(updated as of December 30, 2022)
This information letter is an addition to the previously posted materials (available at the links):
In October 2022, the staff appealed to the Company for financial assistance to pay off wage arrears (at that time the wage arrears were 4 months old).
However, since February of this year, the Plant, within the framework of the legislation on rehabilitation and bankruptcy, is not subordinate to the Company. The Company has been removed from the management of the plant.
Despite this, the Company, having its own financial difficulties, has provided financial assistance to the Plant in the amount of 21,3 million tenge (monthly payroll of the Plant is about 20 million tenge). In addition, the Company's employees who cared on their own initiative organized the collection of personal funds for the purchase of warm special footwear for the plant's employees.
Due to the emerging situation and increasing social tension at the Enterprise, the Company addressed the General Meeting of Creditors of the Plant with a proposal to conduct an audit of financial and economic activities on the execution of current contracts.
On October 11, 2022 a meeting was held with the participation of the members of the General meeting of the Plant's creditors, at which the creditors requested the Company to assist in conducting the audit by engaging the Company's Internal Audit Service (hereinafter referred to as IAS). As a result, it was unanimously approved to initiate sending the Company's IAS to «SMZ» JSC to conduct the audit. On October 18, the Company's Board of Directors agreed and decided to audit the IAS.
Creditors' Committee of «SMZ» JSC (note № 2 dated October 26, 2022) made a decision: - to conduct an audit at «SMZ» JSC; - attract the Internal Audit Service «Kazakhstan Engineering» to assist in the audit; - announce a competition to find a participant in the rehabilitation (investor) to correct the financial and economic activities of «SMZ» JSC.
The IAU conducted the audit at SMZ JSC from October 31 until November 15 of the 2022, during which the efficiency of the funds, allocated for the investment project «Creation of MAZ vehicles assembly plant», as well as the rehabilitation procedures for the Plant were inspected. Numerous critical and important (significant) detections were revealed.
It was established that under the project «Creation of MAZ vehicles assembly plant» on the reconstruction and overhaul of buildings, the enterprise did not conclude contracts with contractors; the works were closed by the piecework orders with the involvement of individuals. Thus, on reconstruction and overhaul of buildings of machine-assembly workshop №3 and administrative and household complex №3 - was given out on the sum about 172,8 mln. tenge, that made 38,9 % from all amount of fulfilled construction-assembly works. At the same time, some of the supporting documents (certificates of work performed, payment orders, etc.) on these works are missing.
In work orders for piecework, execution and closing of works did not correspond to approved design and estimate documentation. Also, there were recorded the facts of exceeding the scope of work closing from the scope approved by the design estimate documentation. In the course of conducted control, measurement revealed significant deviations from the estimated scope of work and, respectively, payments for unfulfilled scope of work. Due to the absence of cost estimate documentation, it was not possible to establish the actual work performed to restore the access road.
It was found that all individuals who acted as subcontractors for piecemeal work had no pension payments. At the same time, there are payments on the cash vouchers for these individuals.
All collected facts were collected and submitted to the Anti-Corruption Service.
As for execution of the rehabilitation plan, according to the production program, at the moment of inspection the income indicator was executed only at 33.6% of the plan, the reporting period net loss amounted to 145 036 thousand tenge, with the planned profit of 99 196 thousand tenge.
There are facts of sales of products (hatch covers of cars) at a cost below the approved calculations, and in some cases, these products were then resold by buyers with a mark-up to other customers.
In addition, numerous violations of labor legislation, procurement, accounting and financial reporting (management of accounts payable and receivable; accounting of goods made on commission; accounting of fixed assets and asset management) were revealed.
At the same time, on the 16th of November 2022 the Prosecutor's Office of Abay region, within the framework of response to information received from the Company, as well as violation of rights of employees of the Company, initiated a large-scale inspection of «SMZ» JSC (decision of Semey city Prosecutor's Office about inspection № 7221910100100039) about legality of money expenditure, execution of rehabilitation plan, tax and labor legislation, Law «About combating legalization (laundering) of illegally-gained income and terrorism financing». The period since January 1, 2014 is subject to inspection. In addition to employees of the prosecutor's office, specialists from the Department of Economic Investigations and the Inspectorate of the Department of Labor Legislation Control were involved in the inspection.
The Company continues to look for potential investors for the plant's reorganization. To date, the Company has already received requests from potential participants in the rehabilitation of SMZ JSC:
- «Oljakol» LLP expressed its willingness to participate in the rehabilitation procedure of SMZ JSC with a letter dated 27.10.2022 and to undertake obligations to meet the demands of creditors within the terms determined by the Plan of rehabilitation of SMZ JSC;
- Private company «Prime Management» by the letter dated 22.10.2022 has confirmed its intention to participate in the reorganization of «SMZ» JSC, provided the audit and the change of the Rehabilitation manager.
