to think like a shareholder, and the shareholder's goals and objectives begin to align. Proponents of behavioral management theory believe that some phenomena can be described using models in which agents are not completely rational. In the case of unsuccessful internal control, companies are considered to seek to avoid the discipline mechanism. Ownership changes in mergers and acquisitions generally add value to shareholders. Thus, some studies in America show that mergers and acquisitions are often the most successful shareholders of a listed company. In some countries, if the market is efficient, effective and developed, the market serves as one way of controlling where well-run companies will be rewarded and badly managed punished. However, the market is not efficient, effective and developed in all countries and market control is not fully possible. An example of a failed internal control of efficient, effective and developed markets is that of Enron. As Enron is an energy company, its operations depended on the movement of prices for energy commodities and products on the market. To protect its business against volatility in gas prices, Enron has begun to use derivatives or financial instruments whose values depend on one or more underlying variables. Because derivatives were used in large quantities, Enron became exposed to derivatives whose trading increased Enron's revenues . The aforementioned trading took place through the OTC derivatives market, which is largely unregulated, and accordingly Enron's trading became unregulated. By leveraging the unregulated market, Enron was able to hide the losses of speculative investing, the debts caused by the unprofitable business of its wholly owned companies, and to increase the value of the unprofitable companies. According to modern financial theory, companies that invest a lot often borrow in the short term to preserve financial flexibility and protect lenders from greater uncertainty in the future of business. Growing companies should use relatively low levels of debt to counteract the problem of underinvestment . Companies in the mature phase of a business whose value derives from the assets they own have a lower cost of bankruptcy. Such companies may have higher leverage ratios to avoid cash flow problems. Companies should avoid the combination of high operating leverage leading to high business risk and high financial leverage leading to high financial risk. Revenue growth is driven by good times due to the presence of fixed costs and debt, but profits will fall in bad times for the same reason due to interest payments on debt and other financial expenses. An example of currency shocks and interest rates is evident with steel companies in Asia. The listed companies operated with high leverage, their debt structure was also bad. When the domestic currency devalued, foreign currency debt rose. If the central bank wants to stabilize the currency, it can increase interest rates. This will adversely affect the profitability of the companies. Altman (2006) considers that one of the main reasons for financial difficulties is the inability of management. The reason is the lack of money, that is, poor cash management. In addition to these basic reasons and causes, the same author cites some other reasons for financial difficulties: chronically sensitive industries, deregulation of key sectors of the economy, high interest rates over a period of time, international competition, overcrowding of the industry, increased use of high leverage in business, high rate of entry of new businesses into the market over a period of time. The consequence of deregulation is the reduction of barriers to entry and exit in a particular sector of the economy. The opening of new companies is associated with optimistic expectations about the future, but the incidence of bankruptcy of start-ups is significant. 2.1.3. Eliminating financial difficulties It has been stated previously that companies are going through several levels of financial difficulty. In their early stages, companies have a wide range of decisions to make when dealing with financial difficulties. Ratner (2009) outlines some of the options for resolving financial difficulties: sale of part of the company, strategic merger or acquisition, attracting fresh capital, offer to replace debt with ownership, recapitalization, extension of debt maturity, exchange of debt for debt, debt for shares or debt for debt and shares. Unless the company eliminates financial difficulties, it will face bankruptcy and restructuring in bankruptcy or liquidation. 2.2. Bankruptcy Forecasting Techniques and Models Bankruptcy forecasting techniques and models most often involve calculating various financial ratios and using models based on them. When creating a model, the most common companies fall into two groups: successful and unsuccessful. Success and failure are defined differently, depending on the researcher. Some bankruptcy forecasting techniques and models require quantitative and others models qualitative elements. There are models that require a combination of the above elements. 2.2.1. Financial ratios In his work, Zopounidis (1998) points out authors who believe that financial ratios are good indicators for assessing companies that are at risk of bankruptcy. In his work Fitzpatrick (1932) concludes that the risk of failure is shown by the trend of the ratio: the share of net income in relation to the net worth of the company and the net worth of the company in relation to debt. In their research, Wilakor and Smith emphasize the importance of the ratio of: working capital to total assets. Merwin (1942) points out three important ratios that can be predicted for failure, analyzing them six years before failure: working capital in relation to total assets, net worth of society in relation to total debt, current assets in relation to current liabilities. Beaver (1966) points out the significance of the ratio: cash flow in relation to total debt, net income in relation to total assets, total debt in relation to total assets. Beaver's method has been criticized for not giving clear signals in predicting failed societies. 2.2.2. Discriminatory analysis "Discriminant analysis is a multivariable analytical method of data analysis. This method is used in a variety of research and includes the company and described vector X elements measure n independent variables x. For two populations (unsuccessful and healthy companies ), it is assumed that the independent variables are distributed within each group according to the multivariate normal distribution with different means, but with the same dispersion matrix . The aim of this method is to achieve a linear combination of independent variables that maximize inter-population variance relative to group variance. The method estimates d the discriminant function, which is the coefficient vector A ( a l , a 2 , ..., a 3 ) and the constant expression a o . " ( Zoupounidis , 1998: 9) The most famous discriminant analysis is Altman's Z- score . In bankruptcy prediction he used ratios. He sought to identify a number of ratios that best predicted bankruptcy. His research covered thirty-three bankrupt companies and thirty-three successful companies. The Altman model takes the following form: Z = (1,2X 1 ) + (1,4X 2 ) + (3,3X 3 ) + (0,66X 4 ) + (1,0X 5 ) where is X 1 = Working capital / Total assets Working Capital = Total Current Assets - Total Current Liabilities X 2 = Retained earnings / Total assets X 3 = EBIT / Total Assets EBIT - profit before interest and tax X 4 = Market value of principal / Book value of debt The carrying amount of debt is equal to the sum of current and non-current liabilities . X 5 = Sales / Total Assets The interpretation is as follows: Z value greater than 2.99 - Societies never fail, Z value below 1.81 - societies always fail, A z value between 2.99 and 1.81 is called the zone of ignorance or indeterminacy. Companies in this zone have an uncertain future. It is important to note that companies whose shares are not publicly traded are not suitable for valuation based on the original model because they do not have information for variable X4. To solve this problem, the model was re-evaluated: Z '= (0.711X 1 ) + (0.847X 2 ) + (3.107X 3 ) + (0.42X 4 ) + (0.988X 5 ) Where X 1 , X 2 , X 3 , and X 5 are the same as before and X 4 is defined as X 4 = Net worth (book value of principal) / Total liabilities The interpretation is as follows: Z value above 2.90 - Societies fail, Z below 1.23 - companies will end up bankrupt, Z value between 2.90 and 1.23 - zone of ignorance. Zopounidis (1998) points out in his paper that Eisenbeis (1977) defined seven major problems of Altman's Z value: 1. Violation of the assumption of normal distribution of the variable, 2. Using linear instead of quadratic discriminant function, when the groups of dispersion matrices are not equal, 3. Inadequate interpretation of the role of independent variables, 4. Dimensionality reduction , 5. Group definition, 6. Inappropriate choice of probability and / or inappropriate classification, 7. Problems in estimating classification error rates to evaluate model performance. This classification, while important, does not provide any assessment of the risk of society failure. Based on this idea, the next step in predicting failure was to use methods and models that are able to provide the probability of failure. 2.2.3. Linear probability model Gujarati (1988) detailed the linear probability model. The method assumes that the variable y that represents the affiliation of a company and in one of the specific groups, is a linear combination of n characteristics of the company. Transforming the probability of Pi of a failed society is: Pi = a 0 + a 1 x i1 + a 2 x i2 + a 3 x i3 +… + a n x in Where are they: a 0, a 1,…, a n estimated x i1, x i2,…, x in are n independent variables for society i Zoupounidis points out that the errors are heteroskedastic and their distribution is not normal. There is also a problem of interpretation in a way that predicts a probability value that lies beyond the interval (0-1 ). 2.2.5. Logit model The Logit model is useful for classifications when the dependent variable is binary in nature, that is, there are only two possible values - the company has no business problems (0) or has (1). In the logit model, the predicted values of the dependent variable will never be less than or equal to 0, or greater than or equal to 1, regardless of the value of the independent variables. (Novak, 2007: 45) Logit Model Expression : Y = e (b 0 + b 1 * x 1 +… + b n * x n ) / {1+ e (b 0 + b 1 * x 1 +… + b n * x n ) } Zoupounidis (1998) points out that the logit model has achieved significant results in determining successful and unsuccessful companies, and models have been developed in many countries. 2.3. Restructuring of companies There are several types of restructuring. Lopez (2014) believes that a company needs restructuring when faced with economic and financial difficulties. He finds it difficult for a company when it is unable to generate cash flow to fulfill its obligations to suppliers. For him, restructuring means making changes to make society liquid and profitable. Any restructuring of a company involves financial restructuring. Financial restructuring may not necessarily be related to refinancing. The aim of any restructuring is to introduce changes to generate free cash flow to meet liabilities and satisfy shareholder appetites. The restructuring process is a negotiation process, so it is necessary to understand the interests of all stakeholders. Lopez (2014) considers that a company is in difficulty when it is unable to settle its obligations to suppliers, that is, there is no free cash flow. Under free cash flow, the money generated by the operating business of a company is considered, and its calculation is shown in Table 3. Table 3 . Free Cash Flow Calculation Earnings before interest and taxes (EBIT) - Income taxes before interest and taxes (EBIT) = Earnings before interest and after taxes ( EBIaT ) + depreciation = Free Cash Flow (FCF) + - free cash flow (FCF) changes in operating working capital + - changes in free cash flow of fixed assets = total free cash flow (FCF) Source: Lopez Lubian, FJ, 2014. The Executive Guide to Corporate Restructuring. New York: Palgrave Macmillan., P. 6. From an economic point of view, it cannot be said that a company that generates free cash flow to settle its liabilities is sustainable. If the situation is as stated above, the shareholders of the said company will be at a loss because the company will spend money intended for them. The calculation of free cash flow to shareholders is shown in Table 4. Table 4 . From the free cash flow of the company to the free cash flow to shareholders Total Free Cash Flow (FCF) + - Depreciation of principal -Expenditure interest x (1-tax) = Free cash flow to shareholders Source: Lopez Lubian, FJ, 2014. The Executive Guide to Corporate Restructuring. New York: Palgrave Macmillan., P. 7. Accordingly, a company is viable if it generates free cash flow to settle obligations and to compensate shareholders for the expected return on their investment. It is important to distinguish economic profitability from accounting profitability. Accounting profitability is usually shown by return on equity (ROE), that is, the book's ratio of income to book equity. Economic profitability is determined by the real cash (cash flow) that shareholders receive from the company. Economic profitability is measured by the internal rate of return of free cash flow to shareholders, which means that it is the free cash flow remaining after all debt service obligations have been settled. A company can achieve very high rates of accounting profitability, but a very low rate of economic profitability. This is a result of the reduced cash flow from operating activities, which can be offset by an increase in borrowing. This is a sign of diminishing profitability and financial vulnerability of the company. If this situation is repeated continuously, it will lead to an inevitable restructuring of the company. Accordingly, restructuring involves the implementation of improvements in asset management and capital structure, not just a change in the terms of debt repayment and debt settlement. Lopez (2014) points out that restructuring is needed for two main reasons: 1. serious threat to liquidity arising already from a significant drop in revenue and / or due to a significant increase in costs that threaten the survival of the company and its ability to meet its operational and financial obligations and in the short term , 2. a severe decline in the market value of the firm's strategic assets, which in turn affects the collateral value of the assets. Restructuring is usually divided into financial and operational restructuring. Financial restructuring is an agreement on the future conditions for the settlement of obligations of the company in order to create conditions for sustaining the life of the company due to lack of funds. It is an agreement on how a company can generate cash flow and how it will be distributed to pay off creditors to avoid bankruptcy or liquidation depending on the level of business difficulties. Restructuring involves measures to optimize the scope of a company and generate its cash flow. Lopez (2014) considers the key features of restructuring to be: the restructuring process consists of reaching an agreement (private or legal or bankruptcy or bankruptcy), restructuring implies a special refinancing agreement in the face of business difficulties where financial tensions are present, the aim is to provide the company with a sustainable business and ensure continuity, only makes sense if the value of the debt is greater after the restructuring than the value of the company in liquidation, the assumption is that certain operational restructuring measures have been taken but have proved insufficient to generate the necessary cash flow to avoid financial difficulties. 2.3.1. Restructuring scenarios Restructuring scenarios depend on the financial situation of the company. If the company is not in difficulty, the restructuring procedure will be private and will simply be refinanced. If a company is in difficulty and opts for a private procedure, it will decide to restructure. When a company decides on a legal procedure, the result will be bankruptcy. The company can survive bankruptcy by restructuring in bankruptcy, it will have to reach agreements with creditors on the terms and manner of repayment of debt, or a repayment plan and bankruptcy plan will be drawn up. If the bankruptcy restructuring fails, liquidation will follow. Bankruptcy restructuring involves agreements with a large number of participants who have their own interests. It is about the distribution of the generated cash flow, that is, the manner and the order in which the company will fulfill its obligations towards the creditors. 2.3.2. Participants in the restructuring process The stakeholders in company restructuring are: employees whose interest is stability, shareholders whose interest is the value of the shares, creditors whose interest is the value of debt, customers interested in quality of service, distribution and other conditions, suppliers whose interest is the ability to meet company obligations, only a company whose interest is survival, the public whose interest is the restructuring process, especially if the company is of great importance to the economy. Table 5 shows the participants in the restructuring process and the ways of acting on individual participants in order to achieve the goal or improvement of cash flow in the short and medium term. Trading partners may be required to extend payment deadlines and write off debts, and clients agree to extend delivery times. Table 5 . Participants, action and goals Participants Action Objectives Extension of payment Trade partners deadlines, Debt relief Clients Extension of delivery time Employees Reduction of labor, Reducing or freezing wages Financial lenders Extension of loan repayment terms, Reduction of interest rates, Improving cash flow in the short and medium term Giving new loans, Capitalization Shareholders Recapitalization, Giving up the divdend Reduction of investments, Trading Company Reduction of operating costs, Modifying Strategic Business. Source: Lopez Lubian, FJ, 2014. The Executive Guide to Corporate Restructuring. New York: Palgrave Macmillan., P. 13. Employees can be influenced by reducing their workforce, reducing or freezing their pay. Financial lenders may be required to extend loan repayments, reduce interest rates, and provide new loans and capitalization. Shareholders may be required to recapitalize and withdraw dividends. A company can improve cash flow by reducing investment, reducing operating costs, and modifying strategic operations. 2.3.3. Stages of the restructuring process The main stages of the restructuring process are internal and external activities. Internal activities: identification of a liquidity problem: why the problem occurred, the extent of the problem, and when the problem occurred, preparation of an internal cash flow plan (short, medium and long term), negotiation strategies with credit institutions and groups of credit institutions, what the company offers and under what conditions, preliminary proposal to credit institutions. External activities: bilateral negotiations with credit institutions, coordination and negotiation with the governing board of credit institutions, identification of general and specific guarantees, legal review of contracts and clauses, storage of legal documentation and accounting information, final negotiation and signing of the agreement, monitoring execution. “It is very important to have a negotiated plan in order that takes into account the strength of individual creditors, starting with the strongest. For example, trading partners (creditors) can completely block operations and easily push a company into bankruptcy by claiming small amounts, which cause huge losses for financial creditors. Therefore, it is most important to require trade creditors to extend payment deadlines. The financial lender will usually allow, or even finance, the payment of the supplier in order to guarantee the operating business of the company, ie its continuity, as long as it is negotiated to maximize the likelihood of repayment of the debt it has borrowed. In the meantime, shareholders will try to limit payments to financial investors or even seek to continue diverting cash flow to new investments to protect the value of the unit. this conflict of interest can be resolved by placing financial creditors in the dual position of shareholder and lender. In this case, the value of the debt-to-equity swap will be discussed . It should be noted that not all creditors are in the same position. ”(Lopez, 2014: 15) The position of each creditor depends on: 1. 2. 3. 4. the amount of debt, collateral (guarantees) depending on whether the debt is secured or not, advantages, choices about the option to convert (debt convertibility). Table 6 shows the conflicts of interest of the negotiating parties. Credit institutions have an interest in business sustainability to repay debt and reduce business credit risk. Their conflicts of interest are reflected in their long-term vision and business continuity, and they conflict with the interests of shareholders and trading partners. Table 6 . Conflicts of interest of negotiating parties Participant Interest Sustainability, Credit institutions Shareholders The management team Debt repayment, Credit risk mitigation Growth, Stock trading, The future of society The future of society, Continuity, Position Conflict Long-term vision, Continuity, Shareholders, Trade partners Short-term vision, Credit risk, Financial lenders Tax Administration, Short-term sustainability, Profitability (shareholders), Financial lenders Source: Lopez Lubian, FJ, 2014. The Executive Guide to Corporate Restructuring. New York: Palgrave Macmillan., P. 17. The interest of the shareholders is to achieve growth of the company in order to make the trading of shares more attractive and to secure the future of the company. Their conflict relates to the short-term vision of the business, credit risk and is in conflict with financial lenders. The management team has an interest in achieving business continuity and thus the future of the company and maintaining their position. Their conflict relates to tax administration, short-term sustainability, profitability, or conflict with shareholders whose main interest is growth and with financial lenders. Secured creditors are less likely to relinquish their rights enshrined in financial agreements than a subordinated unsecured creditor. Creditors who are owed a relatively small amount and who are due in the near future may be in a stronger position even if the debts are not secured. The reason for this is the non-payment of obligations. This can cause significant losses for the secured creditors to whom the company owes larger sums, so it is common to see banks buy smaller debts or receivables from other creditors in order to gain control of the restructuring process. From a corporate perspective, it is important to conduct a detailed analysis of the default effect of any of its creditors in order to gain insight into the impact on the remaining creditors and shareholders in order to develop a successful negotiation plan. It can be concluded that it is an agreement on how a company can achieve the generation of a satisfactory amount of cash flow in both qualitative and quantitative terms. It is necessary to find answers to the questions: What is the composition of free cash flow, the manners and the estimated amount of cash flow, is sustainable over time, that will be distributed generated cash flow, which the company is sacrificed in order to achieve liquidity. It must be remembered that the reality of the plan is of the utmost importance so that negotiations do not collapse. 