Fight erupts over debts at NIF No. 7
Legal proceedings were begun in a local, Swiss court last month against Kazimierz Wielki Fund Management (KWFM), NIF No. 7's fund management company, the Business Journal has learned.
The action was filed on behalf of Howard Rosen, a British lawyer who acted as legal counsel to the fund management company, which is based in Switzerland. The notice of claim, which in Switzerland is filed as a prelude to litigation, seeks to recoup overdue payments from KWFM.
Rosen refused to comment on the existence of the legal proceedings, but said, "I can confirm that we have not been paid in several months for legal services."
Rosen is one of several NIF No. 7 creditors who have yet to be paid for work done in the first quarter of 1996.
Firouz Vakil, director of VHF, a new, Paris-based business consulting firm that took over KWFM on April 1, confirmed that about 40% of the company's debts are currently outstanding. But he said the debts would be finalized by the end of July.
Vakil said the debts have remained unpaid because they were accrued by GICC Capital, a Florida-based venture capital firm that was the NIF's fund manager until March 29 when it sold the company to VHF.
Based on figures provided by Vakil and GICC, the oustanding debts accrued before April 1 are estimated to be about $240,000.
VHF has questioned some of the bills left over from GICC.
Vakil said he has also instructed his lawyers to initiate legal proceedings in Swiss courts against his legal representative there.
"We have taken action against a fiduciary who has not given us any of the documents that by law he has got to give up," Vakil said. He added that the case would probably not go to litigation for debts of $50,000.
Rosen was Vakil's fiduciary representative in Switzerland.
The legal back and forth, and existence of outstanding debts, is causing old tensions to flare up at NIF No. 7 less than three months after the fund seemingly avoided the type of public fighting that has engulfed others such as NIFs 11 and 13.
The Polish government in 1995 formed 15 NIFs to privatize 500 state-owned companies through the Mass Privatization Program (MPP). About 28 million, adult Poles can purchase share certificates in the program.
At the end of March, rumors abounded of problems within NIF No. 7, but these died after the fund switched managers, with GICC selling the fund management company to VHF for an amount that both sides have refused to disclose.
These tensions are now resurfacing with GICC saying it was pushed out of the fund, while VHF claims the prior manager was not fulfilling its duties.
In addition to trading jibes, the two sides are disputing whether the management fee for the first quarter was enough to pay outstanding bills.
Vakil said the management fee from the first quarter, approximately $675,000 did not cover the accounts payable left by GICC. VHF alleged that poor management of the fund by GICC is to blame for late payments to creditors.
But Rosen confirmed that he has not been paid for his legal services from the first six months of 1996, after KWFM changed hands.
And GICC President Richard Gangel said the company's liabilities only amounted to about $400,000 at the time of the sale, giving them enough cash to meet debts.
Gangel added that several creditors had approached him after the sale of KWFM demanding payment. But as VHF purchased 100% of the company, including assets and liabilities, the bills were its responsibility, he added.
"Mr. Gangel left a lot of debts going back to September 1995 which has created a lot of problems for us," countered Vakil, adding that accounts payable were $200,000 higher than Gangel had represented.
Calling the purchase of KWFM a, "pseudo Chapter 11 situation," he said in order to pay off the debts all foreign staff were fired and VHF invested its own capital for settlements. He would not say how much this injection amounted to.
The unpaid creditors include firms in Switzerland, the United States and Poland, Gangel said.
"There have been some unpaid invoices that have been pending for some time," confirmed Andrzej Szlezak partner of the law firm Soltynski, Kawecki & Szlezak, which provided legal services to GICC. "We are now talking to VHF and trying to find a solution to the problem."
The dispute has not ended with the debts. In a letter sent to the Business Journal, Gangel also claimed that his company had been forced from its position as fund manager through a concerted effort by the fund supervisory board and the management company's consortium partners Bank Gospodarstwa Krajowego (BGK) and French investment bank Lazard Freres.
"Frankly, in over 45 years of business experience, I have never encountered a more bizarre and disturbing set of circumstances," Gangel said.
The move to push GICC out surfaced last December when the fund's supervisory board put the management on notice saying that management was not fulfilling its contractual obligations. According to one source who asked not to be identified, after the companies participating in the privatization program were allocated to the NIFs in July, KWFM did not set up a full-time office until January.
"They were not prepared for the program," said the source. But Gangel said his company moved into a full-time Warsaw office by December after working out of temporary space since the early summer. KWFM had five full-time managers and a total staff of 18 Poles and foreigners, Gangel said.
Lazard approached Vakil and his firm VHF to buy out GICC and take control of NIF No. 7. VHF had been formed six months earlier, Vakil said, with several longtime business associates. He said there was no relationship between the creation of VHF and Lazard's request to take over the NIF.
Vakil said that in January the supervisory board went to the two consortium partners warning them that, "if they did not put the consortium back together in view of the delinquent performance of GICC, the contract would be cancelled."
Gangel claims that GICC was not able to manage the fund to the best of its ability because Mariusz Stolarz, president of NIF No. 7's fund management board and Lazard board representative, had refused to sign the Prokuras, or the commercial powers of representation. Without the Prokuras, Gangel argued, GICC was hampered in its ability to make strategic decisions concerning the NIF.