Prime Management also appealed to the creditors of SMZ JSC with the proposal to convene the meeting of creditors with the following agenda:
- Dismissal of M.B. Alenov, the rehabilitation manager of SMZ JSC.
- Appointment of a new rehabilitation manager.
- Audit of the plant's activity for the last 5 years.
In this regard, at the operational meeting, held on the 26 of October this year at the initiative of the Company, the members of the creditors' meeting were proposed to begin the procedure of searching potential participants of "SMZ" JSC reorganization. The creditors supported this initiative.
The bailout algorithm implies:
- Decision of the Creditors' Committee to announce an open search for bailout participants (including in the media);
- Study of all offers of potential bailout participants of the Plant and selection of the most optimal variant;
- Conclusion of a preliminary agreement with the selected participant of the rehabilitation, which must give an appropriate written commitment;
- Application by the Creditors' Meeting to the judiciary for amendments to the Rehabilitation Plan with regard to the reorganization; approval by the court of the amendments to the Plan of rehabilitation of «SMZ» JSC in the part of the rehabilitation.
On November 25 this year, at the meeting of the Creditors Committee considered the proposals for the rehabilitation of «Oljakol» LLP and Prime Management. The Committee concluded that both potential reorganizers do not currently have the necessary amount for a full rehabilitation (1,325,458,005.43 tenge). In this regard, it was decided to study the financial solvency of potential rehabilitators after the court approval of the adjusted Plan of rehabilitation of SMZ JSC.
On the same day, there was a meeting of the Creditors' Meeting, where, according to the agenda, it was planned to discuss the issues of adjusting the rehabilitation plan in terms of rehabilitation and change of the rehabilitation manager of "SMZ" JSC. However, at the initiative of the State Revenue Department of Semey city (Chairman of the Creditors' Committee), the issue of changing the rehabilitation manager was removed from consideration until the establishment of actual data on the financial stability of companies that made proposals for rehabilitation (Note: inclusion of this issue in the agenda was initially initiated by the State Revenue Department of Semey city).
In terms of adjusting the rehabilitation plan, taking into account the proposals received from two legal entities, agreed to include in the document rehabilitation - as a potential rehabilitation measure.
On November 30 of this year, the agreed amendments to the rehabilitation plan of «SMZ» JSC were sent for approval to the Specialized Interdistrict Economic Court of East Kazakhstan Region.
Information for 30.12.2022:
We additionally inform that according to data available as of 30.12.2022, in terms of execution of rehabilitation plan, according to production program, now of inspection income indicator executed only by 33.6% of plan, for reporting period net loss was received in the amount of 145,036 thousand tenge, at planned profit of 99,196 thousand tenge.
At the Company's request on the status of the competitive selection of bidders for the rehabilitation of «SMZ» JSC, the rehabilitation manager Mr. Alenov M.B. gave his comments by the letter dated 07.12.2022, which says that «SMZ» JSC announced about the search for participants in the reorganization of «SMZ» JSC by placing the appropriate notice in the national newspaper «Kazakhstanskaya Pravda», in the regional newspaper «Spectrum», on TV channel TVK-6, as well as in the social network of «SMZ» JSCs’ Instagram.
To date, potential bidders gave no specific proposals for the rehabilitation, other than the existing proposals from Oljakol LLP and Prime Management Ltd.
The court ruling approving all of the proposed amendments to the «SMZ» JSC rehabilitation plan was issued on 19 December 2022 and will take effect after 10 working days.
The next meeting of the Creditors' Committee, which will consider the approval of the participant in the rehabilitation of «SMZ» JSC, will take place after the court ruling enters into legal force. The Creditors’ Committee will determine the exact date.
After the Creditor Committee approves the rehabilitation participant in «SMZ» JSC, the Company, as the owner of «SMZ» JSC, plans to consider selling to the rehabilitation participant a block of shares in «SMZ» JSC equal to the amount of funds it invested, if the rehabilitation participant covers all costs reflected in the rehabilitation plan.
«SMZ» JSC and repayment of «SMZ» JSC's debts to the Company.
Despite the Company's efforts to resolve the situation, the current management represented by M.B. Alenov, the rehabilitation manager, does not ensure the implementation of «SMZ» JSC's Plan of Rehabilitation.
Unfortunately, these actions eventually lead to an increase in social tension, with the Plant's workforce rightly expressing dissatisfaction when they do not receive their salaries for November - December 2022.
The company still believes that the plant is in a good position to implement its production program and meet its obligations. The Plant's creditors' meeting and Committee have the right to assess the risks of the current rehabilitation manager failing to execute the rehabilitation plan of «SMZ» JSC and, if necessary, to consider his replacement.
Despite the fact that the Company is suspended from management of the Plant, it does not stop making every effort to rectify the current situation: two contracts for the supply of hatch covers for open wagons, for 425,087,040 tenge, including VAT, have been initiated.