2.3.4. Advantages of corporate restructuring The benefits of corporate restructuring can be divided into groups of participants. 1. 2. 3. Benefits for management a. The financial structure is designed with the capacity of the company to be able to generate cash flow b. Liquidation was avoided c. Stability and eventually continuity was achieved d. Motivation for a new phase where priority will be given to generating cash flow and creating new value Benefits for credit institutions a. Greater ability to recover value derived from liquidations b. Ability to realize greater value than during liquidation c. Greater influence in the future while making decisions Shareholder benefits a. Eventual exit from the investment and minimizing reputational risk b. Avoiding investing in assets they no longer want to invest in c. Growth potential has been established 2.3.5. Operational restructuring The goal of any operational restructuring is to implement operational activities to generate and increase free cash flow. Free cash flow consists of three components and activities are related to: 1. 2. 3. increasing the free cash flow of day-to-day business, increasing the free cash flow of operating working capital, increasing cash flow through investment decisions. An increase in the cash flow of a day-to-day business involves fixed elements such as an increase in revenue and control of operating expenses, that is, a general decrease in operating expenses. Lopez (2014) highlights several operational restructuring activities: redefining the optimal size of society, outsourcing and capacity reduction, redefining the marketing strategy, operating lever change. "The most important activity is to determine the appropriate operating leverage of the business. Operating leverage reflects the extent to which fixed assets and related fixed costs are used in business. ”(Novak, 2002: 85) Operating leverage is important for the stability of free cash flow because increasing and decreasing revenue can significantly affect free cash flow depending on the structure of the operating leverage. For example, a company that has a small share of variable costs will benefit more from an increase in revenue and less benefit from a decrease in revenue. In contrast, a company that has a higher proportion of variable costs will benefit less from an increase in revenue and a greater benefit from a decrease in free cash flow. The increase in operating capital cash flow relates to: Minimizing current assets required for business, Managing the financial efficiency of the current assets needed. If a firm's sales increase in difficulty, financial managers will need to anticipate the additional funds needed to finance the sales increase. The calculation of the additional required funds starts from the known or assumed rate of increase of sales. Current assets that are variable in relation to sales and liabilities are assumed to have a constant relationship to sales. Profit margins and a portion of retained earnings are also assumed to be constant. The importance of calculating the additional resources required is that a company must learn to work with less assets. A company must be able to grow with less dependence on external resources, which is a major feature of a company in difficulty. Additional funds required are calculated by the formula. AFN = (As / S) ∆฀S + ( Af / S) ∆฀S - ( Ls / S) ∆฀S - M (1-d) S 1 where is : As / S = spontaneous assets as a percentage of sales Af / S = fixed assets requiring new investments as a percentage of sales Ls / S = spontaneous commitments as a percentage of sales ∆฀S = change in sales M = profit margin (1-d) = retained earnings rate S 1 = sales in the next period The sustainable growth rate should also be mentioned. A sustainable growth rate determines how quickly a company can grow without access to external funding. There are two assumptions about society's behavior at a sustainable growth rate: 1. 2. the company does not sell the new issue of shares, society does not want to change its capital structure. The first assumption reflects the reality of a company that has financial problems and that retained earnings are the only source of new capital. The second assumption implies that a company's financial liabilities grow so that its debt-toequity ratio does not change. A proportional increase in equity equals a proportional increase in debt. The new debt may be given by commercial creditors, existing credit institutions, or may be new debt. SGR = P x R x A x T where is : P = profit margin R = retained earnings rate A = asset turnover ratio T = assets divided by principal (principal at the beginning of the period) Profit margins and asset turnover ratios are operating ratios that show the effectiveness of a company, while retained earnings and assets divided by equity at the beginning of the period indicate financial choices. From the foregoing, if sales are to grow by more than SGR, the company must increase either operational efficiency or change financial choices. Furthermore, inbound and outbound accounts should be managed as a result of the company’s commercial policy. Each company needs to establish specific customer relationships, and these relationships can be: terms of sale, and nstruments and payment method. When discussing payment terms, the impact of managerial decisions on, for example, contracted maturity, discounted payment of prepayments and so on should be taken into account. The daily interest on the transaction, which is calculated as: Id = [1 / (P - C)] × [D / (1 - D)] Id = daily interest P = the agreed payment period in days D = discount offered C = cash advance payment period in days Improper discounting and payment maturity can allow financing of customers at the expense of a company, which is in no way of interest to a company in difficulty. Instruments and payment methods also have an impact on certain processing costs and on the maturity of the payment. Inventory management also has an impact on operating costs. It should be determined: the level of supplies required for smooth operation, the type of stock that you want to control, the cost of inventory that depends on ordering and handling the inventory, order size that is calculated through various simulation models. Operating cash flow is also affected by the investment of the company. Management should invest wisely in new investments. Lopez (2014) emphasizes the following: new investments should be accepted only if they are of the highest economic value, existing investments that do not deliver the expected return should be replaced by more profitable investments, unless there is a proper replacement of investments, the sale of the investment should continue. Management needs to decide how to finance current assets. This choice is considered one of the most important decisions of a company. The operational restructuring seeks to stabilize the business and achieve profitability through cost control and reduction of operating assets. It increases profitability by reducing direct costs and reducing overheads. Decrease in operating assets refers to the sale or closing of business units, the sale or connection of fixed assets representing surplus assets, and the reduction of current assets. Operational restructuring should create cash flow in the short term and improve profitability. Operational restructuring is necessary, but not sufficient for the recovery of the company, and financial restructuring must be carried out. 2.3.6. Financial restructuring Every company involved in the corporate restructuring process has a lot of problems to solve. To solve them, it is necessary to understand the nature of the problem. Most of the company’s problems come from an operational aspect, not a financial one. Before attempting to set up a permanent financial solution, the reason why the company does not generate enough cash flow must be identified and a realistic and viable business plan must be devised to solve critical problems, since financing operational inefficiencies is the best way to get into financial difficulties. (Lopez, 2014: 51) Financial restructuring refers to company debt related activities. If financial leverage is satisfactory, the company will achieve economic profitability. The first step of financial restructuring of a company is to determine the capacity of debt that a company can handle for smooth operation. According to Lopez (2014), debt capacity depends on the optimal balance of expected free cash flow, company efficiency and shareholder expectations. The higher the level of debt, the higher the expectations of the shareholders are related to the return on investment, as they will invest in riskier operations. Financial restructuring involves changing the capital structure of a company. The capital structure needs to be changed to ease the pressure of interest repayment and debt repayment. Financial restructuring is based on restructuring of equity and debt. The restructuring of the principal involves the reduction of dividends and the issue of shares. Debt restructuring involves reducing interest or principal, extending maturity and converting debt into equity. 2.3.7. Restructuring techniques According to Gaughan (2015), corporate restructuring can take several forms: 1. 2. 3. 4. 5. 6. 7. sale of a part of a company ( Diverstitures ) issue (Eng. Equity carve-outs ) means (Eng. Spin- offs ) separation (Eng. Split- offs ) exchange offer (Eng. Exchange offer ) breaking (Eng. Split- ups ) voluntary liquidation Selling a part of a company is like the name says selling a part of a company to an outside party. The selling company is usually paid out in cash, traded securities, or a combination of the foregoing. Issuance of shares (Eng. Equity carve-out ) is a type of selling part of the company (Eng. Diverstitures ) which includes the sale of shares in a subsidiary outside the party. A sale does not necessarily mean that the parent company loses control of the affiliate. The new shares give investors a proportionate shareholding in accordance with the shares purchased. In this form of corporate restructuring, a new legal entity (new legal entity) is created with a different ownership structure than it was in the previous company. The company sold has a different management team and is run as a separate company. At Spin Offs , a new entity is created. The merger involves the issue of new shares, but here they are issued to the shareholders on a pro rata basis. The result is the same ownership structure of the new legal entity and the previous legal entity. The difference between selling a part of a company and merging is: - although the shareholders are the same, the new company has its own management and is run as a separate company, - the sale of a part of a company involves the inflow of money into the parent company, while the merger does not involve the inflow of money into the parent company. In exchange offer (Eng. Exchange offer ) which is similar to the separation (Eng. Split- offs ) new shares are also issued and shareholders parent companies have the option to keep stocks parent company or exchange them for shares of the new company or new branches. In split ups , the whole of society is broken up into multiple spins . The result of this form of restructuring is that the parent company no longer exists. Shareholders in companies may be different as shareholders exchange their interests in the parent company for stakes in one or more units that arise. Voluntary liquidation is the most extreme form of corporate restructuring. It is most often associated with bankruptcy. The company will be liquidated in bankruptcy when all interested parties acknowledge that continuing the company in a reorganized form will not improve its value. Therefore, voluntary liquidation is performed if the value of the assets of the company significantly exceeds the value of the capital. The liquidation option is only used when the company's shares are at low levels for a long time and it is considered that the company's operations will not improve in the future. The difference between voluntary liquidation and sale of a part of a company is that when selling part of a company, one transaction is performed, while in case of voluntary liquidation, several transactions are performed in which all the assets of the company are sold in certain packages. Tax treatment in some countries may make liquidation more attractive than selling a part of society. 2.4. Bankruptcy Law When a company faces bankruptcy, stakeholders become involved in this process. Therefore, a good legal framework is required in dealing with bankruptcies. 2.4.1. The tasks and objectives of bankruptcy law Bankruptcy law must fulfill multiple tasks and goals. Finch (2009) considers the key tasks that bankruptcy law must fulfill: establish rules governing the distribution of assets of an insolvent company, including rules governing the availability of funds to creditors, ensure the management of the company in times of crisis, facilitate the recovery of society in times of financial crisis and encourage the rehabilitation of companies and companies in bankruptcy, align the interests of different groups and protect the interests of the public and employees in the face of financial failure, to encourage good corporate governance by imposing sanctions on those responsible for financial ruin where the result of the abuse is stated, and to allow for unhindered investigations into the causes of company bankruptcy, to liquidate societies when necessary. Likewise, bankruptcy law faces many challenges. There are three major challenges: 1. bankruptcy law should take bankruptcy into account as a whole process, 2. clarity in setting the general objectives of the bankruptcy law, 3. develop a bankruptcy law that is aligned with changes in the business environment. The first challenge is how bankruptcy law must not only be a set of rules, but must encompass a system of institutions, rules, procedures, processes and implementation of practical effects. This implies an awareness of the implications and impact of firm resilience, as well as credit and employment relationships. The second challenge is to strike a balance between different conflicting interests. The third challenge relates to adjusting to changing market conditions, with an emphasis on the dynamics of the credit market. The same author points out the goals of a good bankruptcy law. Goals of a Good Bankruptcy Law According to Finch (2009): to support the credit system, diagnose and treat inevitable insolvency early, rather than in later stages, prevent conflicts between individual creditors, determine the assets of the insolvent debtor in order to satisfy creditors in a timely manner with minimal delay and expense, distribute the proceeds of the sale of the property evenly and fairly to the creditors and return any surplus to the debtor, ensure that the bankruptcy process is conducted fairly and competently, identify the causes of insolvency failure and, if justified, be punished by appropriate offender measures. Establish an inquiry procedure to discourage the unwanted conduct of creditors and debtors. Encourage debt settlement and maintain business standards and business morale. Maintain confidence in bankruptcy law. Enable effective discovery of assets hidden from creditors and determine the validity of creditors' claims, identify and safeguard the interests of not only insolvent companies and their creditors, but also the interests of others, such as shareholders and employees, but also of the bankrupt subsidiaries that depend on the company. Preserve sustainable companies capable of contributing to the national economy. From the above it is evident that bankruptcy law should fulfill the demanding tasks and goals that are set before it, as there are various interests that are often conflicting. 2.4.2. Bankruptcy cost Bankruptcy costs have several dimensions. The cost of bankruptcy of small companies mostly exhausts the rest of the value of the company and after the bankruptcy it ends up in liquidation. The cost of bankruptcy of large companies is worrying. Specifically, a large number of professionals are engaged in solving complex problems. For example, the fees paid to advisors in the bankruptcy of Enron are estimated at $ 1 billion. Altman (2006) states that aggravating circumstances for bankruptcy are not only conflicting creditors' relationships, but also the burden of court decisions affect bankruptcy proceedings. If the cost of bankruptcy is significant, optimally lower leverage should be used. Bankruptcy costs can be divided into: indirect costs of bankruptcy direct bankruptcy costs Indirect bankruptcy costs include a wide range of opportunity costs such as: lost or reduced sales due to various creditors' requests for terms of business, higher operating costs, higher costs due to poorer supplier business conditions, loss of key employees. Direct costs are visible and most often include expenditures for: lawyers, turn specialists, accountants, restructuring advisers, other professionals. Chandrashekar ( 2008) states that the cost of bankruptcy is very difficult to calculate, but can be calculated using the following formula: Expected Bankruptcy Cost = Probability of Bankruptcy x Bankruptcy Cost Table 7 shows the cost of bankruptcy research. Weiss investigated direct bankruptcy costs in a sample of 37 bankruptcy cases with an average pre-bankruptcy property value of $ 230 million. The aforementioned survey referred to the period 1980 to 1986 and the estimated cost of bankruptcy averaged 3.1% of the value of the company, while the median was 2.6% of the value of the company. Tashijan Lease and McConell sampled 39 companies with an average book value of $ 570 million and conducted the survey from 1986 to 1993. The estimated cost of bankruptcy was, on average, 1.85% of the book value of the company and the median was 1.45%. Warner researched a sample of 11 railroad companies in bankruptcy with an average market value of $ 50 million. The aforementioned survey concerned the period from 1933 to 1955 and the estimated cost of bankruptcy was 4% of the average market value the year before the bankruptcy. Lubben researched on a sample of $ 50 million median asset companies. The survey referred to 1994, with an estimated cost of an average of 1.8% of total assets at the beginning of the proceedings, with a median of 0.9%. Altman researched indirect costs on a sample of 19 bankruptcy cases from 1974 to 1978, and the estimated costs were 10.5% of the company's value calculated before the bankruptcy was initiated. Andrade and Kaplan sampled 31 transactions using high leverage that ended in the bankruptcy of the company from 1987 to 1992, with an estimated cost ranging from 10 to 20% of the company's value. Table 7 . Bankruptcy Cost Studies Research Sample taken for cost calculation Lubben (2000) Property Median 50 mil . $ Tashjian , Lease , & McConnell (1996) 39 companies average book value of assets Timed period 1994. Estimated cost The cost of professional fees averages 1.8% (median 0.9%) of total assets at the start of proceedings 1986-1993 570 mil . $ Average 1.85%, median 1.45% of book value 11 bankrupt Warner (1997) companies, estimated average market 1933-1955 4% of average market value the year before bankruptcy value $ 50 million Weiss (1990) 37 bankruptcy cases with an average asset value of 230 mil . $ before bankruptcy 1980-1986 Average 3.1%, median 2.6% of company value Indirect costs Altman (1984) Andrade & Kaplan (1998) Pulvino (1999) 19 bankruptcy cases 1974-1978 10.5% of company value calculated before bankruptcy is initiated 31 high leverage transactions that ended 1987-1992 10% -20% of company value in bankruptcy 27 U.S. Airlines 1978-1992 The prices achieved in the sale of the planes of the bankrupt companies were significantly lower than the nonbankrupt companies Source: Altman, EI, 2006. Corporate Financial Distress and Bankruptcy. Third Edition hours Hoboken, New Jersey: John Wiley & Sons, Inc., p. 96. A practical way of adjusting for bankruptcy risk would include an impact on capital rationalization, an impact on morale, efficiency and effectiveness of spending programs. 2.4.3. An example of a good bankruptcy law - Singapore Singapore is considered to have a well-regulated bankruptcy case. It is important to note that neither system is perfect and Singapore has improved bankruptcy law throughout history. Analyzing bankruptcy and laws in Singapore, Hajiri (2016) states that there are four formal regimes: 1. 2. 3. 