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Our grateful thanks go to our 2016 Annual Congress Sponsors.

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Presentation on theme: "Our grateful thanks go to our 2016 Annual Congress Sponsors."— Presentation transcript:

1 Our grateful thanks go to our 2016 Annual Congress Sponsors

2 Morning Technical Session Kindly Sponsored By www.hoche-avocats.com

3 Opening remarks of the Annual Congress Francisco Patrício (Abreu Advogados, Portugal) Evert Verwey (Clifford Chance, The Netherlands) Alberto Núñez-Lagos Burguera (President of INSOL Europe, Uría Menéndez, Spain)

4 Global Credit Risk Management: A helpful toolbox for cross- border insolvency practitioners Giorgio Bovenzi (Dentons, USA) Frederick Morris (Goldman Sachs International, UK) Christian Donagh (Matheson, Ireland), Mike Jervis (PwC, UK) António Rocha Alves (Campos Ferreira, Sá Carneiro & Associados, Portugal)

5 Roadmap for Today’s Discussion Challenges that investors and restructuring advisors encounter in multi-jurisdictional distressed scenarios How global credit risk management tools can provide a readily-available knowledge base and assist in mitigating such challenges Next steps to enable legal advisors involved in multi- jurisdictional restructurings to benefit from global credit risk management experience

6 Challenges Investors and restructuring advisors dealing with multi- jurisdictional distressed scenarios encounter complex legal and business challenges, mainly due to: a)Different judicial systems b)Lack of coordination frameworks for in-court restructurings across the jurisdictions c)Stays and moratoria d)Limitations on financing

7 a)Different Judicial Systems o Early identification of the structure and sophistication of the relevant legal systems and their judiciary, the available proceedings, their scope, and their shortfalls is key to proper contingency planning and restructuring strategies o Are there multiple jurisdictions in which a proceeding could be brought? Do such jurisdictions provide different treatment of debtor and creditor rights? Is there a risk that one or more jurisdictions may rule differently with respect to debt instruments, collateral arrangements and proposed restructuring terms?

8 b)Lack of Coordination Frameworks for In-Court Restructurings Across Jurisdictions o Inconsistent approaches to key issues (e.g., substantive consolidation, structural seniority, absolute priority rule/creditor recovery waterfalls, etc.) o Understanding at the early stages of the restructuring what works and what doesn't across the multiple jurisdictions, and the level of coordination that can be achieved, is paramount

9 c)Stays and Moratoria o Inconsistent approaches to stays and moratoria; length of stays can vary dramatically across jurisdictions o Need to balance prevention of precipitous creditor action with certainty and predictability around contractual rights o Creditors whose positions are legally protected and who can terminate and liquidate their contracts regardless of the commencement of a proceeding should be identified early on, in order to identify the assets still available for DIP financing collateral or later distributions

10 d)Limitations on Financing o Limitations against DIP financing options typically result in lower recoveries in liquidations o In the face of such limitations, the appropriate identification at the early stage of creditors' rights and the legal positions that the various constituencies are entitled to have in the restructuring is key o However, in a multi-jurisdictional setting, this review could take months and be very expensive to the point of not being undertaken at all

11 Issues: Restructuring strategies that effectively deal with all the foregoing challenges are complex and difficult to develop under the typical time constraints and cost limitations Is there a knowledge base where useful cross-border credit and insolvency risk analyses have already been developed, such that contingency planning and restructuring strategies can rely on information of superior quality, affordable cost, and immediate availability?