After repeated phone calls from the Business Journal over a period of two weeks, Mr. Stolarz was unavailable for comment.
The action was filed on behalf of Howard Rosen, a British lawyer who acted as legal counsel to the fund management company, which is based in Switzerland. The notice of claim, which in Switzerland is filed as a prelude to litigation, seeks to recoup overdue payments from KWFM.
Rosen refused to comment on the existence of the legal proceedings, but said, "I can confirm that we have not been paid in several months for legal services."
Rosen is one of several NIF No. 7 creditors who have yet to be paid for work done in the first quarter of 1996.
Firouz Vakil, director of VHF, a new, Paris-based business consulting firm that took over KWFM on April 1, confirmed that about 40% of the company's debts are currently outstanding. But he said the debts would be finalized by the end of July.
Vakil said the debts have remained unpaid because they were accrued by GICC Capital, a Florida-based venture capital firm that was the NIF's fund manager until March 29 when it sold the company to VHF.
Based on figures provided by Vakil and GICC, the oustanding debts accrued before April 1 are estimated to be about $240,000.
VHF has questioned some of the bills left over from GICC.
Vakil said he has also instructed his lawyers to initiate legal proceedings in Swiss courts against his legal representative there.
"We have taken action against a fiduciary who has not given us any of the documents that by law he has got to give up," Vakil said. He added that the case would probably not go to litigation for debts of $50,000.
Rosen was Vakil's fiduciary representative in Switzerland.
The legal back and forth, and existence of outstanding debts, is causing old tensions to flare up at NIF No. 7 less than three months after the fund seemingly avoided the type of public fighting that has engulfed others such as NIFs 11 and 13.
The Polish government in 1995 formed 15 NIFs to privatize 500 state-owned companies through the Mass Privatization Program (MPP). About 28 million, adult Poles can purchase share certificates in the program.
At the end of March, rumors abounded of problems within NIF No. 7, but these died after the fund switched managers, with GICC selling the fund management company to VHF for an amount that both sides have refused to disclose.
These tensions are now resurfacing with GICC saying it was pushed out of the fund, while VHF claims the prior manager was not fulfilling its duties.
In addition to trading jibes, the two sides are disputing whether the management fee for the first quarter was enough to pay outstanding bills.
Vakil said the management fee from the first quarter, approximately $675,000 did not cover the accounts payable left by GICC. VHF alleged that poor management of the fund by GICC is to blame for late payments to creditors.
But Rosen confirmed that he has not been paid for his legal services from the first six months of 1996, after KWFM changed hands.
And GICC President Richard Gangel said the company's liabilities only amounted to about $400,000 at the time of the sale, giving them enough cash to meet debts.
Gangel added that several creditors had approached him after the sale of KWFM demanding payment. But as VHF purchased 100% of the company, including assets and liabilities, the bills were its responsibility, he added.
"Mr. Gangel left a lot of debts going back to September 1995 which has created a lot of problems for us," countered Vakil, adding that accounts payable were $200,000 higher than Gangel had represented.
Calling the purchase of KWFM a, "pseudo Chapter 11 situation," he said in order to pay off the debts all foreign staff were fired and VHF invested its own capital for settlements. He would not say how much this injection amounted to.
The unpaid creditors include firms in Switzerland, the United States and Poland, Gangel said.
"There have been some unpaid invoices that have been pending for some time," confirmed Andrzej Szlezak partner of the law firm Soltynski, Kawecki & Szlezak, which provided legal services to GICC. "We are now talking to VHF and trying to find a solution to the problem."
The dispute has not ended with the debts. In a letter sent to the Business Journal, Gangel also claimed that his company had been forced from its position as fund manager through a concerted effort by the fund supervisory board and the management company's consortium partners Bank Gospodarstwa Krajowego (BGK) and French investment bank Lazard Freres.
"Frankly, in over 45 years of business experience, I have never encountered a more bizarre and disturbing set of circumstances," Gangel said.
The move to push GICC out surfaced last December when the fund's supervisory board put the management on notice saying that management was not fulfilling its contractual obligations. According to one source who asked not to be identified, after the companies participating in the privatization program were allocated to the NIFs in July, KWFM did not set up a full-time office until January.
"They were not prepared for the program," said the source. But Gangel said his company moved into a full-time Warsaw office by December after working out of temporary space since the early summer. KWFM had five full-time managers and a total staff of 18 Poles and foreigners, Gangel said.
Lazard approached Vakil and his firm VHF to buy out GICC and take control of NIF No. 7. VHF had been formed six months earlier, Vakil said, with several longtime business associates. He said there was no relationship between the creation of VHF and Lazard's request to take over the NIF.
Vakil said that in January the supervisory board went to the two consortium partners warning them that, "if they did not put the consortium back together in view of the delinquent performance of GICC, the contract would be cancelled."
Gangel claims that GICC was not able to manage the fund to the best of its ability because Mariusz Stolarz, president of NIF No. 7's fund management board and Lazard board representative, had refused to sign the Prokuras, or the commercial powers of representation. Without the Prokuras, Gangel argued, GICC was hampered in its ability to make strategic decisions concerning the NIF.
After repeated phone calls from the Business Journal over a period of two weeks, Mr. Stolarz was unavailable for comment.