4. liquidation, judicial management appointment of trustee (trustee) claim scheme Liquidation refers to the process in which the assets of the company are identified (listed) and sold in order to obtain liquid assets to repay the company's liabilities. If a surplus of funds is realized, the surplus funds are paid to the shareholders. As the name implies, the result of liquidation is the dissolution of society. Typical liquidation consists of the following steps: 1. the business of the company ceases (except for the period of listing the assets and determining their value), 2. sale of company assets, 3. settlement of obligations towards creditors of the company, 4. if the surplus from sale of assets and payment of creditors is realized, the remaining funds are paid to the shareholders, 5. liquidation of the company - deletion of the company from the court register. Judicial governance aims to save a company facing financial difficulties in order to achieve its goals. The Company, its directors or creditors may apply to bring the administration of justice. In doing so, the applicant must prove to the court that the company is insolvent. In order to achieve possible judicial management, at least one of the three intended objectives must be achieved. The goals are: 1. the survival of the whole society or its work, 2. approval of the arrangement scheme, 3. a more favorable realization of the sale of the assets of the company than would be achieved in the liquidation regime. For the purpose of achieving these objectives, a moratorium on the claim or enforcement of a creditor's payment is imposed. This will allow the company room to maneuver and will be given additional time for restructuring. The trustee or trustee may be appointed by the court or by the owner on the basis of the relevant security agreement. The above process takes place by requiring creditors holding debt securities to repay debt from the debtor. The role of the trustee is to determine the assets that are the subject of the debenture, to sell the said assets and to settle the debts owed to the creditors. If the trustee is also appointed as a manager, he or she will have the additional power to manage the business of the company. Once the trustee has fulfilled the objectives for which he was elected, he should be removed based on the authority of the competent court or by the owner if so appointed. It should be noted that this process can save a company from liquidation, but it may not. When a company finds itself in business difficulties and problems, it can be positive for creditors and debtors to re-establish mutual rights and obligations. A compromise would be very favorable to obtain the consent of all the injured parties. The claim agreement scheme, which was adopted on the basis of the required majority and the consent of the court, is binding on creditors and debtors. The majority required consists of 75% or ¾ of the creditor's claims or the creditor's votes. An agreement scheme is also available without judicial management. Schemes of agreements with and without judicial management differ in the required majority, where 75% of the majority is required, while in the case of non-judicial management, the said majority is not required. Similarly, a non-judicial management agreement scheme can be enjoyed by companies at the local level, while a judicial management agreement scheme must be provided by large companies and foreign companies. The characteristics of a good justice system and bankruptcy law are: recognize the importance of corporate insolvency and their impact on the economy, the process should have diverse outcomes, system should disable inappropriate transactions, the system should favor continuation of business and arrangements, there should be a rescue system with a variety of rescue tools, there should be a system of payments to creditors, the system should encourage honesty, entrepreneurship and provide the opportunity for rehabilitation, the system needs to be efficient or cost effective, the system should ensure independence in the conduct of bankruptcy, the system should also respect the cross-border insolvency of companies. Research shows that Singapore has an effective system of restructuring and bankruptcy enforcement. Experts believe that Singapore is a country that will continue to explore and improve bankruptcy law and will only continue to develop a strong restructuring and enforcement system. 3. Research description and research results The legal framework is important for regulating companies that find themselves in business difficulties that last for a long period of time. The legal framework should meet the objectives and tasks outlined in the previous chapter. Each country has a specific legal framework governing companies in business difficulties that have taken on a serious scale. Likewise, every company has certain characteristics or characteristics of a business. When it finds itself in an unenviable financial position, or when it becomes illiquid and / or insolvent, a company should make a restructuring plan, analyze its debt, and identify and generate the necessary cash flow to repay the debt. 3.1. Bankruptcy Regulation in the Republic of Croatia In the Republic of Croatia, bankruptcy proceedings are prescribed by the Bankruptcy Law. Bankruptcy proceedings are pending in commercial courts. In Croatia, the Bankruptcy Law has been amended several times, with the 2015 Law on Bankruptcy Law (OG 71/2015, 104/2017) currently in force. When it became public that the Agrokor Group was in significant financial difficulty, the Law on the Procedure of Extraordinary Management in Companies of Systemic Importance for the Republic of Croatia (NN, 32/2017) was adopted. Considering that the Agrokor Group is a company of systemic importance for the Republic of Croatia and regulates it in essential parts, the Law on the Procedure of Extraordinary Management in Companies of Systemic Importance for the Republic of Croatia. 3.1.1. Bankruptcy Law in the Republic of Croatia The new Bankruptcy Law has taken over the structure of the old Bankruptcy Code. According to the law, pre-bankruptcy proceedings are conducted in order to regulate the legal position of the debtor and its relation to creditors and to maintain its activity, while bankruptcy proceedings are conducted to collectively settle the creditors of the bankruptcy debtor, to realize his assets and to distribute the collected funds to creditors . Under Bankruptcy Law, a bankruptcy proceeding may be opened if the court determines that there is a threatening inability to pay. A threatening inability to pay exists if the proposer makes it probable that the debtor will not be able to fulfill his existing obligations when due. A threatening inability to pay shall be deemed to exist if, at the time of the submission of the proposal, circumstances have not arisen which make it considered that the debtor has become more permanently unable to pay and if: the debtor in the Register of payment order records maintained by the Financial Agency has one or more recorded outstanding payment bases which, on valid payment grounds, should have been collected from the debtor 's account without any further consent, or more than 30 days late with payment of a salary that belongs to an employee under an employment contract, rulebook, collective agreement or special regulation, or under another act governing the employer's obligations to the employee, or does not pay contributions and pay taxes within 30 days According to the Bankruptcy Act, with the hinge proceedings can be opened if the court in claiming the existence of bankruptcy reasons. Bankruptcy reasons are inability to pay and indebtedness. The debtor may propose to open bankruptcy proceedings even if he or she makes it probable that he / she will not be able to fulfill his / her existing obligations at maturity (threatening inability to pay). According to Bankruptcy Law, there is no inability to pay if the debtor is unable to meet his or her monetary obligations more permanently . The mere fact that the debtor has settled or is able to settle in full or in part the claims of some creditors does not mean that he is capable of payment. The debtor will be considered incompetent to pay: if, in the Register, the payment order maintained by the Financial Agency has one or more nonexecuted payment bases recorded over a period of more than 60 days, which, on valid payment grounds , should have been collected from any of its accounts without further consent of the debtor , if he has not paid three consecutive salaries which belong to the worker under the employment contract, rulebook, collective agreement or special regulation or other act regulating the employer's obligations towards the worker. According to Bankruptcy Law, indebtedness exists if the assets of the debtor of the legal entity are less than the existing liabilities. It was previously established that the Agrokor Group is a company of systemic importance for the Republic of Croatia and, after satisfying the conditions for opening pre-bankruptcy or bankruptcy proceedings, is regulated by the Law on the Procedure of Extraordinary Administration. 3.1.2. Law on the procedure of extraordinary administration in companies of systemic importance for the Republic of Croatia The Law on the Procedure of Extraordinary Management in Companies of Systemic Importance for the Republic of Croatia regulates companies that by their business, independently or together with their subsidiaries or affiliates, affect the overall economic, social and financial stability in the Republic of Croatia. The subject of this Law is regulation of measures of extraordinary administration for companies of systemic importance for the Republic of Croatia, competent bodies in the procedure of extraordinary administration and other issues in this regard. Accordingly, the relationship between debtors and creditors is regulated by the introduction of extraordinary administration while respecting the interests of other participants. Pursuant to the Law on the Procedure of Extraordinary Management in Companies of Systemic Importance for the Republic of Croatia, the procedure of extraordinary administration will apply to the debtor joint stock company and all its subsidiaries and affiliates if the existence of any of the bankruptcy reasons within the meaning of Article 5 of the Bankruptcy Law is established. or the pre-bankruptcy reason referred to in Article 4 of the Bankruptcy Law in respect of the debtor as a governing company and which a joint stock company is independently or jointly with its subsidiaries or affiliates of systemic importance to the Republic of Croatia . Article 4 of the Law on the Procedure of Extraordinary Management in Companies of Systemic Importance for the Republic of Croatia defines how a company is of systemic importance for the Republic of Croatia if, on its own or jointly with its subsidiaries or affiliates, it fulfills the cumulative conditions: 1. in the calendar year preceding the year in which the proposal to open the extraordinary administration procedure was submitted, alone or jointly with its subsidiaries or affiliates, employs more than 5,000 workers, 2. existing balance sheet liabilities, alone or together with their subsidiaries or affiliates, amount to more than HRK 7,500,000,000.00, or in the case of balance sheet liabilities denominated in another currency, if they amount to more than HRK 7,500,000,000.00, counting on the day of filing proposals for opening an extraordinary administration procedure. Affiliates and subsidiaries are also subject to a measure of extraordinary administration, even though they do not meet the requirements of Article 4. Affiliates and subsidiaries are those companies with their registered office in the Republic of Croatia established in accordance with the legislation, in which the company of systemic importance has at least 25% stake. In the proceedings of extraordinary administration, the Commercial Court in Zagreb has jurisdiction, regardless of the debtor's headquarters, and the procedure of extraordinary administration is urgent. No liquidation, pre-bankruptcy or bankruptcy proceedings are allowed during the administration. It should be noted that at any time, and at the request of the Associate Commissioner, and with the consent of the Creditors' Council, an extraordinary administration procedure can be converted into bankruptcy if there is no likelihood of establishing an economic equilibrium and continuing business on a more lasting basis. The competent authorities in the extraordinary administration procedure are: the court, the associate commissioner, the advisory body and the creditor council. The rights and duties of the competent authorities are shown in Table 8. The advisory body has five members, one of whom is a worker representative. Members of this body may be persons of good repute who have knowledge of finance and law with experience in managing companies for at least 10 years and have not been employees, members of the management or supervisory board of the debtor or its affiliates or subsidiaries for at least 10 years. Upon appointment of the members, the competent ministry shall inform the court and the associate commissioner thereof. The Board of Trustees consists of a maximum of 9 members and is composed of creditors' representatives. The creditors are appointed by the creditors. Believers are categorized into groups according to the same legal status. Table 8 . Rights and duties of the competent authorities in the procedure of extraordinary administration The court Associate Advisory body Board of Trustees Commissioner Takes all actions and makes all decisions It has the rights and obligations of the Gives opinions on decisions and actions It has the right to be informed about the not expressly given by law to another debtor authority, represents the debtor extraordinary commissioner to condition of the debtor and its authority , appoints Deputy Extraordinary individually and individually, be passed by majority the votes of the members present, affiliates and subsidiaries, Commissioners upon the proposal of the Government, authorized to recall and replace the Associate Commissioner, determines the number of creditors' council members and classifies creditors into groups. exercise all rights related to the debtor's ownership interest in affiliates and subsidiaries, acts conscientiously and neatly and carries out actions within deadlines, may have alternates , is obliged to submit monthly reports to the central government body, advisory body, it is obliged to submit its opinion to the Ministry and the court within 10 days of the request being submitted to the chairman of the advisory body, except in urgent cases when the deadline for submission of the opinion is three days. participates on behalf of the creditor in drawing up and preparing the settlement and gives the consent of the Associate Trustee to final settlement text. gives consent to the Associate Commissioner in making a decision for the purpose of disposal of court and creditor council on the the debtor's real estate, shares or economic and financial condition of the debtor and on the implementation of the interests in the dependent and other societies and the transfer of an measures, selects a restructuring economic entity if the value advisor exceeds 3.5 mil . Kn. Source: creation of authors according to the Law on the Procedure of Extraordinary Administration in Companies of Systemic Importance for the Republic of Croatia (NN, 32/2017) After initiating the procedure of extraordinary administration, the extraordinary commissioner shall draw up: 1. 2. 3. table of reported claims, a table of the various rights which are entered in the public books, exclusivity table. The Associate Commissioner will indicate in the tables below whether he acknowledges or disputes the claims claimed. Separate and exclusive rights are not subject to examination. If the Extraordinary Commissioner disputes the claim, the creditor's court will direct the litigation against the debtor to determine the impugned claim. The same will happen if any creditor disputes a claim acknowledged by the Associate Commissioner. If there is a writ of execution for the impugned claim, the court will direct the litigant to the litigant to prove the merits of his or her dispute . The costs of the extraordinary administration, which include the amount of the remuneration and reimbursement of the expenses of the extraordinary commissioner and his deputies and members of the advisory bodies, shall be borne by the debtor, and these costs shall be treated as an ordinary business expense. The remuneration of the extraordinary commissioner and his / her deputies may not exceed the average monthly remuneration received by the members of the debtor's administration in the last three months prior to the opening of the extraordinary administration procedure. It is important to note that the amount of these awards is decided by the head of the Ministry. The Extraordinary Commissioner may, with the consent of the Creditors' Council, take on new debt on behalf and for the account of the debtor in order to reduce systemic risk, continue operations, preserve assets, or to settle operating claims, which will take precedence over other claims. It is important to note that the claims of workers and former workers will take precedence when settling over new debt. Claims that have arisen prior to the decision to open the extraordinary administration procedure may be settled by the extraordinary commissioner only with the consent of the creditor council. Whereas, claims relating to the delivery of goods and the provision of services to the debtor are considered to be ordinary operating expenses. It is important to note that receivables from operating activities do not include receivables related to financial institutions and credit institutions, unless they are debt with the benefit of settlement. Within 12 months, the Associate Commissioner may, with the consent of the Creditors' Council, propose the settlement of the creditors by settlement. That period may be extended to an additional 3 months at the request of the Associate Commissioner. There are several settlement options. One of the settlement options is the transfer of part or all of the debtor's assets to one or more existing legal entities or newly established entities. Another option is to leave the borrower all or part of the property to continue the business. The company may be merged with another legal entity or merged with one or more legal entities. All or part of the debtor's assets can be sold or distributed. Debt payments may also be reduced or delayed. Also, a guarantee or other security may be taken to pay off the liabilities and the liability of the debtor after the settlement must be arranged. According to the Law on the Procedure of Extraordinary Administration in Companies of Systemic Importance for the Republic of Croatia, a settlement is deemed accepted if it was voted for by the majority of all creditors and if in each group the sum of claims of creditors who voted for settlement is greater than the sum of claims of creditors who voted. against accepting a settlement. Exceptionally, creditors will be deemed to have accepted the settlement if the total sum of claims of creditors who voted for the settlement is at least two-thirds of the total claims . The procedure of the extraordinary administration ends with the implementation of the settlement, with the decision to suspend the procedure of the extraordinary administration, within 15 months from the opening of the procedure of the extraordinary administration, if no settlement has been concluded within the relevant term. 3.2. Basic information and business characteristics of Agrokor Group before the extraordinary management process 3.2.1. Structure of Agrokor Group Ivica Todorić was a 100% owner of Agrokor projekti doo with headquarters in Croatia and Agrokor Investments BV headquartered in the Netherlands, while he holds a 0.76% ownership stake in Agrokor dd with headquarters in Croatia. Agrokor projekti doo was a wholly owned subsidiary of Adria Groupe BV based in the Netherlands. The said Dutch Group was a wholly owned subsidiary of Adria Group Holding BV, headquartered in the Netherlands. Adria Group Holding BV had 95.52% of shares in Agrokor dd , European Bank for Reconstruction and Development with 2.07%, other small shareholders with 1.64% and Ivica Todorić previously mentioned with a share of 0.76%. The Mercator dd business system is headquartered in Slovenia and was wholly owned by Mercator in Slovenia, Serbia, Montenegro, Macedonia. Retail and Wholesale Structure of Food and Beverages. The main companies are Konzum dd from Croatia, Projektogradnja doo, Kor Broker doo, Kron doo, Tisak dd, TPDC Sarajevo dd and Konzum doo Sarajevo. In the Food and Beverage industry, the major companies were Jamnica dd Croatia, Agrolaguna dd, Nova sloga ad ., PiK Vinkovci dd, Solana Pag dd, Belje dd and PiK Vrbovec dd Manufacture of food and beverage and other business activities. The main food and beverage companies were Zvijezda dd, Dijamant ad . and Ledo dd Other business operations include Agrokor trgovina dd, Agrokor AG, Agrokor Kft , Hunting Moslavina doo, M-profil SPV doo, mStard doo, Roto Investments doo, Vupik dd and INIT dd 3.2.2. Agrokor Group's performance indicators for the period 2007-2016 In order to better represent the Group's operations, liquidity, debt, activity, cost, profitability and profitability indicators have been analyzed and models for forecasting business difficulties based on the financial statements have been used. Chart 1 shows liquidity ratios. During the period under review, the current liquidity ratio is [1] was extremely low. It was 0.11 in 2007 and dropped to 0.06 the following year. It ranged from 0.06 to 0.08 until 2014, when Mercator was acquired and increased to 0.13. The last two years of 2015 and 2016 are 0.02. In the observed period, the Agrokor Group had very little available money to settle short-term liabilities. 0F 2,12 1,36 1,30 1,21 1,18 1,12 1,18 1,08 0,91 0,89 0,80 0,80 1,06 0,93 1,07 0,91 0,81 0,71 0,47 0,36 0,11 2007. 0,68 0,39 0,36 0,34 0,41 0,44 0,42 0,44 0,27 0,06 0,08 0,07 0,06 0,07 0,08 0,13 2008. 2009. 2010. 2011. 2012. 2013. 2014. 0,02 0,14 0,02 2015. 2016. Source: Creating authors according to consolidated and audited financial statements Chart 1 . Agrokor Group liquidity indicators for the period 2007 - 2016 Accelerated liquidity ratio [2] should be at least 1. During the observed period, the coefficient 1F was the highest in 2007 when it was 0.47. The coefficient declined slightly until 2012 with some deviations. Last but not least, in 2015 it was 0.27, and in the last observed years it dropped to 0.14. The Agrokor Group had a smaller amount of cash and receivables in the observed period than short-term liabilities. Liquidity Ratio [3] should be greater than 2. This coefficient recorded the highest values in 2012, 2013 and 2014, when it was 0.91 and 0.93, respectively. Last but not least, in 2015 it 2F dropped to 0.68 to reach 0.44 in 2016. The Agrokor Group had less current assets than current liabilities in the observed period. Financial Stability Ratio [4] should be less than 1. For the Agrokor Group during the period under review, the financial stability ratio is more than 1. It was the lowest in 2013 when it amounted to 1.06. The ratio rose to 1.30 in 2015 and stood at 2.12 in the last year due to negative equity of -14.53 billion . HRK. The Agrokor Group financed current and non-current assets from short-term sources. 