12 Global Credit Risk Management to the Rescue For more than a decade now, global banks have built substantial expertise in the review of their cross-border exposures through cross-jurisdictional legal opinions Although such opinions are created for limited scopes, e.g., review of derivatives book, securities lending, repos, prime brokerage, etc., they contain expansive legal discussions; many aspects of the know-how, analytical framework, and discussions that they contain could be repurposed Limitations: confidentiality, compliance with industry association rules, among others

13 Global Credit Risk Management to the Rescue (cont'd) Cross-border opinions review the enforceability of financial contracts in the context of the hypothetical bankruptcy of the foreign counterparty Deep dive into insolvency proceedings of each specific jurisdiction o What types of insolvency proceedings are available in the jurisdiction? Do they also provide for a "restructuring" or "administration" or "rescue" option? Do they provide for ancillary assistance to foreign proceedings? What level of coordination with foreign proceedings (or out-of-court restructurings) can be achieved under the laws of the jurisdiction?

14 Global Credit Risk Management to the Rescue (cont'd) What are the effects of such proceedings: o Stay? Automatic? How long? Extraterritorial effects? o Can collateral be enforced by self-help remedies? o Surveys/opinions often cover these aspects Legal enforceability surveys/opinions also analyze: o Recognition of foreign law-governed contracts o Recognition of security interests (perfection and priority) o Avoidance risk

15 Global Credit Risk Management to the Rescue (cont'd) Thus, even though the cross-jurisdictional surveys and legal opinions that financial participants or industry associations obtain are usually limited to specific financial contracts, o Several of their analyses and conclusions are of general applicability and not limited to special products o Such analyses could be useful to investors, restructuring advisors and accountants at the early stages of the restructuring process (or even before, in the case of investors)

16 Next Steps: Leveraging Cross-Border Insolvency with Global Credit Risk Management Tools Surveys/opinions are highly complex and analytical; they are also quite esoteric, typically read and understood by a small group of experts from banking & derivatives practices that are remote from the restructuring and insolvency fields Enabling on-going collaboration between restructuring advisors and banking & derivatives experts, and bringing such experts into restructuring teams, could create powerful contingency planning & restructuring advisory teams and, at the eve of a multi-jurisdictional restructuring, provide clients with (a) superior advice (b) at a lower cost

17 Questions?

18 Financing companies in distress: An opportunity for potential new lenders/ investors or just a way to protect the interests of the existing creditors? Rita Gismondi (Gianni, Origoni, Grippo, Cappelli & Partners, Italy) Paolo Castagna (UnicreditBank AG Hypovereinsbank, Germany) Graeme Smith (AlixPartners, UK) Edward Smith (Travers Smith, UK)

19 In your jurisdiction is there a need for distressed financing, and an appetite among lenders to provide it?

20 In your jurisdiction what types of distressed financing are available and how has this developed in recent years?

21 What are the challenges to providing and securing that financing?

22 In your experience which are the main ‎constraints for banks in rescue financing nowadays?

23 In your jurisdiction can directors of the borrower and/or the lender be exposed to liabilities in connection with distressed finance?

24 In your jurisdiction are there any proposals or steps to reform the provision of distressed finance or DIP finance?

25 Delegate Coffee Break Kindly Sponsored By www.troostwijkauctions.com

26 Break-out-session I. Trying to keep a business afloat: Finance & Liability Issues for Directors and/or Lenders Johan Jol (ABN AMRO Bank, The Netherlands) Borja García-Alamán (Garrigues, Spain) Sophie Vermeille (DLA Piper, Droit & Croissance / Rules for Growth, France) Stefan Sax (Clifford Chance, Germany) Katrina Buckley (Allen & Overy, UK)

27 TOPICS: Introduction, putting things in perspective Duties and liability of directors (including obligation to file for formal insolvency) Lender liability, is it for real and how to mitigate

28 INTRODUCTION: Case study Business faces financial difficulties, liquidity and solvency issues Financial and operational restructuring is required, but process just starts Directors are worried about their fiduciary duties, they want to try to keep business afloat but are they obliged to file yes or no? Lenders are asked for a standstill, to provide (additional financing) during the process and to consent to the restructuring. But what about lender liability? Perspective of UK, Germany, France and Spain is dealt with