3F -0,92 2007. 2008. 2009. -2,39 2010. 2011. 2012. -1,26 -1,05 2013. 2014. 2015. 2016. -1,99 -2,54 -2,67 -3,60 -7,95 -15,60 Source: Creating authors according to consolidated and audited financial statements Chart 2 . Net working capital movements in the period 2007 - 2016 (in billion HRK) Chart 2 shows the movement of net working capital [5] . During the period under review, the 4F net working capital of the Agrokor Group was negative. In the first year under review, it amounted to a negative 0.92 billion . HRK. The following year, it rose to a negative 3.60 billion . and started growing until 2013 when it amounted to -1.05 billion . HRK. In 2014, it dropped to -1.99 billion . HRK to 2015 amounted to -7.95 billion . HRK. The last year observed was -15.60 billion . HRK. Agrokor did not finance part of its current assets from long-term sources, which is necessary to maintain liquidity. The Agrokor Group financed itself from other sources during the period under review, as shown in Graph 3. Indebtedness ratio [6] in relation to the own financing ratio [7] in 2007 it 5F 6F was 72% versus 28%. This ratio grew slightly until 2012, when it stood at 83% versus 17%. In 2015, this ratio was 97% vs. 3%, and in 2016, its equity was negative 35%. 1,60 1,40 1,20 1,00 0,80 0,28 0,25 0,24 0,23 0,23 0,17 0,14 0,14 0,03 1,35 0,60 0,40 0,76 0,77 0,77 0,83 0,86 0,86 0,72 0,75 2007. 2008. 2009. 2010. 2011. 2012. 2013. 2014. 0,97 0,20 0,00 2015. -0,20 2016. -0,35 -0,40 -0,60 Source: Creating authors according to consolidated and audited financial statements Graph 3 . Debt ratio and own financing ratio for the period 2007 - 2016 Graph 4 shows that the Agrokor Group operated with high leverage and after the takeover of Mercator in 2014 the debt ratio increased very rapidly. 35,00 30,00 25,00 20,00 15,00 10,00 5,00 0,00 2007. 2008. 2009. 2010. 2011. 2012. 2013. 2014. 2015. 2016. -5,00 -10,00 Source: Creating authors according to consolidated and audited financial statements Graph 4 . Financing ratio and movement of interest expense coverage 2007 - 2016 Preferably, the funding ratio is [8] be as small as possible. During the reference period, the Agrokor Group had high amounts of this coefficient. From 2007 to 2011 it grew slightly. The ratio is 2012 high 5. The funding ratio is a very big 30.49 in 2015. Agrokor Group has a negative equity ratio of -3.87 in the last year. 7F Interest expenses were covered by gross profit 2.10 times in 2007. From that year the interest expense ratio is [9] declined to low 1.04 in 2014 and negative 0.18 in 2015 and -1.63 in 2016. In 2015, the Agrokor Group could not cover interest income from gross profit, and in 2016 this ratio deteriorated significantly. 8F 43,13 6,92 8,36 8,68 8,24 9,06 8,83 2007. 2008. 2009. 2010. 2011. 2012. 2013. 2014. -5,75 2015. -3,11 2016. -65,27 Source: Created by the author Chart 5 . Movement of indebtedness factors from 2007 to 2016 Chart 5 shows the movement of the debt factor [10] . The indebtedness factor of Agrokor Group was significantly high in the observed period. From 2007 to 2012, it ranged from 6.92 to 9.06. The following 2013, it rose sharply to 43.13. Due to negative retained earnings from 2014 to 2016, the indebtedness factor is negative. 9F 0,94 0,93 0,89 0,83 0,84 0,85 0,40 0,37 0,38 0,94 0,77 0,74 0,48 0,41 0,47 0,29 0,25 0,23 0,05 2007. 2008. 2009. 2010. 2011. 2012. 2013. 2014. 2015. 2016. -0,49 Source: Creating authors according to consolidated and audited financial statements Chart 6 . Movement of coverage levels from 2007 to 2016 Graph 6 shows the movement of the coverage degrees [11] . The coverage of fixed assets from 2007 to 2011 ranged from 0.89 to 0.85. It slightly improved from 2012 to 2014 from 0.93 to 0.94 to drop to 0.77 in 2015 and 0.47 in 2016. 10F The same trend was followed by the coverage of non-current assets with principal plus depreciation. This coefficient should be greater than 1. Agrokor groups in the observed period the highest degree of coverage II [12] it had in 2007, at 0.48. The downward trend continued and this coefficient was low 0.05 in 2015. Next up, 2016 was -0.49 due to a negative principal. 1F Charts 7 and 8 show turnover ratios. Turnover ratios for total assets [13] in the observed period 12F ranged from 1.21 in 2007 to 1.01 in 2011. A sharp decline in the turnover of total assets occurred in 2014 and this ratio was 0.70. The return of this coefficient to a value above 0.90 occurred in 2015 and 2016, respectively. 3,20 2,91 3,18 2,83 2,64 2,77 2,51 2,31 2,06 1,83 1,21 1,22 1,11 1,02 1,01 0,98 0,92 0,91 0,93 2015. 2016. 0,70 2007. 2008. 2009. 2010. 2011. 2012. 2013. 2014. Source: Creating authors according to consolidated and audited financial statements Graph 7 . Turnover ratios of total and current assets in the period 2007 - 2016 12,30 7,44 7,10 7,00 6,87 7,64 7,26 6,33 6,03 4,69 3,85 3,10 3,90 3,31 3,37 3,05 1,86 2008. 5,19 4,98 3,89 3,39 3,03 2,36 2007. 4,90 6,14 5,44 2009. 2010. 2011. 2,45 2,01 1,84 1,73 2012. 2013. 2014. 2015. 2016. Source: Creating authors according to consolidated and audited financial statements Graph 8 . Movement of trade receivables, inventories and trade payables ratios A similar trend is followed by current assets turnover ratios[14] , Claims [15] and stock [16] , 13F 14F and the supplier turnover ratio [17] . 16F 15F Table 9 . Days of tying up assets, inventories, collecting receivables and paying suppliers 2007. 2008. 2009. 2010. 2011. 2012. 2013. 2014. 2015 2016. Total Asset Bonding Days 303 300 330 359 362 373 396 521 400 391 Days of tying up current assets 126 114 129 138 146 158 178 199 132 115 Receivables binding days / Receivables collection time in days 53 49 52 51 50 61 70 67 48 30 Stock tying days 95 94 108 108 78 74 73 94 58 59 Payables payable to suppliers 118 110 121 196 155 182 198 Source: Creating authors according to consolidated and audited financial statements 211 149 119 Table 9 shows the days of binding [18] assets, inventories, accounts receivable and accounts payable. The Agrokor Group charged its claims over the observed period an average of 54 days, while paying its obligations to suppliers ranging from 110 to 211 days and an average of 156 days. The contract between the entrepreneurs can stipulate a deadline for fulfillment of the monetary obligation up to 60 days. Therefore, any contract whereby the seller or supplier approves the buyer for a longer payment period of 60 days is a credit agreement for the goods, because the seller actually credits the buyer in such a way (by granting a payment period of up to 360 days), but in the goods (or the service provided) , not monetary. 17F Business Economics [19] is shown in graph 9. The profitability of the Agrokor Group's operations was greater than 1 from 2007 to 2013 when it equals 1. For the last two observed years, the economy fell below 1 and in 2016 it was 0.78. A similar trend is followed by the economics of sales[20] , this economy alone drops below 1 in 2016 when it stands at 0.79. Cost of financing [21] was the lowest in 2011 and 2013 when it was 0.14. 18F 19F 20F 1,03 0,28 2011. 2012. 2013. 2014. 0,17 0,23 0,14 2010. 0,16 2009. 0,14 2008. 0,21 0,28 0,26 0,78 0,79 0,91 0,94 1,00 1,02 1,01 1,04 1,01 1,06 1,01 1,07 1,01 1,07 1,02 1,04 1,02 1,04 1,03 1,03 2007. 2015. 2016. Source: Creating authors according to consolidated and audited financial statements Graph 9 . Agrokor Group's Business Economy Analysis from 2007 to 2016 Chart 9 analyzes the profitability of the group. Net profit margin [22] ranged from 5% to 7% 21F from 2007 to 2014. In 2015 and 2016, it was negative due to negative net profit. The same trend is observed in the gross profit margin of [23] , the net return on assets of [24] and the gross return on assets. [25] 2F 24F 23F 2013. 2014. 2015. 2016. -17,43% -17,74% -16,28% -16,57% 2012. -1,76% -1,05% -1,60% -0,96% 6,45% 7,34% 4,52% 5,14% 2011. 6,81% 7,58% 6,27% 6,98% 2010. 6,38% 7,03% 6,24% 6,88% 4,74% 5,54% 5,24% 6,12% 2009. 5,56% 6,31% 5,60% 6,36% 4,83% 5,77% 5,88% 7,02% 2008. 4,12% 4,88% 4,19% 4,97% 4,77% 5,51% 5,75% 6,65% 2007. Source: Creating authors according to consolidated and audited financial statements Graph 10 . Profitability analysis of Agrokor Group from 2007 to 2016 (%) Graph 11 shows the movement of the principal's profitability[26] . The return on equity began 25F to be negative in 2014 when it was -3.14% and in 2015 it dropped significantly to 219.25%. Agrokor group had negative equity in 2016. 50,00% 0,00% 2007. 2008. 2009. 2010. 2011. 2012. 2013. 2014. 2015. -50,00% -100,00% -150,00% -200,00% -250,00% Source: Creating authors according to consolidated and audited financial statements Chart 11 . Return on equity (%) 3.2.3. Agrokor Group business performance analysis based on business prediction model The success of a company in terms of good business can be shown by calculating some models. For the purpose of the final paper, the models of Novak and Crnković (2007) were taken, whose work presents the results of research into the classification of business problems of the companies of the debtor banks. All models created showed a high degree of reliability in predicting the business problems of companies in business relations with the bank, which was confirmed in the control sample. Table 10 shows the Agrokor Group's performance against the three models[27], which was done according to the work of Novak and Crnković (2007) for the classification of bank debtors according to the level of business problems. 26F Table 10 . Agrokor Group performance under three models 2007. 2008. 2009. 2010. 2011. 2012. 2013. 2014. 2015 2016. model 141 society good company good company good company good company good company good company good company good company bad company bad company model 90 societies good company good company good company good company good company good company good company good company bad company bad company model 90 societies after MDS classification good company bad company good company good company good company good company good company good company bad company bad company Source: Creating authors according to consolidated and audited financial statements The table shows that the model of 90 companies after the MDS classification in 2008 classified the Agrokor group as a bad company. All three models ranked the Agrokor Group in the bad company group of 2015 and 2016. Because the models classified the Agrokor Group as a bad company, it meant that the Group would face bankruptcy in the near future. Graph 12 shows the results obtained by the logit model. The results of the logit model are the probabilities (0 to 1) that the company is successful (result closer to 1) or unsuccessful (result closer to 0). 1,00 0,90 0,80 0,70 0,60 0,50 0,40 0,30 0,20 0,10 0,00 2007. 2008. 2009. 2010. 2011. 2012. 2013. 2014. 2015. 2016. Source: Creating authors according to consolidated and audited financial statements Chart 12 . Navigating the results of a business performance model The results of the first two logit models show high values until 2013 when the results were above 0.50, which means that the Agrokor group was classified as a good company. The downward trend starts from 2013, reaching its lowest levels in 2015 and 2016. The results of the third logit model were low from 2008 to 2011 when they were below 0.50. The growth trend has been recorded from 2012 to 2014, and for the last two years the model results show that the Group has failed. It is important to note that the model results are based on financial statements. The 2015 and 2016 data can be said to be credible because they are subject to an independent auditor who has identified misstatements of the transactions in the financial statements. Therefore, there is an impact that the financial statements prior to 2015 do not present the Group's real and fair position and the model results of those years should be reserved. 3.3. Introduction of the extraordinary management and misstatement of the Agrokor Group's transactions in the financial statements of the previous period On April 7, 2017, the Management Board of Agrokor headed by the President of the Management Board submitted a request for the opening of an extraordinary administrative procedure in accordance with the Law on the Procedure of Extraordinary Management in Companies of Systemic Importance for the Republic of Croatia. On April 10, 2017, the Commercial Court in Zagreb issued a Decision initiating the procedure of extraordinary administration over Agrokor and its affiliated and controlled companies (a total of 77 companies in Croatia). The court appointed an associate commissioner for Agrokor to take over the duties of Agrokor's corporate bodies, including managing Agrokor. The Associate Commissioner resigned irrevocably on February 20, 2018 so as not to be an obstacle to reaching a settlement. On 28 February 2018, a new Associate Commissioner and his / her Deputy were appointed. The extraordinary administration, as stated in the previous chapter, prohibits the initiation of civil, enforcement and other proceedings for the duration and until the termination of the extraordinary administration. Claims made by creditors prior to the opening of the extraordinary administration are subject to filing and settlement. The rules of the extraordinary administration procedure regulate the payment of claims during the extraordinary administration. Following the appointment of the Associate Commissioner, it was found that the Agrokor Board did not maintain adequate standards of governance common to a company of this size, such as regular and documented board meetings. Following the identified irregularities of the business and suspected of certain unlawful acts, PricewaterhouseCoopers was hired by the outside management . An independent auditor's report provided a qualified opinion. (Independent Auditor's Report - PricewaterhouseCoopers , 2017) At the same time, significant uncertainty about the going concern is highlighted. It is pointed out that on 31.12.2016. The Group recorded a net loss of 11.05 billion . that short-term liabilities are greater than current assets of the Group and that total liabilities are significantly higher than total assets of the Company. During the period from 2010 to 2015, the Group stated in the accounting records but did not recognize in the financial statements certain transactions: Posting at the end of the period as at 31 December 2015 to cover borrowings in the amount of EUR 2.95 billion . (January 1, 2015: HRK 1.39 billion ), operating expenses and interest reported as at 31 December 2015 as receivables from owners in the amount of HRK 1.04 billion . (January 1, 2015: HRK 0.69 billion ), assets in the amount of HRK 1.00 billion . (2015: HRK 0.70 billion ) and a decrease in equity totaling HRK 0.90 billion . HRK . Incorrect classification of borrowings in equity of 0.99 billion . HRK at 31 December 2015 year (January 1, 2015 .: 1.29 billion . million) . With a decrease in capital totaling 0.90 billion . HRK. There is an incorrect classification of equity loans of 0.99 billion . and the classification of receivables for loans given in cash equivalents in the amount of HRK 2.08 billion is incorrect . HRK. The Agrokor Group did not take into account all relevant indicators when conducting the land impairment assessment. During 2016, the Group adjusted the amounts of non-current assets, revaluation reserves and deferred tax liabilities and losses for 2015. Some significant components have not been consolidated. The most significant nonconsolidated group is Adriatica.net, which was taken over in December 2015. Investments in this group are not consolidated, but are presented as other non-current financial assets. In 2014, the Group acquired a significant subsidiary of Mercator and the purchase price allocation recognizing the brand was completed in 2015, and the Group stated the brand in the period when the allocation was completed. A deferred tax liability related to the fair value of the brand has not been previously disclosed. In accordance with IFRS 'property , brand and deferred tax liability were to be reported in the period of acquisition. In 2015, the Group made certain impairments for which impairment indicators existed during the previous period: goodwill impairment in the amount of 27.04 mil . kuna, impairment of irregularly capitalized expenditures in the amount of 1.5 billion . kuna, impairment of the Kozmo brand in the amount of 0.15 mil . HRK. The Agrokor Group classified short-term and long-term loans as cash and cash equivalents in the amount of 0.46 mil . Although the above amounts did not meet the criteria of cash equivalents. In 2017, a detailed inventory analysis was conducted and it was determined that part of the inventory was overvalued, and the same situation was with short-term biological assets. Table 11 shows the reclassification of cash and cash equivalents. As at December 31, 2015, the Company classified long-term loans as “Cash and cash equivalents” even though those loans did not meet the criteria of cash equivalents as defined in IAS 7. Table 11 . Reclassification of cash and cash equivalents (in billion kuna) Error description Reclassification from cash and cash equivalents to longterm borrowings Reclassification from cash and cash equivalents to shortterm borrowings Total December 31, 2015 January 1, 2015 ( 0.46 ) ( 2.07 ) ( 2.07 ) ( 1.64 ) ( 2.09 ) Source: Agrokor Group Consolidated Annual Report for 2016 In accordance with IAS 17, d RusTV is corrected recognition of lease contracts which have been found to meet the definition of a finance lease, and is recognized by the related assets as the assets acquired and the related finance lease liabilities. It has been argued that the present value of minimum lease payments covers almost the entire fair value of rental property at the beginning of the lease. In previous periods, the Company did not recognize receivables / payables related to bills of lading due to incorrect application of the criteria for recognition of receivables . This resulted in increased receivables and payables. In the case of depreciation and impairment, the adjustments relate to: Impairment of goodwill for the acquisition of the Adriatica.net Group in the amount of 1.47 billion . HRK. Additional depreciation and additional interest expense due to the effect of recognizing a finance lease of 152 mil . and HRK 214 million in interest expense . The adjustment to the timing of recognition of excess fair value in excess of the purchase price for the acquisition of Mercator, previously reported by the Group as income from 2015, was adjusted by transferring the amount to the opening balance of retained earnings at 1 January 2015 in the amount of HRK 1.28 billion . HRK. The Company has classified bills of exchange as liabilities to suppliers, although part of these liabilities has financing characteristics. According to the previous report, according to the auditor's report, as a result of increased external competition which reduced the market share of retail and some negative trends in market prices in certain segments in which the Group is competitive, sales revenues decreased to HRK 42.5 billion from HRK 45.7 billion and pre-tax loss increased from HRK 3.2 billion (revised amount) to HRK 11.2 billion. The most significant reasons for the increased loss in 2016 were: 1. significant increase in operating expenses due to impairment of property, plant and equipment and intangible assets, 2. changes in the fair value of financial instruments and 3. recognition of previously reported business and financial expenses. Summarizing all of the above, transactions misrepresented are: HRK 2.9 billion of unrecorded loan commitments, HRK 2.3 billion of previously reported operating and financial expenses, HRK 2.1 billion of changes in items of cash and cash equivalents, HRK 1.0 billion of inadequate classification of loans as capital reserves, HRK 21.7 billion of equity impairment through various adjustments and operating result. The auditor highlights the identified accounting irregularities and potential illegal actions: concealment of loans / credits received, concealment of business expenses and interest expenses shown as claims against the owner, incorrect classification of assets and reserves, incorrect presentation of loans as equity, inadequate presentation of loans given as cash and cash equivalents. This resulted in an unsustainable level of indebtedness and insolvency, which led to the initiation of extraordinary administration proceedings. 3.4. Agrokor Group's operations in the extraordinary management process Following the takeover of the Agrokor Group by the Associate Trustee, a temporary creditor council has been formed to receive reports on the state of the Company and its affiliated and controlled entities and has the power to approve certain proposed transactions by the Associate Trustee. Following the announcement and confirmation of claims made before the start of the extraordinary administration, a permanent creditor council will be set up to participate in the preparation of the settlement proposal. The extraordinary administration was tasked with offering the possibility of settlement to creditors . The Provisional Creditors' Council is shown in Table 12. It consisted of small suppliers represented by the Cattle Breeding Craft, with claims less than HRK 100,000. Major suppliers were represented by Kraš prehrambena industrija dd whose claims amounted to more than HRK 100,000. The bondholders were represented by Knightehead Capital Management LLC, which represents the debtors issued by the debtor. The unsecured creditors were represented by Sberbank of Russia. Secured creditors were represented by Zagrebačka banka dd Table 12 . Composition of the Provisional Creditors' Council A group of creditors Small suppliers Great suppliers Bondholders Unsecured creditors Secured creditors Representative of the creditor group O brt Livestock breeding cattle KRAŠ Food Industry Inc. Knighthead Capital Management, LLC Sberbank of Russia Zagrebačka banka dd Condition Amount of claims <HRK 100,000 Amount of claims> HRK 100,000 Bondholders issued by the debtor Unsecured claims Claims secured Source: Decision St-1138 / 2017-8 The Board of Trustees consisted of five groups of creditors, and the method of selecting the composition of the creditors' council is shown in Figure 8: 1. Group A creditors whose claims are secured by a separate right. The existence of a distinct right, or a firm security such as real estate mortgages or a pledge of shares, differentiates the legal position of these creditors from all other groups and gives them additional rights when collecting. This group corresponds to the group of secured creditors in the Provisional Creditors' Council. 2. Group B creditors who are holders of debentures issued by the debtor and in whose favor guarantees have been issued and at least five debtors of affiliated and / or subsidiaries covered by the extraordinary management procedure. What distinguishes the claims of these creditors legally from the claims of creditors classified in other special groups are the listing of bonds in foreign regulated markets at issue; subject to foreign substantive law; a large number of end-holders and representation of end-holders in the exercise of rights through a guardian. Group B corresponds to a group of bondholders in the Provisional Creditors' Council. 3. GROUP C v is rovnice the claims that occurred before the opening of extraordinary administration, the benefit of which the guarantees / there is a relationship of co / there is a ratio of the regress indepted , in all cases with at least five with the debtor related and / or subsidiaries, and which are covered by the extraordinary administration procedure and who have participated in the financing of debtors with the benefit of settlement under the Oldest Loan Agreement up to EUR 1.060.000.000,00 as of 8 June 2017. The aforementioned creditors do not participate in this group with their claims under the Oldest Loan Agreement, but only with claims that arose prior to the opening of the Extraordinary Administrative Procedure. 4. GROUP D creditors in whose favor guarantees issued / there is a relationship of co / there is a relationship recourse indepted , in all these cases with at least five with the debtor-related and / or its subsidiaries, which are included in the process extraordinary administration and who did not participate in the financing of debtors with benefits of settlement under the Oldest Loan Agreement up to EUR 1,060,000,000.00 as of June 8, 2017. 5. GROUP E creditors (including suppliers) in favor of whom are not guarantees nor is the ratio of co- part relationship recourse indepted , in each case at least five related to the debtor and / or subsidiaries, a process covered by extraordinary administration. This brings together large and small groups of suppliers from the Provisional Creditors' Council, and includes other creditors who meet the above criteria. Table 13 shows the business characteristics of the Agrokor Group from April to June 2017. The first three monthly reports show that the company faced a reduced or complete suspension of delivery of goods or services. This led to production downtime and interruptions. The company could not pay the salaries. Efforts have been made to obtain credit in order to supply retail. Furthermore, efforts have been made to stabilize the business. New financing has been agreed. A Coordination Assembly was set up to establish proper corporate governance of the company. Operational cash flow management measures are being developed. New financing amounts are being withdrawn which improves liquidity and stabilizes the business. Some of the creditors do not agree to the new financing of the company. Key operating companies are being restructured to improve EBITDA and short-term liquidity. Table 13 . Business features from April to June 2017 Period Business characteristics application of the Law on Procedure of Extraordinary Administration - Unblocking of Accounts begins compromised trust of suppliers, partners and creditors - reduction and / or complete suspension of delivery of goods or services 04/2017. production delays and interruptions difficult payment of wages signed a loan agreement with 4 local banks in the amount of 80 mil . EUR - funds provided for retail supply (oldest receivable status) total liabilities of the company: 40 billion . HRK promo text about bills of exchange efforts to stabilize the business new financing ( Knightheed Capital Management (KPM) and Zagrebačka banka) new credit: 480 mil . Euros - bondholders led by the KPM Fund 05/2017. 50 mil . Euros - ZABA's competence ensuring the survival of the current business and covering the old debt in the amount of 150 mil . establishment of the Coordination Assembly developing operational cash flow management measures improving corporate governance improving business stabilization and liquidity amount of new financing withdrawn: 320 mil . euros loan refinancing 80 mil . euros total sum insured 800 mil . euros (07/07/2017) agreements with suppliers on 50 mil . euro of commodity credit 06/2017. Rejected requests by Sberbank of Russia to quash the interim creditor's decision on new financing investing in goods and supplies - reducing deficiencies restructuring of key operating companies implementing measures to improve EBTDA and short-term liquidity the deadline for filing claims Source: Creating Authors According to Monthly Reports Table 14 shows the business characteristics from July to September 2017. From July to September, Agrokor Group's business characteristics were low Retail Profitability with a strong seasonal character. Food has achieved solid profitability over the whole observed period, while Agriculture has improved its liquidity with different business results of the companies in this group. Obligations were paid to OPGs, small businesses and micro-suppliers that arose before the extraordinary administration process. The remaining debt was paid to the remaining suppliers in the amount of 40% of the total old debt. Drafting of a sustainability plan has begun. On the last observed month, the audit of the financial statements described above was completed. Table 14 . Business features from July to September 2017 Period Business characteristics business group Retail - low profitability (seasonal character) business group Food - solid profitability business group Agriculture - Improving Liquidity 07/2017. payment of debts owed to OPG, small businesses and micro suppliers - the claims of these suppliers that arose before the procedure were settled a series of court and enforcement proceedings were instituted against the company - Sberbank in Slovenia, Serbia and Montenegro payment of old debt to the remaining suppliers in the amount of 40% of the total old debt 08/2017. stabilizing the business of Konzum in Bosnia and Herzegovina initial drafts of the sustainability plan audit of financial statements completed the audit identified accounting irregularities and potential misconduct 09/2017. slight stabilization of Retail solid nutrition results different business results of Agriculture the progress of the draft sustainability plan Source: Creating Authors According to Monthly Reports Table 15 shows the characteristics of the business from October to December 2017. From October to December, the Group recorded an increase in EBITDA in the Retail Group, solid results in Nutrition and high yields in Agriculture, which had an impact on the growth of EBITDA. Sustainability plans for five Agrokor Group business segments are presented. The processing of reported claims has been completed. Extraordinary management has made efforts to grow operating profit rather than revenue growth. Reported claims have been made public and talks are underway to conclude a settlement. Table 15 . Business features from October to December 2017 Period Business characteristics EBITDA growth in Retail solid results Nutrition while optimizing our product portfolio EBITDA growth of Agriculture as a result of high yields of agricultural crops 10/2017. cost optimization and control Sustainability plans of five Agrokor business segments presented complete processing of reported claims The High Court of London recognizes the extraordinary administration procedure focus on achieving operating profit growth, not revenue Publication of reported claims on the e-bulletin board of the Commercial Court in Zagreb creditors reported 504 billion . a claim of which HRK 446.2 billion . of the debtor (guarantee). 11/2017. the total was acknowledged and disputed: 57.7 billion . HRK value of recognized claims: 41.2 billion . creditors with voting rights of 29.6 billion kuna . HRK receivables 16.5 billion was disputed . kuna receivables Talks begin to conclude a settlement relatively good Retail results cost restructuring successful in all companies except Velpro solid business results Nutrition best agricultural results so far a draft proposal for a settlement structure has been published 12/2017. complex structure of claims with which to enter into settlement: recognized debts to third parties exceed 5.5 billion . euros of which 4.5 billion . the euro relates to claims before the extraordinary administration procedure, and 1.1 billion . EUR on financing with the status of the oldest claim. Source: Creating Authors According to Monthly Reports Table 16 shows the business characteristics from January to March 2018. In January, the Zagreb Commercial Court issued a ruling on established and disputed claims. A total of HRK 41.45 billion was reported, of which HRK 16.43 billion was disputed by the Extraordinary Commissioner, while HRK 10.4 billion was disputed by the creditor. The impugned guarantees and co-payments amounted to HRK 101 billion . Table 16 . The characteristics of the business from January up to of March 2018 . years Period Business characteristics Court in Zagreb issued a ruling on the identified and disputed claims 41.45 billion . claims submitted, challenged by the Extraordinary 01/2018. Commissioner, HRK 16.43 billion , disputed by creditors against each other, HRK 10.4 billion . HRK, challenged guarantees and co-ownership by creditors 101 billion . HRK - Decision on the classification of creditors into 5 groups Retail and Wholesale recorded solid results Food recorded positive business results with significantly higher EBITD than planned 02/2018. Agriculture has recorded negative results the resignation of the Associate Commissioner and the arrival of the new Associate Commissioner and his / her Deputy positive shifts around acceptance of key settlement provisions reaching a principled agreement on all the essential and key structural elements of the settlement 03/2018. the main criterion for determining the settlement amount of individual claims - the EPM model ( Entity Priority Model) Extension of the extraordinary administration procedure by an additional 3 months p riznavanje disputed claims Sberbanka Source: Creating Authors According to Monthly Reports During February, Retail and Wholesale recorded solid results. Food recorded a significant increase in EBITD than planned, while Agriculture recorded negative results due to falling prices in the market. The extraordinary commissioner had resigned. This was done with the consent of the lenders who participated in the financing with the status of the oldest claim. There were also positive developments in the adoption of key provisions of the settlement. In March, a principled agreement was reached on all essential and key structural elements of the settlement. The main criterion for determining the settlement amount of individual claims was established - the EPM model, which was developed by international financial institutions and was used in the largest bankruptcy proceedings. The term of the extraordinary administration has been extended by an additional three months. The disputed claims of Sberbank were acknowledged on condition that all claims by Sberbank were withdrawn . 3.5. Costs of operations and extraordinary administration The operating costs of the Agrokor Group as well as of the non-core boards are important because these costs are ultimately borne by the creditors and are shown in Table 17. Table 17 . Agrokor's operating expenses in the extraordinary administration process Agrokor's operating expenses The total cost of salaries and rewards Commissioner’s Award Employees and work contracts Severance pay Advisor costs Legal Financial Restructuring Other Audit and tax services Overheads Material expenses Transportation costs Ongoing maintenance Other Amount Share 1.754.813,41 80.560.444,18 25.494.860,44 107.810.118,03 0.21% 9,86% 3,12% 13.19% 206.351.146,35 57.404.896,22 215.569.387,83 15.770.400,95 495.095.831,35 31.396.141,88 3.501.355,42 25,25% 7.03% 26,38% 1.93% 60,59% 3.84% 0.43% 7.391.345,90 0.90% 5.704.609,65 0.70% 11.422.497,05 1.40% 24.518.452,60 3.00% Insurance costs (from managerial responsibility) 26.688.089,66 3.27% Cost of new financing 62.506.173,02 7,65% Travel expenses / education 676.466,21 0.08% Other expenses 57.409.151,15 7.03% Depreciation 7,476,708.67 0.92% Total on 01/09/2018. 817.078.487,99 100.00% Source: Monthly report on the economic and financial situation and the implementation of extraordinary administration measures The largest share of costs was attributable to consultants' expenses, which amounted to HRK 495.09 million, which is 60.59% of total expenses. The largest expenses for advisers were for restructuring advisers (26.38%) and legal advisers (25.25%). The cost of salaries and awards accounted for 13.19% of the total cost, with the largest item being the trustee’s reward. New financing costs accounted for 7.65% of total costs, while other costs accounted for 7.03% of total costs. Assuming that the value of the group from the start of the extraordinary administration is HRK 25.64 billion, Agrokor's operating expenses under the extraordinary administration procedure represent 3.19% of the value of the group. 3.6. Debt analysis Debt analysis was performed on the basis of the audited consolidated report and receivables. ( PricewaterhouseCoopers Audit Financial Report ) 3.6.1. Debt analysis as of 31.12.2016. years Table 18 shows the loans to the Agrokor Group. Agrokor Group's total borrowings as of December 31, 2016 amounted to HRK 40.06 billion. Long-term debt amounted to HRK 27.09 billion or 67.62% share of total debt, while short-term borrowings amounted to HRK 12.97 billion or 32.38% share of total debt. Long-term borrowings accounted for the largest portion of bank loans in the amount of HRK 18.01 billion, followed by bonds in the amount of HRK 6.83 billion. Short-term borrowings consisted primarily of non-bank loans of HRK 6.15 billion, while bonds amounted to HRK 2.79 billion. Table 18 . Borrowings Agrokor Group in 2016 in billion . HRK Long-term borrowings Bank lending Bonds Non-bank loans Financial leases Total Current maturity of long-term borrowings Bank lending Non-bank loans Financial leases Total current maturity of long-term borrowings Long-term debt Short - term borrowings Bank lending Bonds Non-bank loans Financial leases Total Total rental Source: Agrokor Group Consolidated Annual Report for 2016 18.01 6.83 0.44 3.42 28.7 -1.25 -0.11 -0.25 -1.61 27.09 1.6 2.79 6.15 2.43 12,97 40.06 Of the long-term borrowings of banks and bonds, HRK 2.35 billion is due in 2018. The highest amount is due in 2019 of HRK 7.39 billion. Over the next two years, the amount due is just over HRK 6 billion. The last two observed years amounted to HRK 1.44 and 0.13 billion, as shown in Table 19. Table 19 . Long-term bank borrowings and bonds to maturity in billion . HRK Maturity 2018. 2019 2020. 2021 2022 2023 and beyond Total 2,35 7.39 6,24 6.04 1.44 0.13 23.59 Source: Agrokor Group Consolidated Annual Report for 2016 The group borrowed most in euros, followed by US dollars, Swiss francs and kuna, as can be seen from Table 20. Table 20 . Currency structure of long-term borrowings from banks in billion . HRK Maturity EUR USD CHF HRK 2018. 2.3 0.006 0.014 2019 7.34 0.006 0.014 2020. 4.02 0.006 0.009 2021 6.15 0.006 0.009 2022 1,42 0.009 0.109 0.015 2023 and beyond 2.14 Source: Agrokor Group Consolidated Annual Report for 2016 The Group financed itself through a combination of fixed interest rate instruments and floating rate loans . Variable interest rates are generally directly linked to EURIBOR. Coupons / interest rates range between 3% and 10% per year Agrokor's debt refers to the "restricted" Group and consists of two Senior Bonds and other bilateral credit arrangements. The 2019 Senior Bonds were issued at face value in the total amount of EUR 300 million. They mature on May 1, 2019 at an interest rate of 9.875% per annum. Eurobonds maturing in 2020 were issued at face value in the total amount of EUR 325 million. They mature on February 1, 2020 at an interest rate of 9.125% per annum. Dollardenominated bonds mature on February 1, 2020 at an interest rate of 8.875% per annum. Agrokor has refinanced extending EUR 840 million of existing debt to approximately two to three years. Refinanced bilateral loans consist of two club loans with BNP Paribas , Credit Suisse AG, a London subsidiary, Goldman Sachs International Bank, JP Morgan Securities plc each in the amount of EUR 100 million, one due on September 14, 2018 and the other September 14, 2019. For both loans, interest was set, consisting of EURIBOR plus a margin of 5.00%. A loan of EUR 600 million from Sberbank Russia and Sberbank Europe AG and a loan of EUR 350 million from Sberbank Russia, the first of which is due on September 14, 2023 , with interest consisting of EURIBOR plus a margin of 5.30%. and the second is due on September 14, 2022 at a fixed interest rate of 6.00%. The EUR 50 million loan from Sberbank Europe AG is due on September 14, 2018 with interest consisting of EURIBOR plus a 5.00% margin . A loan of EUR 360 million from VTB Bank Austria AG, of which EUR 50 million is due on 14 September 2018 with interest comprising EURIBOR plus a 5.00% margin, EUR 250 million is due on 14 September 2019. with interest comprising EURIBOR plus a margin of 5.00% and EUR 60 million due on 21 June 2020 with interest comprising EURIBOR plus a margin of 3.62%. Agrokor's debt related to the " restricted " Group also consists of other loans to domestic and international institutions with fixed and variable interest rates, the most significant of which is a loan of EUR 130 million from Adris Grupa dd, due on December 31, 2017. at an interest rate of 4.00%, a loan of EUR 50 million at Zagrebačka banka dd, due on 17 April 2017, with interest consisting of EURIBOR plus a margin of 4.75%, a loan of EUR 50 million from Aquarius due on August 8, 2017 with interest consisting of EURIBOR plus a margin of 5.50%, a loan of € 50 million from Tvornica duhana Rovinj dd maturing on November 30 , 2021 at an interest rate of 2.50%. Other smaller loans mature between 2017 and 2028 at interest rates between 3% and 10% per annum. Table 21 shows the trade payables. Liabilities to domestic suppliers amounted to HRK 8.14 billion or 76.78% of total liabilities. Liabilities to suppliers abroad amounted to HRK 1.27 billion or 11.98% of total liabilities. Commodity loans accounted for 4.62% of total liabilities, while bills of exchange amounted to HRK 0.54 billion or 5.09%. The Group issued bills of exchange as a means of paying trade payables for the goods and products received. Agrokor is also accept promissory notes as a means of payment from customers, thus closing their claims against customers for the sale of goods and products. The bills received were recourse and provided a guarantee in the event that the factoring companies failed to collect from the customer. In the case of activation of recourse, liability charge the bill is passed on to the Group, and the group is then exercised the right to claim for unpaid bills to the original issuer of the bill. Table 21 . Accounts payable billion . HRK 2016. Liabilities to suppliers in the country Liabilities to suppliers abroad Obligations for non-invoiced goods received Commodity loans Other obligations Bills payable Total % 8.14 1,27 0.12 0.49 0.042 0.54 10,602 th most common 76,78% 11,98% 1,13% 4,62% 0.40% 5.09% 100.00% Source: Agrokor Group Consolidated Annual Report for 2016 Liabilities for discounted promissory notes as of 31.12.2016. amounted to HRK 1.46 billion, while recourse to discounted bills of exchange amounted to HRK 0.26 billion, which totaled HRK 1.72 billion. 