29 TOPIC: DUTIES AND LIABILITIES OF DIRECTORS (INCLUDING OBLIGATION TO FILE FOR FORMAL INSOLVENCY)

30 30 UK law obligation to file for insolvency? No positive obligation to file though consider location of COMI (Kornhass v Dithmar) BUT Wrongful trading liability if continue to trade Possible disqualification and compensation order

31 31 UK Wrongful trading IF director knew (subjective test) or should have concluded (objective test), there was no reasonable prospect of avoiding insolvent liquidation/administration Directors tested by reference to general standard expected of director (objective test) and specific skills of individual (subjective test) AND failed to take every step to minimise potential loss to creditors Personal liability to contribute to assets

32 32 UK Fraudulent trading Business carried on with intention to defraud creditors or for any other fraudulent purpose Criminal and civil liability for any person knowingly party to carrying on of business fraudulently Need to prove dishonesty, so successful cases rare

33 33 UK Mitigating risk avoid wrongful trading Continually assess likelihood of solvent outcome Capital injection or debt for equity conversion? Prepack challenges Solvent sale?Trade out of insolvency? No reasonable prospect of avoiding insolvent liquidation

34 34 UK Mitigating risk - minimise loss to creditors General body of creditors or individual creditors ? High hurdle for directors Must put in place a framework for protecting individual creditors Re Ralls Builders Limited Take professional advice and record decision making Use of trusts, payments in advance, but issues where customer deposits are used for working capital Not sufficient if overall loss to creditors is reduced at expense of some creditors But if continued trading did not create a loss for the general body of creditors, directors may not be liable to contribute to assets of company

35 Directors’ duties in the “twilight” period under German law Strict duties imposed on the directors in times of financial distress, inter alia, Monitoring duties with a view to the financial situation of the company – at all time Information obligations vis-à-vis the shareholders (especially if one-half of the share capital of the company is lost) Restrictions/prohibitions to render payments to the shareholder Assessment of potential insolvency reasons (i.e. (impending) illiquidity and/or over-indebtedness) Fiduciary duties are exclusively owed to the shareholders, i.e. German law does not provide for a “creditors’ first rule”

36 German law mandatory reason to file for insolvency Illiquidity (Zahlungsunfähigkeit) Inability of the debtor to meet due payment obligations Inability vs. unwillingness to pay (e.g. disputed claims) Impending illiquidity is a voluntary reason to file Over-indebtedness (Überschuldung) Liabilities must not exceed value of assets However, if going concern forecast is positive, then no duty to file for insolvency irrespective of assets/liabilities test

37 Directors’ liability in the “twilight” period under German law Hard and fast rule: the 21 day filing period Directors are obliged to file for insolvency proceedings immediately after the company has become illiquid or over-indebted, but at the latest after three weeks Damage claims of creditors - failure to comply with filing obligation may result in damage claims in favour of the (future) insolvency creditors Criminal liability for delayed filing; potential other bankruptcy offences may be triggered General prohibition of payments going forward Reduction to legally allowed payments to the extent necessary to keep operations afloat (Notgeschäftsführung) Directors are obliged to reimburse the company with respect to these payments in case of breach of duty

38 Director’s duties under Spanish law Directors fiduciary duties are not owed to creditors, but to the company Without prejudice of the liability regime vis-à-vis creditors, based in general principles of tort law Criminal law: – Statutes: fraud / concealment of assets / deepening insolvency Corporate law: – 3 possible actions against directors: social action (for damages caused to the company), individual action (damages directly caused to a particular creditor) or capital impairment action. – Duty to liquidate: 4 months since occurrence of capital impairment (directors may also directly file for insolvency if they anticipate an insolvent liquidation), otherwise: Personal liability for new debts post-breach (objective liability) – Action against directors suspended in case of formal proceedings: replaced by insolvency regime