3.6.2. Debt and claims analysis during the Extraordinary Administrative Procedure During the extraordinary administration procedure, on 9 June 2017, a financial arrangement of EUR 1.160 million with the oldest receivable status was approved. The allocation of the financial arrangement is shown in Table 22. Table 22 . Financing arrangement as of June 9, 2017 in millions of euros Term loan Existing interbank creditors Existing creditors with priority of collection Existing Croatian domestic banks Ad hoc committee members For the domestic market An optional loan to trade creditors Amount available to pay claims before proceeding Total financing 480 170 80 80 150 480 50 150 1,06 41,38% 41,38% 4,31% 12,93% 100.00% Source: Monthly report on the economic and financial situation and the implementation of extraordinary administration measures The term loan amounted to EUR 480 million. Of this amount, existing interbank creditors went to EUR 170 million, existing creditors with a priority of collection of EUR 80 million, to existing domestic banks EUR 80 million and to members of the ad hoc committee EUR 150 million. The amount of EUR 480 million was earmarked for the domestic market. An option loan of EUR 50 million was available to trade creditors. While the amount available to pay claims before the proceedings was € 150 million. Maturity is due to the occurrence of one of three circumstances: after the expiration of a period of 15 months from the commencement of proceedings initiated in accordance with the Law on the Procedure of Extraordinary Administration (April 10, 2017), court settlement in accordance with the Law on Procedure of Extraordinary Administration, by opening bankruptcy proceedings. By successfully concluding the Extraordinary Administrative Procedure Act and with a mutually agreed settlement agreed by the lender, the company will be able to extend the arrangement for two years with Euribor + 6%. Guarantors are material companies. Insurance: significant tangible and intangible assets of Agrokor and all guarantors, inter-company loans created by further lending, an additional EUR 390 million of unburdened insurance assets, including but not limited to real estate, business premises and factories, any other collateral that the new loan lenders agree on with the company, and any asset must be a post-financing condition. Compulsory repayment from sale: debtors are required to pay 90% of the net proceeds of the sale of the property in excess of five (5) million euros to repay the new loan (nominal value plus accrued liability). Debtors may retain sales income as current capital when approved by lenders. Best Guarantee Guarantee: New loan lenders will have a relative (pro rata) advantage in any collateral, guarantee or similar arrangement offered with respect to the financial borrowing of any Group 17 affiliate or subsidiary, except in the case of full refinancing resulting in early repayment debts A trading loan of EUR 50 million received 305 indicative applications. Allocation of these funds focused on qualified suppliers who have a high turnover of goods. EUR 150 million is planned to settle claims before the proceedings. The said tranche was settled into the three groups shown in Table 23. Group A or small suppliers are fully settled. Group B, ie all suppliers except small suppliers in Group A, are split into two tranches. The first tranche will be a proportionate payment to all suppliers who have old debt. The second tranche will be a proportionate payment to suppliers who have old debt and have reported their claims and have signed a commercial repayment agreement common in the past. 80% of the old Tranche 2 debt in the week beginning December 28, 2017 has been settled and the remaining 20% will be settled by 31/03/2018. On April 14, 2017, a promo was signed on bills of exchange. Creditors, that is, financial institutions that have acceded, will not take enforced collection action for recourse bills, subject to the conclusion of a bilateral legal transaction between creditors and suppliers. The promotion was signed by 16 financial institutions that own 73% of total debt and 99.37% of factoring companies and 72 business partners, representing 41.11% of total bills of exchange. Table 23 . Claims groups prior to the extraordinary administration process The group Group A Amount ( EUR million) Conditions / purpose Designated funds for micro-suppliers, who are defined as family farms (OPG), small businesses to 30 and mikrodobavljači with an annual income of less than 5.2 million, assets of up to 2.6 million kunas and up to 10 employees Group B These funds are open to all suppliers (except microsuppliers in Group A). Suppliers must confirm that 110 to 120 they will return to past and / or industry standard shipping conditions to qualify Tranche 1 Proportional payment of all suppliers who have old 27,4 debt and who have reported their claims in the extraordinary administration process Tranche 2 R azmjerno pay suppliers who have old debt and who have reported their claims in the process of extraordinary administration and agreed to sign a 56,4 contract with a company from the group Agrokor that the future return on commercial terms and conditions common in the past Group C Status 100% 100% 80% of old debt 20% done by 03/31/2018. Funds available at the discretionary discretion of suppliers prior to the start of the extraordinary to 10 management process in accordance with identified business needs. Source: Monthly report on the economic and financial situation and the implementation of extraordinary administration measures Amount of claim examined and recognized by the Associate Commissioner in the amount of HRK 43,300,548,178.00 . The Zagreb Commercial Court rendered a Decision on established and disputed claims from January 15, 2018, and in April the claims were supplemented. The structure of reported claims is shown in Table 24. Subsidiaries or affiliates were accounted for by HRK 11.58 billion, representing 26.74% of established claims. Group A accounted for a total of HRK 7.29 billion, or 16.85%. Group C participated with HRK 3.90 billion or 9.00%, while Group D participated with 26.47% or HRK 11.46 billion. Group E accounted for 20.94% or HRK 9.07 billion in total receivables. Group B was empty because the claims of the bondholders were disputed (they were recognized by the extraordinary commissioner, but disputed by other creditors, ie the Adris group). Adris Group is challenged by claims of creditors who participate in the roll- up loan of 8 June 2017 in so far as they reported claims settled roll- hopes . Table 24 . Structure of reported claims (in HRK billion) Amount of established claim Amount Share (%) Subsidiary or Group Group Group Group Group affiliated A B C D E company 43 , 3 11 , 58 7 , 29 0.00 3 , 90 11 , 46 9,07 100.00% 26,74% 16,85% 0.00% 9,00% 26,47% 20,94% Source: author's creation Table 25 analyzes the structure of Group A. by debtors. Group A consisted of 76 reported claims, and the largest debtor in the said group was Konzum dd with a claim amount of approximately HRK 3.9 billion, or a share of 53.43% in claims of group A. The second largest debtor of group A was Agrokor dd with HRK 2.05 billion or 28.10% in the total claims of this group. The third largest debtor was Hoteli Živogošće dd with an amount of HRK 304.88 million, ie a share in Group A claims of 4.18%. Table 25 . Structure of group A debtors' claims (in kuna) R.No. 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. Debtor KONZUM DD AGROKOR DD HOTELS ZIVOGOSCE DD ENERGIJA GRADEC doo PIK VRBOVEC DD JAMNICA DD ZVIJEZDA DD AGROKOR TRADE LTD HOTELS KOLOČEP DD BELJE DD DARDA PROJEKTGRADNJ A DOO LEDO DD VINKA DD JOLLY PROJECTS ONE LTD BELJE DD DARDA TERRA ARGENTA DOO Amount 3.898.794.171,00 2.050.486.455,00 304.876.318,00 189.230.684,00 170.219.781,00 112.966.455,00 103.036.445,00 58.382.512,00 56.007.261,00 50.260.215,00 39.242.580,00 37.032.844,00 33.961.361,00 33.248.656,00 Share (%) 53,43% 28,10% 4,18% 2.59% 2,33% 1.55% 1,41% 0.80% 0.77% 0.69% 0.54% 0.51% 0.47% 0.46% Share of total claims (%) 9,00% 4.74% 0.70% 0.44% 0.39% 0.26% 0.24% 0.13% 0.13% 0.12% 0.09% 0.09% 0.08% 0.08% 30.868.677,00 28.197.808,00 0.42% 0.39% 0.07% 0.07% Source: author's creation Table 26 shows the structure of claims of Group A creditors. For convenience, creditors are shown up to a 1% share of the total amount of claims. The largest creditor in Group A was Zagrebačka banka dd with a claim amount of HRK 2.11 billion, representing a share of 28.89% in this group of claims. The second largest creditor was Adris grupa dd with a claim amount of HRK 1.02 billion or a share of 13.97% in total claims. The third largest creditor was Addiko banka dd with a claim amount of HRK 801.60 million or a share of 10.99% in Group A. Table 26 . Structure of claims of Group A creditors (in HRK) R.No. 1. 2. 3. 4. 5. The believer ZAGREB BANK DD ADRIS GROUP DD ADDIKO BANK DD PRIVREDNA BANK CROATIAN BANK FOR RECONSTRUCTION AND DEVELOPMENT Amount 2.107.892.424,00 1.019.349.560,00 801.602.497,00 664.507.426,00 Share (%) 28,89% 13,97% 10,99% 9.11% Share of total claims (%) 4.87% 2.35% 1.85% 1.53% 497.282.561,00 6,82% 1.15% Source: author's creation Group C debtors are shown in Table 27. Group C consisted of 33 reported claims. Table 27 . Debt C Group Debt Structure (in HRK) R.No. 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 3.165.767.273,00 471.403.247,00 101.860.607,00 52.127.804,00 43.658.615,00 37.478.315,00 81,27% 12.10% 2.61% 1.34% 1.12% 0.96% Share of total claims (%) 7,31% 1.09% 0.24% 0.12% 0.10% 0.09% 6.368.569,00 5.241.872,00 3.881.037,00 2.685.688,00 0.16% 0.13% 0.10% 0.07% 0.01% 0.01% 0.01% 0.01% Debtor AGROKOR DD KONZUM DD AGROKOR TRADE LTD VELPRO CENTER LTD TISAK DD BELJE DD DARDA VUKOVAR AGRICULTURAL INDUSTRIAL KOMBINAT DD PIKVINKOVCI DD ROTO DINAMIC DOO JAMNICA DD Amount Share (%) Source: author's creation The largest debtor in Group C was Agrokor dd with the amount of HRK 3.16 billion, which represents 81.27% of the share in the analyzed group of receivables. The second largest debtor was Konzum dd with HRK 471.40 million in claims or 12.10% in Group C claims. Agrokor Trade participated with 2.61% in Group C claims, amounting to HRK 101.86 million. The structure of claims of Group C creditors is shown in Table 28. The largest in the observed group was Erste factoring doo with a claim amount of HRK 826.56 million, which is 21.22% of the total amount of claims of Group C. The second largest creditor was RCB Bank with the amount a claim of HRK 674.60 million or a share of 17.32%. The third largest creditor in this group was VTB Bank with the amount of HRK 427.26 million or 10.97% of the total claims of this group. Table 28 . Structure of group C creditors (in HRK) R.No. 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. The believer ERSTE FACTORING DOO RCB BANK LIMITED VTB BANK (AUSTRIA) AG VTB BANK (DEUTSCHLAND) AG VTB BANK SA VTB CAPITAL PLC GOLDMAN SACHS INTERNATIONAL BANK JPMORGAN SECURITIES PLC MONARCH MASTER FUNDING 2, SARL VR GLOBAL PARTNERS LP VTB BANK AD BELGRADE ERSTE & STEIERMARKISCHE S LEASING DOO Total Source: author's creation Amount 826.561.984,00 674.601.878,00 427.263.175,00 419.752.370,00 382.274.480,00 374.778.942,00 301.524.209,00 298.342.203,00 94.239.303,00 75.381.052,00 19.156.666,00 1,404,854.00 3.895.281.116,00 Share (%) 21,22% 17,32% 10.97% 10,78% 9,81% 9,62% 7.74% 7,66% 2.42% 1.94% 0.49% 0.04% 100.00% Share of total claims (%) 1.91% 1.56% 0.99% 0.97% 0.88% 0.87% 0.70% 0.69% 0.22% 0.17% 0.04% 0.00% 9,00% The structure of Group D debtors is shown in Table 29. Group D consisted of 12 recognized claims. The largest debtor in Group D was Agrokor dd with a claim amount of HRK 10.64 billion, representing a share of 92.86% in the total claims of the observed group. Konzum dd was the second largest debtor of this group with HRK 774.71 million in claims, which is 6.76%. Table 29 . Structure of Group D debtors' claims (in kuna) R.No. Debtor 1. AGROKOR DD 2. KONZUM DD 3. BELJE DD DARDA Total Amount Share (%) Share of total claims (%) 10.643.435.301,00 92,86% 24,58% 774.710.026,00 6,76% 1.79% 43.909.294,00 0.38% 0.10% 11.462.054.621,00 100.00% 26,47% Source: author's creation Table 30 shows the structure of claims of Group D creditors. The largest creditor of Group D was the public joint stock company Sberbank of Russia. with a claim amount of HRK 7.23 billion, which accounts for 63.07% of the total claims of this group. Sberbank Europe AG participated as a creditor with claims amounting to HRK 2.19 billion or a share of 19.15%. Raiffeisen factoring doo contributed HRK 553.06 million to this group of claims, or 4.83%. Table 30 . Structure of claims of Group D creditors (in HRK) R.No. 1. 2. 3. 4. 5. 6. 7. 8. 9. The believer SBERBANK OF RUSSIA PUBLIC JOINT STOCK COMPANY SBERBANK EUROPE AG RAIFFEISEN FACTORING DOO SPLITSKA BANKA DD BNP PARIBAS CREDIT SUISSE AG, LONDON BRANCH CROATIAN POSTAL BANK DD SLATINSKA BANKA DD MORTGAGE BANK AD Total Amount Share (%) Share of total claims (%) 7.229.327.592,00 2.195.375.688,00 553.061.076,00 450.792.616,00 376.905.261,00 63,07% 19,15% 4,83% 3.93% 3.29% 16.70% 5.07% 1.28% 1.04% 0.87% 376.905.261,00 249.144.444,00 16.413.800,00 14.128.883,00 11.462.054.621,00 3.29% 2.17% 0.14% 0.12% 100.00% 0.87% 0.58% 0.04% 0.03% 26,47% Source: author's creation The total number of claims in Group E amounted to 9.497, totaling HRK 9.07 billion. Table 31 shows the structure of Group E debtors' claims up to 1% due to the convenience of presentation. Table 31 . Structure of Group E debtors' claims (in kuna) R.No. 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. Debtor KONZUM DD AGROKOR DD TISAK DD JAMNICA DD AGROKOR TRADE LTD VELPRO CENTER LTD LEDO DD PIK VRBOVEC DD BELJE DD DARDA ROTO DINAMIC DOO ZVIJEZDA DD AGROKOR TRADE LTD Amount 3.835.402.587,00 1.391.182.420,00 564.085.860,00 478.275.994,00 470.033.951,00 436.923.985,00 400.258.991,00 293.167.292,00 224.599.009,00 193.811.943,00 161.945.028,00 Share 42,29% 15,34% 6.22% 5.27% 5,18% 4,82% 4,41% 3.23% 2.48% 2.14% 1.79% Share of total claims (%) 8,86% 3,21% 1.30% 1.10% 1.09% 1.01% 0.92% 0.68% 0.52% 0.45% 0.37% 104.091.615,00 1.15% 0.24% Source: author's creation Konzum dd had the largest amount of claims amounting to HRK 3.83 billion, which represents a 42.29% share of the total amount of these claims. This is followed by Agrokor dd with HRK 1.39 billion or 15.34% in total claims. Tisak dd was in third place in terms of claims with HRK 564.08 million or 6.22%. Table 32 shows the structure of claims of creditors of Group E. For convenience, creditors with a share of 1% in the said group are shown. The largest creditor of this group was Vindija dd with the amount of HRK 276.28 million, which represents 3.05% share. The second largest creditor was Mercator H dd with a claim amount of HRK 258.58 million, which is 2.85% of the total claims of this group. TDR doo had a receivable amount of HRK 174.05 million, which is 1.92% of the total receivables of Group E. Table 32 . Structure of group E creditors' claims (in kuna) R.No. 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. The believer VINDIJA DD MERCATOR H DOO TDR DOO LEDO DOO CHITLUK ATLANTIC TRADE DOO UNICREDIT BANK SERBIA AD DUKAT DD BNP PARIBAS RICARDO DOO THE JUPITER GLOBAL FUND JUPITER DYNAMIC BOND DIJAMANT AD PODRAVKA FOOD INDUSTRY DD PRIVREDNA BANKA ZAGREB DD COCA COLA HBC CROATIA LTD ZAGREB BREWERY LTD VIPNET DOO FIRST PLINAR SOCIETY LTD REPUBLIC OF CROATIA, MINISTRY OF FINANCE ZAGREB HOLDING DOO Amount 276.237.606,00 258.580.694,00 174.046.231,00 161.853.006,00 138.125.493,00 137.983.786,00 136.019.658,00 129.212.859,00 128.963.890,00 Share 3.05% 2.85% 1.92% 1.78% 1.52% 1.52% 1.50% 1,42% 1,42% Share of total claims (%) 0.64% 0.60% 0.40% 0.37% 0.32% 0.32% 0.31% 0.30% 0.30% 119.337.328,00 117.530.282,00 1.32% 1.30% 0.28% 0.27% 112.039.587,00 1.24% 0.26% 110.205.735,00 107.589.830,00 107.408.976,00 107.057.332,00 1,22% 1.19% 1.18% 1.18% 0.25% 0.25% 0.25% 0.25% 104.091.615,00 1.15% 0.24% 96.184.266,00 90.663.453,00 1.06% 1.00% 0.22% 0.21% Source: author's creation Almost 45% of claims were related to subsidiaries or affiliates and to Group E or unsecured creditors. 4. Discussion The Agrokor Group has experienced liquidity problems in the observed period, ie since 2007. The working capital of the Group was negative in the observed period. High indebtedness is also one of the characteristics of a business. For the last two years, respectively, 2015 and 2016, the Group's profitability has declined significantly, and there are difficulties in servicing debt. The Agrokor Group is currently undergoing extraordinary management, and the audit report shows that accounting irregularities and potential illegal activities have been identified. Inadequate corporate governance of the Group was also identified. These elements worked to increase the distrust of all Agrokor business stakeholders. Accordingly, the possibility of financial restructuring of the Agrokor Group is very limited and the above limitations must be taken into account. 4.1. Restructuring of Agrokor Group Under the Agrokor Group Restructuring Plan under Extraordinary Administrative Procedure, the financial and operational restructuring lasted from May 2017 to April 2018. Settling nonessential assets lasted from May 2017 to February 2018 while determining the capital structure for key companies and commencing financing talks were planned from June 2017 to September 2017. The Agrokor group had a complex structure of reported claims. About 12,000 reported claims were with different legal rights and characteristics. About 5,700 include banks, mutual funds and suppliers. The financing agreement with the status of the oldest claim amounting to EUR 1.06 million, which provided financing during the extraordinary administration period, had to be renewed by agreement or refinance after the settlement or dissolution of the extraordinary administration. According to the draft settlement at: http://nagodba.agrokor.hr/nacrt-nagodbe/ ): completely separate assets from inherited liabilities, (Draft settlement, available separate the old shareholders of the Agrokor Group from the new group, completely restructure the old debt through a combination of reinstated debt and equity (the creditors would become 100 percent owners and take full operational control). That is, the draft settlement structure provided for: a new corporate structure, the new capital structure, allocation of financial instruments to stakeholders, implementation plan. The capital structure should have a sustainable level of debt in view of the way the group segments generate cash flow. According to the draft settlement structure, most creditors are expected to write off part of their claims based on the financial projections of the business. The cash flows of borrowers and guarantors are not sufficient to service the debt within a reasonable time. Where sustainable, the business will be maintained on a going concern basis. That is, a profitable operating business will be maintained and liquidation of the assets and / or business will be avoided at prices that are characteristic of impaired business conditions . Under the new capital structure, there will be no financial arrangements between companies except for the payment of dividends and the effective financing of debt and interest repayments . The exit arrangement should have a priority ranking over each debt. Secured claims will be established to collateral value. Deficit claims should be treated as other unsecured claims of insolvent entities from the period prior to the extraordinary administration procedure. A characteristic of the Group's business is seasonality. Accordingly, it is considered that companies will need revolving credit lines with strict restrictions to ensure seasonal use to finance working capital needs, which will allow the distribution of excess cash to repay debt without compromising working capital. Creditors' returns should be defined by the entity's priority model. The value in the Group would be distributed among the stakeholders based on their legal rights , that is, rank based on the model. So the model would determine: Available allocation value to cover claims in a particular company or entity. The legal position is the priority of any claim. The paid-up value of each claim determines the proportion of the total distributable value that it is to receive. After that, the debt will be determined , and after the restructuring , how much of the share capital from each of the claims, ie the bearer receives in settlement. Distributable value is the value of the enterprises of the companies under extraordinary management and the value of the capital of the entities not under extraordinary management. It includes excess cash and an asset value that is not required for optimal operating operations. The costs of the procedure can be divided into: workers' claims and unpaid court and trial costs and creditors' council costs. Secured claims are secured by pledges . Claims on the Financing Agreement with the oldest receivable status take precedence over unsecured claims. Unsecured receivables include nonsecured claims, including deficits, certain mutual claims of group companies, and unsecured claims on claims of other entities . Shareholders' loans to companies in difficulties include the ajmov e parent companies given a subsidiary when the subsidiary was in financial difficulties . Capital value represents the rest of the value. Property transfer and claim renewal can be presented in three steps. The first step involves transferring all creditor claims filed to the new structure in exchange for, or entitlement to, new instruments. The second step is to lower claims from the holding company structure to the holding company and further to the mirror subsidiaries. The third step involves the purchase of operating assets and liabilities from insolvent subsidiaries using receivables. Accordingly, the Group's restructuring options are continuation of business or liquidation of the Group. 4.2. A model for determining the order in which subjects are settled According to the Reconciliation Model Guidelines (2018), the purpose of the Reconciliation Order Form for entities was to determine stakeholder claims and their settlement rates from each of the Agrokor Group companies under an extraordinary management procedure. Thus, the model determined the distributive (distributive) value of each company and the rights, the order of settlement, and the nature of each claim. On the other hand, the settlement rate was used to determine the right to new settlement instruments or to determine the value of newly settled (by settlement) debt for 100% of the value of the Group. The model is based on information gathered by the Group's advisers and management, which includes unaudited data and estimates for the future. The model used value estimates and calculated default settlement rates based on the best available information before settlement. The model assumed that all settlement occurs simultaneously . The model established default rates for debtors under extraordinary administration for post-litigation claims (eg, claims of lenders under the Oldest Loan Agreement or "SPFA" lenders), claims settled before the opening of proceedings, and owners of equity (including minority shareholders / members of the company ). It should be noted that Croatian Bankruptcy Law as well as international practice prescribe that the Extraordinary Commissioner should fully reserve the funds for the settlement of the disputed claims (ie those not determined by the court). These include claims disputed by the Associate Trustee and those disputed by other creditors. Settlement of such disputed claims was factored into the model , unless and until it was legally established that the claim did not exist (including all appeals). In the event that the claim establishes that there is no settlement amount reserved for that claim, it will be used to settle other claims . The model considers two scenarios: 1. 2. going concern ( going-concern ) the liquidation of the Group. Specifically, Croatian law and international practice required that no creditor be allowed to obtain a return lower than that which he would have obtained in the event of liquidation. Therefore, the purpose of the liquidation scenario was to prove that this presumption be served and serves la is to show the financial benefits of the proposed settlement, but a significant loss of value in the event of liquidation as the only alternative to a settlement which provides for the going concern basis. In the going concern scenario, it was assumed that most of the companies within the Group would continue to run indefinitely. This assumption is central to the valuation methods used to determine distributive value . It should be noted here that, in accordance with its business sustainability plans, the Group cannot, in its form, continue in business, nor could it be expected to fulfill its obligations in full. In the Group d liquidation scenario, the attributable value was lower than in the going concern scenario. This is because there was a high likelihood of termination of the business and / or forced sale of the business units or, most likely in the event of liquidation, of their assets at lower prices, which would generally result in a significantly lower value or rate of settlement than if the business continued. on an unlimited basis. Liquidation bankruptcy proceedings would cause additional legal and administrative costs, and possibly lengthy sale process which would further reduce the distribution value . In the event of liquidation, Claims on the Oldest Claim Financing Agreement had the advantage of settling on assets pledged in his favor as well as on other assets not expressly encumbered with the SPFA . Distribution value was determined based on: 1. 