39 Director liability regimes under Spanish law Insolvency law : – Duty to file: 2 months since illiquidity (+ 4 months if use of a protective shield, “pre-concurso”) – One of the few countries where directors liability must be necessarily examined –in certain cases– by the Bankruptcy court dealing with the formal insolvency proceedings (not in case of Spanish Scheme) – General clause and presumptions (numerus clausus). Possible consequences: disqualification, coverage of liquidation deficit – After latest legal amendments, Supreme Court supports causal (as opposed to objective) approach to responsibility – In practice, strict legal duty to timely file for insolvency, heavily sanctioned, has been softened: Demonizing of formal insolvency proceedings: last resort: identification with liquidation Introduction of regulation on hybrid pre-insolvency instruments: impact on Courts’ approach: higher tolerance to delay (although risk of abuse of hybrid instruments: attractiveness of clawback protection for new money lenders)

40 Director’s duties under French law Corporate law: – Duty for directors to exercise their powers over corporate affairs with reasonable diligence and in the best interest of the company – No fiduciary duties vis-a-vis shareholders, nor vis-a-vis creditors when the company is in the vicinity of insolvency – No business judgement rule, no good faith test for directors Bankruptcy law (provided that the company is put into liquidation) : – Tort based action available against directors for wrongful trading claims – objective test – Liability directors resulting in personal bankruptcy and/or prohibition to be director or manager of a company for abusive prolongation of an unprofitable activity

41 Director’s duties under French law Criminal law:  Fraud, use of corporate assets to its own benefit, many threats, few cases in practice Obligation to file for insolvency in France?  Obligation to file for insolvency proceedings within 45 days after a cessation of payment  Cessation of payment is a legal concept, close to liquidity crisis  In practice, dynamic of negotiations during workouts works in favour of the management as French insolvency proceedings are often used as a threat against creditors  Common belief in France that whatever must be done to avoid filing for formal insolvency proceedings

42 TOPIC: LENDER LIABILITY, IS IT FOR REAL AND HOW TO MITIGATE

43 German reality exceeds fiction: lender liability May be triggered by providing fresh money to a distressed company if the lender only delays the opening of insolvency proceedings May also be triggered by lenders’ influence on management decisions (shadow director liability) – Risk of lender being held liable as shadow director does exist in Germany – This is the case if the lender deprives management of powers or assumes management or exerts substantial influence Liability may take both forms, civil and criminal liability

44 Mitigation the lender liability risk in Germany Insist on a workout opinion (Sanierungsgutachten) – in an ideal world following the German industry standard (IDW S6) No interference with management decisions – abstain from direct negotiations with third parties on behalf of or appearing to be representing the borrower Accept the justified interests of the directors and their wish to get separate legal advice Ensure communication takes place on a formal basis and always be aware who acts in which capacity

45 Lender liability in Spain: the myth A real concern or just opportunistic litigation? – De facto directorship and claim subordination – Very few precedents of lenders as de facto directors And even fewer precedents of lenders effectively being held liable – Case law: Leading case against lenders: Aifos (2011) Leading case pro lender: Mag Import (2014)

46 From lender liability to lender immunity in Spain Creditor-friendly movement: since amendments in 2014: – New statutory directors liability presumption associated to the Spanish Scheme: Frivolous rejection of a lender-led Spanish Scheme wiping out equity that is out-of-the-money – New lender protection associated to the Spanish Scheme: Lenders not to be considered de facto directors on the basis of the contents of a court sanctioned Spanish Scheme – Importance of COMI location after Kornhaas v Dithmar (Case C- 594/14)

47 lender liability in France Prior to 2005: soutien abusif: provider of any loan which, in the absence of any perspective of business development for the debtor, made inevitable the collapse of the borrower, could be held liable on the basis of a general tort claim Currently: Creditors can only be held responsible in cases of fraud, de facto management or disproportionate security interest

48 48 Mitigation of lender liability in the France To mitigate lender liability for soutien abusif If lenders provide additional funding, they should require that the company files before for “conciliation procedure” and that the agreement which is reached by the parties is vetted by the Court (homologation) ; no risk of liability ins such scenario To mitigate lender tort liability for de facto management, and in particular threats which have an impact on lenders’ bargaining power during workout: Avoid taking part regularly to the executive meetings without having a legal status, Pay attention to the wording of the contractual, statutory and corporate documents ; the documents must highlight the supervising role of the investors, nothing more The negotiations and the singing of commercial contracts must be led and done by de jure managers Pay particular attention to mails, e-mails, minutes, and internal memos.

49 49 UK lender liability No concept of lenders being liable for lending to a distressed company Lenders may be liable if they influence management decisions: – Lender personnel could be found to be de facto director or shadow director (persons in accordance with whose directions the directors are accustomed to act) and liable for wrongful trading – Fraudulent trading applies to “any person knowingly party to carrying on business” in fraudulent manner (though dishonesty must be proved) Disqualification orders (and compensation orders) extended to persons who exercised a “requisite amount of influence” over the disqualified director i.e. the disqualified director acted in accordance with the third party’s direction or instructions

50 50 Mitigation of lender liability in the UK Ensure restructuring terms and conditions imposed by lenders in their capacity as such Clearly define lender board observer roles and ensure lenders not involved in board decision making in practice Consider position if lender controls bank account and allows specific payments to be made Ensure all parties are well advised

51 Break-out-session II. Squeezing the equity out of a distressed company Nicolas Theys (Dentons, France) Richard Mizak (Patriarch Partners, USA) Slavomír Čauder (Giese & Partner, Slovakia) Helena Soares de Moura (Morais Leitão, Galvão Teles, Soares da Silva & Associados, Portugal)

52 Introduction Speakers Presentation: – Helena Soares de Mora : Attorney at law for the past 18 years; Main stream activity: litigation; distressed & bankrupted businesses – Richard Mizak: Distressed private equity; Turnaround consulting more then 17 years – Slavomir Cauder: Attorney at law for the past 14 years; Main stream activity: Bankruptcy and Restructuring – Nicolas Theys: Attorney at law for the past 20 years; Main stream activity: distress & bankruptcy business

53 Rationales for this subject - two important French files:  In both cases the shareholders have used their legal strenght to act against the interests of the company  Two perspectives for the subject: 1.The strenght of shareholders’ ownership right 2.The legal ways to squeeze out the shareholders’ ownership right CN: €200m of revenues; €100m of liabilities; Approximatly 500 employees; and Main local actor. Bourbier: Recycling company; Very strong on its local market; E100M of revenues; and More or less 300 employees

54 1.Strength of shareholders’ ownership rights 1.1. US Vision Strength of shareholders’ ownership rights is dependent on the value of the company versus the amount of debt Therefore first question is always about valuation…this is simple in theory but difficult in practice Ad hoc equity holders can be organised if there is value and if shares are widely held :  Chapter 11 – equity committee may be allowed  Chapter 7 – equity committee not allowed, likely no value  Groups of equity holders often band together for certain issues

55 1.2. Czech Republic and Slovak Republic vision Subordination of the Shareholders’ Receivables (Old Equity): =>In both countries: Shareholders’ receivables are to be repaid only after all receivables of secured and unsecured creditors against the debtor (incl. other subordinated receivables) are satisfied  In Slovakia:  receivables of all related persons/companies are subordinated,  subordination does not relate strictly only to receivables arising from the participation in the debtor Shareholders as Creditors in the Restructuring/Reorganization Proceedings: =>may create a separate group of creditors (namely if their rights are affected by a restructuring plan) =>may affect the approval of a restructuring/reorganization plan.

56 1.3. Portuguese vision Subordination of the Shareholders’ Receivables: => Shareholders’ receivables are to be repaid only after all receivables of secured and unsecured creditors against the debtor (incl. every other subordinated receivables) are satisfied. Shareholders as Creditors in the Restructuring/Reorganization Proceedings: => Only have voting rights on the approval of a restructuring/reorganization plan

57 1.4. French vision Constitutional property right vs interest of a company facing difficulties. Since Napoleon, because of the force of the constitutional property right, for many years, it was not possible to kick out the equity. Over the last few years, more power has been granted to the creditors while in the same time equity’s power has been reduced.