2. 3. 4. 5. 6. Enterprise Value , cash surplus, other property, claims of affiliated companies, value of capital of subsidiaries, pledged key assets. Enterprise value (EV) is the value of the business of a particular company. In a going concern scenario, this value is estimated using a variety of valuation methods that include analysis of multiples , past transactions, and discounted cash flows. In a liquidation scenario, the EV is discounted to reflect the lower value that can be achieved due to forced sales. Excess cash was cash available that exceeded working capital needs. As no revolving loans were contracted, it was assumed that there was no excess cash other than that available to pay the costs of the proceedings . The liquidation scenario also assumed that there was no cash surplus as it canceled each other out with liabilities arising after the opening of the procedure relating to net working capital and having priority of settlement. Like the cash surplus, the company could have other assets (eg land, equipment, etc.) that were not part of the operating business or needed for working capital. As such, these other assets had a value that is not accounted for in the entrepreneurial values, but is included in the model and is therefore increased distribution value. In the liquidation scenario, the value of those assets was adjusted by applying a large discount to reflect a significantly lower value comparable to forced sales. Claims on related companies are claims that one company within the group has towards another. Such claims are to treat as well as claims of third parties, and the evaluation is based on estimated rates of settlement in accordance with the model. The value of the capital of a company dependent on a particular company (those who are and those not under extraordinary management) has contributed to the distributive value of that company . In lasnički capital has about the lowest priority . If, after you have to settle all claims against certain society, remains the distribution value, this value is proportionally distributed the owners of capital (including minority shareholders / members of society). If the owner of the capital is a certain other company within the group, then the value of its equity interests is the property that contributed to the distributive value of that company. The value of the equity of subsidiaries not under extracurricular management was determined on the basis of their value of the enterprise less liabilities to third parties and increased for other assets and receivables from affiliated companies (which could have additional value) and less liabilities for related companies and guarantees for affiliates. Claims secured by a guarantee to a company in extraordinary administration subject to write-off (which could represent additional liabilities). Was taken for granted that the receivables and payables to related companies cancel each other when considered on a consolidated basis on the basis of the fact that the subsidiaries that are not under extraordinary administration to continue to operate. In a few exceptional cases, companies that have not been under extraordinary administration gave the guarantees for companies under extraordinary administration. These guarantees were set at a settlement rate that was higher than the following amounts: the default rate on the guarantee in the liquidation scenario and the capital value of that non-externally guaranteed guarantor (up to the amount of the guarantee amount). The distributive value was reduced by the key assets pledged as secured claims . The value of this property was excluded from the entrepreneurial value because it is the first to settle the secured claims. If the value of the pledged things went beyond the insured amount of the claim and if the stock referred to the key assets of several companies, distributive value of each company was reduced in proportion to the total value of collateral. Claims could be divided into: claims outside the waterfall of settlement entities i claims within the waterfall of settling entities. Claims outside the waterfall of settling entities were secured claims. Secured claims are those whose creditors are entitled to a separate settlement because they are secured by a lien or fiduciary transfer of ownership (for insurance) of physical assets (real estate, equipment, etc.), shares / shares and rights (claims, etc.). A claim secured by a promissory note was considered a claim for which a guarantee was given, not a secured claim. Secured claims are be discussed outside of the waterfall on the basis of the right to separate satisfaction of the claim which allows the relevant lender to be separately reimbursed from the value of collateral and the prior claims of other creditors. In certain cases, the amount of the secured claim differed from the right to its separate settlement. In both cases, the sum insured was lower than the following amounts: the claim amount and the right to separate settlement. The settlement of the sum insured was determined on the basis of the following: the right to separate settlement and the value of the pledge . If the right to separate settlement or the value of the pledge was less than the secured claim, that difference was considered to be an insured claim against the debtor. This underinsured claim was treated as an unsecured claim that stands in the same order of settlement as other unsecured claims in the waterfall of that company. If a secured claim was also provided with a guarantee, any underinsured claim was also considered an unsecured claim in the waterfalls of the guaranteeing companies . The claims in the waterfall of the subjects' settlement were: 1. costs of the procedure, 2. claims under the Oldest Loan Agreement, 3. unsecured claims arising before the opening of the Extraordinary Administrative Procedure , 4. t operations occurring before the opening of the extraordinary administration procedure, secured by guarantees , 5. t actions taken before the opening of the extraordinary administration procedure secured by debentures , 6. a loan replacing the capital given before the opening of the extraordinary administration procedure , 7. v equity of capital . The costs of the proceedings included unpaid workers 'claims (not reported in the proceedings) and the costs of court, creditors' council, advisers and restructuring (including VAT). The costs of the proceedings had the advantage of settling over all other claims against the Group. Well, were taking it into account that the borrower will all such costs settled in cash (in time unlimited business companies under extraordinary administration). Consequently, although the cost of the procedure part models the order of settlement , debtors have them fully settled in cash (in time unlimited business companies under extraordinary administration) and have therefore been omitted from the calculation. Claims on the Oldest Loan Agreement are outstanding. The debtor is Agrokor dd, who has forwarded the amounts from the receivables from the Old Loan Agreement to certain of its subsidiaries in the form of loans. The lenders had a pledge on the amounts from these further loans. Furthermore, these claims were secured by property that was not encumbered at the time of the conclusion of the Agreement . However, in bankruptcy proceedings, these lenders had the advantage of settling on the entire property of the Group over other pledges. Several companies within the Group have also issued guarantees for these claims. It is important to note that these claims are the first to be dealt with in distributive value and their settlement proceeded in the following order: 1. settlement of the pledge on the loan amounts that Agrokor dd has extended in the form of a loan to its subsidiaries , 2. d istributivna value Agrokor and j amaca the Treaty oldest loan. Unsecured claims are claims that are not secured by a lien, and amounts of secured claims that are not fully settled from the pledge (insufficiently secured claims). These amounts are in the same order of settlement irrespective of the legal basis or type of creditor. Claims secured by guarantees (or sovereign debt ) are claims for guarantees provided by nondebtor companies. If the claim for which it is given the guarantee provided, the model 's claim first Expenses were held . Certain receivables are secured by debentures, which are actually guarantees (or sureties ), since these debentures have the same settlement order as the principal claim. For most such claims, the debtor on the claim is the same as the debtor on the debenture, in which case the result is the existence of one claim not against one company . Equity repayment loans are loans made by a subsidiary (a parent or a subsidiary) to a subsidiary when it is considered that the subsidiary is a borrower in crisis and that such affiliate loans are unlikely to be repaid in full. . The Court did not identify any related party claims as a loan replacing capital and therefore no related party claims were classified in the lower payment order . The value of equity is the distributive value that remains after all claims are fully settled. Equity value is then used to determine the value of a pledge on shares / holdings that have secured certain secured claims or value belonging to the parent company (s), including minority shareholders / members of the company (if any). Other claims that were taken into account should also be mentioned: 1. t affiliate companies' operations incurred prior to the opening of the extraordinary administration procedure, 2. into claims made before the opening of the extraordinary administration procedure , 3. t claims on the basis of a guarantee for a claim against a company which is not under the procedure of extraordinary administration . Related party claims are the amounts of claims of one company within a group to another. These claims are to treat as well as claims of third parties for the purposes of determining the rate of settlement. Most of the claims of affiliated companies are unsecured and in the same order of settlement as other unsecured claims. Certain claims made prior to the opening of the Extraordinary Administrative Procedure are contingent on certain events such as the results of the lease negotiations. These amounts were to establish provisions on the basis of the maximum amount of the obligation and the likelihood of it being granted. Certain claims against non-extraterrestrial debtors are secured by guarantees given by extracurricular companies. Some of these amounts have been reported and determined in the claims procedure. However, since it was expected that all non-extracurricular companies would continue to operate after the settlement, the guarantors under extracurricular liability were not given value for these claims under the guarantee . It is important to emphasize that the model determined the rate of settlement for claims against companies under extraordinary management. However, the solvency of the debtor and the security of the claim depended on whether the claim would be written off into a new structure without writing off or if it would receive a new settlement instrument after the writeoff. Thus, solvent and insolvent companies under extraordinary administration differed. If a company under extraordinary management was solvent, it was transferred to a new structure through the transfer of shares / interests. All assets and liabilities (insured and uninsured) are other codes that a solvent company, and claims of creditors are timely settle in the course of normal business . If the company under extraordinary administration was insolvent , its assets and liabilities resulting from the opening of extraordinary administration they are transferred to the new structure through transfer of business units in the new company. If the insolvent company under extraordinary management is the debtor of the secured claim, each of these claims is transferred to a new structure at its nominal value equal to less than the amount of the right to separate settlement and the value of the pledge. If the debtor of the secured claim owns the pledged item, the transferred amount of the secured claim and its pledge were transferred to the same new company . However, if the lien holder is a non-debtor company, the secured claim is transferred to the Croatian holding company . All unsecured claims against the insolvent company were subject to write-offs. 4.3. Financial restructuring of Agrokor Group Some steps have been taken to restructure the Agrokor Group financially. The steps before the settlement are: 1. 2. 3. 4. 5. 6. the establishment of Aisle STAK, founding of Aisle Dutch TopCo , founding of Aisle Dutch HoldCo founding of Aisle HoldCo , establishment of new Croatian subsidiaries, founding of Aisle SCPR. The steps of the settlement are: 1. settlement of incompletely collectible receivables, 2. assignment of assignment claims to Aisle Dutch TopCo , 3. issuance of convertible bonds and certificates of deposit, 4. establishment of mutual claims and liabilities within the New Group, 5. conversion of receivables within a new group into a eligible [28] and capital, 6. the right to make a conditional payment to the supplier, 7. the repart of the economic entities of Non-Sustainable Companies under extraordinary management and Agrokor dd to New Croatian Subsidiaries and Aisle HoldCo , 8. the transfer of the shares held by Non-Sustainable Companies under extraordinary management in Sustainable Companies under Extraordinary Management and foreign subsidiaries to Aisle HoldCo , 9. SPFA novation and exit credit, 10. the establishment of fully recoverable claims secured by a separate right in a new group. 27F- loa n The step after the settlement is to delete the Agrokor Group. Aisle STAK is a Dutch administrative foundation whose sole purpose is to be the sole member of Aisle Dutch TopCo , that is, to hold direct interests in the said company for the benefit of creditors. Furthermore, two separate Dutch companies will be established where Aisle Dutch TopCo will be 100% owned by Aisle STAK. Aisle Dutch HoldCo will be 100% owned by Aisle Dutch TopCo . A new Croatian company Aisle HoldCo will be established and will be 100% owned by Aisle Dutch HoldCo . Eventually, a new Croatian subsidiary will be formed and will be 100% owned by Aisle HoldCo . Aisle SCPR will act as payment agent for qualified suppliers, that is, it will allow payment to such suppliers if the set criteria are met within a pre-determined four-year period. Aisle SCPR will not be part of the new group. The settlement of incompletely collectible receivables of less than or equal to HRK 40 thousand will be settled in cash by the respective non-viable companies under extraordinary management and Agrokor dd holding these claims. Upon settlement of these claims, the said claims will not be transferred to Aisle Dutch TopCo . Creditors of non-recoverable claims will transfer their claims to Aisle Dutch TopCo. The assigned claims of creditors of incompletely collectible receivables will be converted into individual claims against Agrokor dd and unsustainable companies under extraordinary administration, for the purpose of acquiring economic entities or assets subject to transfer. In return for the assignment of claims arising before the opening of the proceeding, Aisle STAK undertakes to issue the depositary certificates to the creditors of the non-recoverable claims, and Aisle Dutch TopCo undertakes to issue the convertible bonds. The cumulative value d epozitarnih confirmation and the amjenjivih bonds will be equal to each value in jerovniku incomplete billable claims belongs on the basis of individual R aspodjele settlement. After assignment of claims in jerovnika incurred before the opening of the Aisle Dutch Topco mentioned company will own the claims Agrokor unsustainable and each company under extraordinary administration in the amount of transferred claims which are at fair value. Furthermore, the company Aisle Dutch Topcu will send Agrokor dd and n eodrživa companies under extraordinary administration to transfer assets to the Aisle HoldCo and n the Croatian subsidiaries . As a result, Aisle HoldCo will have a compensatory debt to Aisle Dutch TopCo equal to the fair value of the shares in the sustainable entities under foreign management and foreign subsidiaries and the fair value of the economic entities and potentially received subsidiary assets from Agrokor dd and non-sustainable entities under extraordinary management. Each new Croatian subsidiary will have a compensatory debt to Aisle HoldCo equal to the fair value of the economic entity of any potential ancillary assets of the relevant non-sustainable non-viable company where Aisle HoldCo will have an adequate compensatory debt to Aisle Dutch TopCo . This is the basis for establishing claims between different companies in the new group, which will be the basis for achieving the desired capital structure of the new group. Intragroup claims between Aisle Dutch TopCo and Aisle Hold Co will be converted to PPL by Aisle Dutch TopCo to Aisle Dutch HoldCo at 80% and Aisle Dutch HoldCo and Aisle HoldCo at 20%. Intragroup claims between Aisle HoldCo and n of these Croatian operating companies will be converted into equity by swapping equity debt or converting to an interest bearing loan under a conversion agreement. The exact amount of conversion (ie the debt to equity ratio of each n this Croatian subsidiary) will be based on the specific position and credit capacity of each individual n this Croatian subsidiary. The contingent payment entitlement of a supplier is established to allow the payment of contingent payment receipts through Aisle SCPR to creditors of incompletely collectible receivables having marginal claims against the Agrokor Group. Payment is made if the conditions set out in the Settlement are fulfilled, using a distribution mechanism. Depending on Konzum's EBITDA, these suppliers will be entitled to an annual amount over a four-year period beginning in 2018, with a cumulative maximum of EUR 80 million. Right n these Croatian subsidiaries to receive property n eodrživih companies under extraordinary administration settled the transfer of business and ancillary assets at fair value of n eodrživih companies under extraordinary administration in n the Croatian subsidiary companies. Business unit Agrokor dd (including, among other things, shares in the sustaining the companies under extraordinary administration and the nozemnim subsidiaries) is transmitted in Aisle HoldCo on behalf of the settlement part of the right to receive the property that will Aisle HoldCo have to Agrokor dd Shares / p Oslovn shares in about sustaining the companies under extraordinary administration (which are subject to the test of solvency) and the nozemnim subsidiaries run n eodrživa companies under extraordinary administration transferred in Aisle HoldCo on behalf settlement rights to receive property which will Aisle HoldCo have to n eodrživim companies under extraordinary administration . The SPFA will be extended and will be updated in the new group as an exit credit. All insurance rights and super priority will be retained. Novation SPFA the Agrokor Group in the Output loan in n this g hole will require a majority of votes SPFA lenders or successful formal procedure in order to avoid long-term inability to settle SPFA to refinancing. After the Commercial Court confirms the Settlement, Agrokor dd will initiate a formal proceeding under English law to have SPFA new to Aisle HoldCo . The formal process to allow a change of the debtor (with the company Agrokor dd on Aisle HoldCo ), the establishment of a comprehensive package of insurance and guarantees in n this group and (functional) package of guarantees. Debt secured by a separate right of unsustainable companies under extraordinary management and Agrokor dd will be reinstated at a value lower than the value of the different law and the value of the different right. All insufficiently secured claims, ie the amount of the insured claim exceeding the value equal to the value of the different right and the value of the subject of the different right will be treated in the same way as all other unsecured claims against unsustainable companies under extraordinary administration and are part of the assigned claims. The key steps in this step are defining the fair value of the differentiated right of secured debt by secured right, accounting recognition of the different right and insufficiently secured claims in the books of non-sustainable non-regulated companies and Aisle HoldCo, and the transfer of a different right to new Croatian subsidiaries and Aisle HoldCo as part of transfer of economic entities. According to the results of the settlement and the EPM model as shown in Table 33, Sberbank will have a stake of 39.2% in the new group, Bondholders will have a share of 25%, VTB bank share of 7.5%, Zagrebačka banka and BNP Paribas share of 2.9%, Privredna banka Zagreb and Splitska banka share of 2.4%, Credit Suisse share of 1.8%, Adris grupa share of 1.4%, Franck share of 1.3%. Table 33 . Ownership structure of the new group by companies R.No. The believer 1. Sberbank 2. Bondholders 3. VTB bank 4. Zagrebačka banka 5. BNP Paribas 6. Privredna banka Zagreb 7. Splitska banka 8. Credit Suisse 9. Adris Grupa 10. Franck 11. Croatian Postal Bank 12. JP Morgan 13. Raiffeisenbank 14. Addiko bank 15. Saponia 16. Sokol Marić 17. OTP banka 18. Knighthead 19. Banca Intesa 20. SC Lowy Primary Inv . 21. The others Source: Settlement Details Share of ownership (%) 39,20% 25.00% 7.50% 2.90% 2.90% 2.40% 2.40% 1.80% 1.40% 1.30% 1.30% 1.30% 1,20% 1.00% 0.60% 0.60% 0.50% 0.50% 0.50% 0.40% 5,30% Cumulative (%) 39,20% 64,20% 71,70% 74,60% 77,50% 79,90% 82,30% 84,10% 85,50% 86,80% 88,10% 89.40% 90,60% 91,60% 92.20% 92,80% 93,30% 93,80% 94,30% 94,70% 100.00% Table 34 shows return rates and ownership interests. The top twenty creditors will have over 92% ownership of the new group by gross claims. Table 34 . Return rates and equity stakes R.No. 1 2 Gross claims ( mil . EUR ) 1212,1 933,4 Return ( mil . EUR ) 632,1 564,1 Rate of return 52% 63% Share of ownership 39,20% 25.00% R.No. 26 27 Return ( mil . EUR ) 8.6 10.3 Rate of return 41% 49% Share of ownership 0.00% 0.60% 3 The believer Sberbank Bondholders Zagrebačka banka 332,7 215,4 65% 2.90% 28 Investco 20,1 0.0 0% 0.00% 4 5 6 VTB bank Adris Grupa Raiffeisenbank 305,2 180,6 171,2 199.9 45.5 18,0 66% 25% 11% 7.50% 1.40% 1,20% 29 30 31 Medika Dukat Saponia 19.7 19.3 18,8 6,1 8.2 10.8 31% 43% 58% 0.00% 0.00% 0.60% 7 8 Erste BNP Paribas 155.6 118.7 37,3 61.3 24% 52% 0.30% 2.90% 32 33 Atlantic Trade Unicredit bank Serbia 18.6 18.6 10.3 3.0 56% 16% 0.00% 0.00% 9 10 PBZ Splitska banka 109.5 83,1 57,8 34.8 53% 42% 2.40% 2.40% 34 35 Podravka Energia Naturalis 18.5 17.5 10.2 4.9 55% 28% 0.00% 0.30% 11 TDR 74.6 23.1 31% 0.00% 36 Zagreb brewery 16.4 13.7 83% 0.00% 12 13 HBOR Addiko bank ZagrebInstallation Kreditna banka Zagreb Credit Suisse HPB JP Morgan 72.5 57,8 72.5 22,8 100% 40% 0.30% 1.00% 37 38 H- Abduco The Jupiter Global Fund 16.3 16.0 3.0 0.0 18% 0% 0.10% 0.00% 51.6 6.0 12% 0.00% 39 Coca-Cola HBC Hr. 15.6 12,1 77% 0.00% 51,0 50.7 44,0 40.1 18.6 25.7 20.5 22,2 37% 51% 47% 55% 0.10% 1.80% 1.30% 1.30% 40 41 42 43 Knighthead First Gas Company Vipnet Monarch Master Funding 15.3 14.9 14,4 12.7 7.8 11.6 10.2 12.6 51% 78% 71% 100% 0.50% 0.00% 0.00% 0.00% 37,3 37,0 15.9 28.6 43% 77% 0.00% 1.30% 44 45 Zagreb Holding Tele 2 12.2 12,1 8.5 4.2 70% 35% 0.00% 0.10% 32,7 10.7 33% 0.00% 46 Technique 11,8 1.8 16% 0.00% 22 Vindija Franck Goldman Sachs AWT International 29.9 14.5 48% 0.00% 47 1.6 14% 0.10% OTP banka Banca Intesa 28,0 22.3 15.6 6,8 56% 31% 0.50% 0.50% 48 49 Center restr . and sell TAS-Trans Atlantic Serv . SC Lowy Primary Invest . 11.4 23 24 10.4 10.4 0.0 5,3 0% 51% 0.00% 0.40% 25 Vetel 21.5 5.9 27% 0.40% 50 VR Global Partners 10,1 10,1 100% 0.00% 14 15 16 17 18 19 20 21 The believer Ricardo Sokol Marić Gross claims ( mil . EUR ) 21.1 20,8 Source: Settlement Details Table 35 presents an analysis of the rate of return and the amount outstanding. The total gross receivables of the 50th largest suppliers amounted to EUR 4,646.1 million. The total return was EUR 2,350.5 million, which means that the rate of return was 51%. The outstanding amount was EUR 2,295.6 million, ie the defaulted rate was 49%. Table 35 . Analysis of the rate of return and the amount outstanding Total gross claims ( mil . EUR ) Total return ( mil . EUR ) Rate of return (%) Unpaid amount ( mil . EUR ). Unpaid rate (%) Source: Design by the author according to Settlement Details 4,646.1 2.350,5 51% 2.295,6 49% Table 36 shows the percentage of claims collected. The table shows that small suppliers charged in the amount of 100%, suppliers in the amount of about 60%, bondholders did not charge as well as financial institutions, while the rest achieved a return of 2%. Table 36 . Percentage of claims collection Financial institutions The Homemade sides Micro Enterprises, OPG and Crafts Suppliers Holders of bonds Number of creditors 2.400 4.850 2 100 70 180 Number of claims Gross receivables ( mil . Eur ) 1.150 9,600 2 540 240 310 23 Total average paid so far Source: Settlement Details 1.150 100% 930 60% 1.470 0% The others 1.940 0% 126 0% 2% The graph shows that micro suppliers and foreign financial institutions have made a fair share of the total return relative to the share of total receivables. Bond holders and suppliers have a slightly higher overall return than their share of total claims. While domestic financial institutions and others achieved lower returns than total claims. Table 37 shows the structure of the company by the level of return. The table shows that all micro-enterprises, family farms and crafts achieved a return of 100%. Table 37 . Structure of companies by level of return Return Micro Level Enterprises, OPG and (%) Crafts 0-20 20-40 40-60 60-80 80-100 100% Source: Settlement Details Suppliers 19% 10% 16% 9% 46% Bondholders 50% 50% Homemade fin. i nst . Sides fin. i nst . 68% 18% 5% 3% 7% 64% 7% 13% 7% 9% The others 81% 7% 2% 1% 8% The largest percentage of suppliers, 46% of them had a return of 80 to 100%, while 19% of the suppliers had a return of 0 to 20%, about 16% of the suppliers had a return of 40 to 60%, 10% of the suppliers had a return of 20 up to 40%, and 9% of suppliers made returns from 60 to 80%. Half of the bondholders had a return of 40 to 60%, while the other half had a return of 60 to 80%. The largest percentage of domestic financial institutions achieved a return of 0 to 20%. The largest number of foreign financial institutions recorded a return of 0 to 20%, as well as the highest number of others. Supplier A has a claim of HRK 100.00, of which HRK 40.00 is in goods and HRK 60 is in loans. Claims will be allocated first. The amount of HRK 40.00 in goods is classified as unsecured claims. Then, the payment of claims will be checked. If it is assumed that 60% of the supplier's claims have already been paid (HRK 24.00) and the paid part is reduced from the total claim. The supplier has a remaining charge of HRK 16.00. The amount of HRK 16.00 goes to the waterfall, which was explained previously, and the amount of HRK 7.00 is the share of suppliers in the new group. The loan amount of HRK 60.00 qualifies as a secured claim (the amount covered by real estate collateral ). Next, the valuation of the real estate that serves as collateral will be verified and marketed. Loan A in the amount of HRK 25.00 is secured by property A which is estimated at HRK 10.00. The uninsured portion of that amount, ie HRK 15.00 goes to the waterfall, and the secured part of HRK 10.00 goes to the new loan / debt of the new group. Loan B is secured by real estate B whose value is estimated at HRK 50.00, and supplier A is first on the real estate list B, and since value is higher than receivable, supplier A is fully charged. P shows an waterfall for selected companies. Jamnica had the highest distribution value. Its distribution value amounted to claims that are not secured by the secured right 423.2 million . euros. The amount of claims not secured by a separate right was 2.911 mil . of which EUR 423.2 million was collected . Euros which is a return of 14.5%. Ledo is the second company with a residual value of 351.5 mil . euros. The amount of claims not secured by a separate right was 2.297,9 mil . of which EUR 351.5 million was charged . Euros which is a return of 15.3%. Belje is the third company in terms of the remaining distributive value, which amounted to 192.9 mil . euros. The amount of claims not secured by a separate right was 2,461.7 mil . EUR, which represents a return of 7.8%. Konzum's creditors had the lowest return, at 0.6%. Konzum's remaining distributive value was 25.4 mil . and the amount of claims not secured by a separate right was 3.940,6 mil . euros. Creditors of PIK Vrbovec had the highest return, amounting to 26.9%. The distributive value was 92.5 mil . and the amount of claims not secured by a separate right was 344.1 mil . EUR, which represents a return of 26.9%. As previously noted, an agreement has been reached with suppliers on the payment of the marginal debt. The conditions for payment of the marginal debt as agreed are: - Consum has achieved a certain result, which is reflected in the minimum agreed EBITDA, - the amount of the marginal debt payment for each calendar year is the amount by which the EBITDA generated in each of the specified years exceeds the minimum agreed EBITDA in that year, - the minimum agreed EBITDA is EUR 38.8 million, - the total amount of all annual payments cannot exceed EUR 70 million. An agreement was reached on recourse bills, with 35% being taken over by suppliers and 65% written off by banks. Sberbank will have an annual conditional right to receive payments for the period 20182021. The conditions for this are: - The amount payable each year is the amount by which EBITDA exceeds the EBITDA threshold in that year, - the EBITDA threshold is EUR 245 million and is gradually increasing to EUR 288 million for 2021, - materially important companies are: Konzum dd, VELPRO-CENTAR doo, Konzum doo Sarajevo, Tisak dd, Jamnica dd, Roto dinamic doo, Sarajevo kiseljak dd, Ledo dd, Ledo dd Citluk , Frikom doo, Zvijezda dd, Dijamant ad ., PIK Vrbovec dd, Vupik dd, PIK Vinkovci dd, Belje dd, and Agrokor-trade dd - the total amount for four payments cannot exceed EUR 60 million. The payment obligation will be on Aisle Dutch TopCo in favor of Sberbank of Russia, and the payment obligation will expire four years regardless of the amount that will ultimately be paid. The extension of the SPFA to September 2019 has been agreed and refinancing is planned before the deadline. The above is shown in Figure 19. The interest rate on money over the entire period is 6%, on PIK 2% from July to December 2018. In January 2019, it is 4%, increasing every month by 0.5% percentage points. Thus, the total EURIBOR is 8% from July to December 2018 and 10% in January 2019, increasing by 0.5 percentage points by the end of the period. The 2% fee was calculated in July 2018 and the 1% fee in January and April 2019. 5. Conclusion Companies go through different stages of their life cycles. Within these stages, they face business difficulties. Business difficulties may be of varying intensity and, depending on the macroeconomic conditions, industry conditions, activities and other conditions specific to a company, causes can be identified. Depending on the cause and intensity of the business difficulties, restructuring may follow, which can be timely and timely and successful or unsuccessful. This paper analyzes the operations of the Agrokor Group from 2007 to 2017. The analysis is divided into pre-outsourced operations to identify the causes of business difficulties and during outsourced management to demonstrate financial restructuring opportunities. It can be said that the Agrokor case is the most serious case of business difficulties of a company in the history of the Republic of Croatia, because it exceeds previous pre-bankruptcy and bankruptcy proceedings by number of employees and liabilities. Due to the importance of Agrokor for the economy of the Republic of Croatia, the Law on Procedure of Extraordinary Management in Companies of Systemic Importance for the Republic of Croatia was adopted in order to prevent destabilization of the economy. The research showed that the characteristics of the Agrokor Group's business before the extraordinary management process were low liquidity, negative working capital operations, extended payment of obligations to suppliers, use of high leverage and ultimately insolvency. The decrease in profitability is the result of increased external competition which has reduced the retail market share and some negative trends in market prices in certain segments. The paper used models of forecasting business difficulties that, in 2014, showed a trend of increasing business difficulties in order to classify the company in 2015 and 2016 as a group of companies facing business difficulties. As business difficulties were not identified in a timely manner and started to be resolved, in April 2017 it became clear that the Agrokor Group was in serious business trouble. The trust of business partners, suppliers and creditors was broken, and the supply of goods and services was suspended, and production downtime and company accounts were blocked. With the arrival of the Associate Commissioner, an independent audit firm was hired to review the financial statements for doubt about their credibility. The results of the audit revealed certain accounting irregularities as well as suspicions of potential unlawful acts and it is suspected that the financial statements prior to 2015 do not present the true and fair values of the assets, liabilities and capital of the company as well as profitability and should therefore be taken with caution. Total claims on creditors' claims amounted to HRK 43.3 billion. A quarter of claims relate to subsidiaries or affiliates. A quarter of claims relate to financial creditors, while a fifth to claims relate to unsecured creditors. It is also important to note the EUR 1.06 billion loan that the Agrokor Group has taken to continue operations in 2017 and that loan has the status of the oldest receivable. The settlement involved a complex claim structure and a settlement model was proposed. Settlement should be effected through the full or partial payment of claims, and equity and debt securities will be issued. Small suppliers were charged in full and a 100% return was achieved. Other bond providers and bondholders have received different rates of collection. The largest share of the total receivables is held by financial institutions, which have paid a fair amount. It can be said that 51% of the claims were charged, while 49% or EUR 2.29 billion were outstanding. Based on this settlement, it can be expected that EUR 2.29 billion worth of assets have been destroyed, which roughly corresponds to the amount of the capital loss from the audit report of HRK 14.53 billion. If the destroyed value is divided into domestic and foreign creditors, domestic creditors participate in the destroyed value with 41.66% and foreign creditors with 58.34%. The restructuring will be done through settlement steps involving a new corporate structure, a new capital structure, and the issuance of financial instruments to creditors. 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Ratner, ISGWJ, 2009. Business Valuation and Bankruptcy. Hoboken, New Jersey: John Wiley & Sons, Inc. 22. Sajter, D., 2008. Economic aspects of bankruptcy and bankruptcy restructuring: doctoral thesis. Osijek: Faculty of Economics in Osijek. 23. Vance, DE, 2009. Corporate Restructuring From Cause Analysis to Execution. London: Springer. 24. Zopounidis, CDA, 1998. Multicriteria Decision Aid Methods for the Prediction of Business Failure. sl: Springer Science + Business Media Dordrecht. 25. Žager, K. Ž. L., 1999 .. Financial Statement Analysis. Zagreb: Masmedia. Other literature: 1. Agrokor Monthly Report for August 2017, http://nagodba.agrokor.hr/monthly- reports/ (8/29/2018) 2. Agrokor Monthly Report for June 2017, http://nagodba.agrokor.hr/MonthlyReports/ (8/29/2018) 3. Agrokor Monthly Report for June 2018, http://nagodba.agrokor.hr/MonthlyReports/ (8/29/2018) 4. Agrokor Monthly Report for October 2017, http://nagodba.agrokor.hr/Monthly-Reports/ (8/29/2018) 5. Agrokor Monthly Report for March 2018, http://nagodba.agrokor.hr/MonthlyReports/ (8/29/2018) 6. Agrokor Monthly Report for December 2017, http://nagodba.agrokor.hr/Monthly-Reports/ (8/29/2018) 7. Agrokor Monthly Report for September 2017, http://nagodba.agrokor.hr/Monthly-Reports/ (8/29/2018) 8. Agrokor Monthly Report for January 2018, http://nagodba.agrokor.hr/Monthly-Reports/ (8/29/2018) 9. Agrokor Monthly Report for July 2017, http://nagodba.agrokor.hr/MonthlyReports/ (8/29/2018) 10. Agrokor Monthly Report for July 2018, http://nagodba.agrokor.hr/MonthlyReports/ (8/29/2018) 11. Agrokor Monthly Report for November 2017, http://nagodba.agrokor.hr/monthly-reports/ (8/29/2018) 12. Agrokor Monthly Report for May 2017, http://nagodba.agrokor.hr/MonthlyReports/ (8/29/2018) 13. Agrokor Monthly Report for May 2018, http://nagodba.agrokor.hr/MonthlyReports/ (8/29/2018) 14. Agrokor Monthly Report for April 2017, http://nagodba.agrokor.hr/MonthlyReports/ (8/29/2018) 15. Agrokor Monthly Report for April 2017, http://nagodba.agrokor.hr/MonthlyReports/ (8/29/2018) 16. Agrokor Monthly Report for April 2018, http://nagodba.agrokor.hr/MonthlyReports/ (8/29/2018) 17. Agrokor Monthly Report for February 2018, http://nagodba.agrokor.hr/Monthly-Reports/ (8/29/2018) 18. Annual Audited and Consolidated Financial Statements for 2007 19. Annual Audited and Consolidated Financial Statements for 2008 20. Annual Audited and Consolidated Financial Statements for 2009 21. Annual Audited and Consolidated Financial Statements for 2010 22. Annual Audited and Consolidated Financial Statements for 2011 23. Annual Audited and Consolidated Financial Statements for 2012 24. Annual Audited and Consolidated Financial Statements for 2013 25. Annual Audited and Consolidated Financial Statements for 2014 26. Annual Audited and Consolidated Financial Statements for 2015 27. Annual Audited and Consolidated Financial Statements for 2016 28. Agrokor Settlement Hodogram, http://nagodba.agrokor.hr/nacrt-nagodbe/ (8/29/2018) 29. Draft Settlement, http://nagodba.agrokor.hr/nacrt-nagodbe/ (8/29/2018) 30. Settlement Proposal, http://nagodba.agrokor.hr/predlag-nagodbe-vjerovnikaagrokora/ (8/29/2018) 31. Attachments to the Settlements, http://nagodba.agrokor.hr/node-nagodbe/ (8/29/2018) 32. We Need to Talk About the PIK !, XTRACT RESEARCH Europe Special Reports (2017) 33. Law on the procedure of extraordinary administration in companies of systemic importance for the Republic of Croatia (NN, 32/2017). List of tables Table 1. Causes of company failure Table 2. Causes of business difficulties Table 3. Free cash flow calculation Table 4. From the free cash flow of the company to the free cash flow to the shareholders Table 5. Participants, action and goals Table 6. Conflicts of interest of negotiating parties Table 7. Bankruptcy Cost Surveys Table 8. Rights and duties of competent authorities in the procedure of extraordinary administration Table 9. Days of tying assets, inventories, collecting receivables and paying suppliers Table 10. Agrokor Group performance by three models Table 11. Reclassification of cash and cash equivalents (in billion kuna) Table 12. Composition of the Provisional Creditors' Council Table 13. Business characteristics from April to June 2017 Table 14. Business characteristics from July to September 2017 Table 15. Business characteristics from October to December 2017 Table 16. Business characteristics from January to March 2018 Table 17. Agrokor's operating expenses in the extraordinary administration procedure Table 18. Borrowings to Agrokor Group in 2016 billion HRK Table 19. Long-term bank borrowings and bonds to maturity in billions HRK Table 20. Currency structure of long-term bank loans in billion HRK Table 21. Liabilities to suppliers in billion HRK Table 22. Financial arrangement as of June 9, 2017 in millions of euros Table 23. Claims groups before the extraordinary administration process Table 24. Structure of reported claims (in HRK billion) Table 25. Structure of Group A debtors' claims (in kuna) Table 26. Structure of claims of Group A creditors (in HRK) Table 27. Structure of group C debtors' claims (in kuna) Table 28. Structure of C-class creditors (in HRK) Table 29. Structure of Group D debtors' claims (in kuna) Table 30. Structure of claims of Group D creditors (in HRK) Table 31. Structure of Group E debtors' claims (in kuna) Table 32. Structure of group E creditors' claims (in HRK) Table 33. Ownership structure of a new group by company Table 34. Return rates and ownership interests Table 35. Analysis of the rate of return and the amount outstanding Table 36. Percentage of claims collection Table 37. Structure of companies by level of return Table 38. Waterfall for selected companies (million EUR) List of pictures Figure 1. The process of corporate crisis and its stages Figure 2. Financial difficulties Figure 3. Restructuring scenarios Figure 4. Structure of Agrokor Group (1) Figure 5. Structure of Agrokor Group (2) Figure 6. Structure of Agrokor Group (3) Figure 7. Structure of Agrokor Group (4) Figure 8. Method of selecting the composition of the creditor council Figure 9. Agrokor Group restructuring plan Figure 10. Order of subjects' settlement Figure 11. Structure before and after the Settlement Figure 12. Transfer of claims and issuance of convertible bonds and depository certificates Figure 13. Establishment of mutual receivables and liabilities within the New Group Figure 14. Conversion of claims within the New Group into PPL and equity Figure 15. Transfer of economic entities Figure 16. SPFA Novation and Exit Credit Establishment Figure 17. Establishment of Fully Recoverable Claims Secured by Differential Right in the New Group Figure 18. Clarification of the EPM model Figure 19. Extension of SPFA List of charts Graph 1. Agrokor Group liquidity indicators for the period 2007 - 2016 Chart 2. Movement of net working capital in the period 2007 - 2016 (in billion HRK) Chart 3. Indebtedness ratio and own financing ratio for the period 2007 - 2016 Chart 4. Financing ratio and movement of interest expense coverage 2007 - 2016 Chart 5. Movement of indebtedness factors from 2007 to 2016 Graph 6. Movement of coverage levels from 2007 to 2016 Chart 7. Turnover ratios of total and current assets in the period 2007 - 2016 Graph 8. Trends in trade receivables, inventories and trade payables Chart 9. Agrokor Group's Business Economy Analysis from 2007 to 2016 Graph 10. Agrokor Group profitability analysis from 2007 to 2016 (%) Chart 11. Trend in principal profitability (%) Chart 12. Trend in Business Performance Model Results Chart 13. Share of receivables versus share of total return [1] Current liquidity ratio = cash / current liabilities [2] Accelerated liquidity ratio = (cash + receivables) / current liabilities [3] Current liquidity ratio = current assets / current liabilities [4] Financial Stability Ratio = Fixed Assets / (Equity + Long-Term Liabilities) [5] Net working capital = current assets - current liabilities [6] Debt ratio = total liabilities / total assets [7] Self-financing ratio = principal / total assets [8] Financing Ratio = Total Liabilities / Principal [9] Interest expense coverage = pre-tax profit and interest / interest [10] Debt factor = total liabilities / (retained earnings + depreciation) [11] Coverage I = Equity / Fixed Assets [12] Coverage II = (equity + long-term liabilities) / fixed assets [13] Turnover ratio of total assets = total revenue / total assets [14] Current Assets Turnover Ratio = Total Revenue / Current Assets [15] Claims ratio = sales / receivables [16] Inventory turnover ratio = cost of goods sold / inventories sold [17] Trade payables ratio = purchase / trade payables [18] Binding days are calculated by dividing the number of days per year by the activity coefficients [19] Business Economy = Total Revenue / Total Expenditure [20] Cost-effectiveness of sales = sales revenue / sales expenses [21] Financing Economics = Financial Income / Financial Expenditure [22] Net profit margin = (net profit + interest) / total revenue [23] Gross profit margin = (gross profit + interest) / total revenue [24] Net Return on Assets = (Net Profit + Interest) / Total Assets [25] Gross Return on Assets = (Gross Profit + Interest) / Total Assets [26] Equity Return = Net Profit / Equity [27] Models 141 companies and 90 companies have the following as the best discriminators: working capital / total assets, retained earnings / total assets, and net profit / equity. The model 90 companies after the IMF classification as the best discriminators took into account the following ratios: working capital / total assets, retained earnings / total assets, fixed assets / (equity + long-term liabilities), capital / total assets, core income / core expenses , net profit / equity. [28] Engl. Profit participating loan