58 2. The legal ways to kick out the equity 2.1. US Vision Value of the company may impact options regarding the equity  Depends on who wants to squeeze out whom  Type of equity owner may also impact options (sophisticated e.g. PE fund; or unsophisticated e.g. individual owner)  Distinction of economic vs. voting/control rights  Based on corporate docs and/or state law  e.g. Ford, Google => Where in process?  Ch. 11 – lender not in control, equity is  Ch. 7 – lender in control, equity likely out of the money  Outside of 7 or 11  depends on corporate / loan docs and state law

59 2.2. Czech Republic and Slovak Republic vision not foreseen within bankruptcy as the bankruptcy is aimed at sale of the debtor’s property (share deals or asset deals possible); restructuring/reorganization: entry of a new investor is one of the solutions

60 2.3. Portuguese vision Shareholder exclusion through “Harmónio” Operation (decrease and increase of capital):  “Harmónio” Operation: perform a share capital decrease followed by a share capital increase to meet share capital minimum requirements (if any);  Share capital increase resolution corresponds to the “Harmónio” Operation resolution;  The share capital increase:  Shall be subscribed by third parties (if willing to do so);  Could also be validly undertaken by the company’s general meeting;  Comply with majorities fixed by law/the articles of association.  The need for fresh money: share capital increase through (i) contributions in cash; or (ii) conversion of debt into capital;  Change in the shareholder composition.

61 Shareholder exclusion provided for in the Insolvency Plan: =>Partnerships (Sociedades em nome colectivo) and limited partnerships (Sociedades em comandita simples): shareholder exclusion may occur if the Plan provides for the exclusion and substitution of all shareholders; =>Limited partnership with a share capital (Sociedades em comandita por ações): the commanding partners (sócios comanditados) can be excluded through the share capital decrease to zero; =>Compensations due to shareholders excluded.

62 2.4. French vision (case of share deal and not assets deal) Principle: the approval of the shareholders is necessary to set up a share deal. Exceptions: Squeezing out the shareholders who are also directors of the company (L631-19-1 of French commercial code) : => when the reorganization of the business so requires, the court, at the request of the Public Prosecutor’s office may subject the adoption of the reorganization plan to the replacement of one or several business managers. => for this purpose, the court can order the sale of the shares of the company held by the managers. The sale price will be determinated by an expert.

63 Debt to equity swap:  When a company has revenues higher than E20M or more than 150 employees: creditors committees have to be held  Creditors committees will vote in favour or not of a restructuring plan (2/3 of majority);  The committees can force the conversion of the debts into equity – this decision will be enforceable against all the creditors committees members;  As the conversion of debts into equity will bring a change of capital, the shareholders will be consulted and will have to vote in favor or not of the plan. However, the shareholders will be subject to high pressure to vote in favor of the plan : if not, they can be held liable for having prevented the debtor from pursuing its business.

64 Refinancing by new investors:  Legal provision: if its shareholder’s equity is lower than half of the share capital: the debtor has the legal obligation to reconstitute its shareholder’s equity at least for an amount equal to the half of the share capital. A vote of the shareholders assembly is necessary – as in our case study =>Since 2015, within the context of a court-ordered reorganization: 2 options:  If the old equity consents to bring new cash and to reconstitute the shareholder’s equity or accept that a new investor reconstitute the shareholder’s equity: a restructuring plan can be voted on this basis;  If the old equity refuses to vote a reconstitution of the shareholder’s equity in favour of the investors which made commitments to execute the plan : the Court can appoint a judicial officer (mandataire de justice) to (i) convene the shareholders meeting and (ii) vote the shareholder’s equity reconstitution in place of the opposing shareholders.  the old equity is squeezed out by the new investors and the creditors who have voted in favor of the plan.

65 Break-out-session III. Credit bidding Ángel Alonso Hernández (Uría Menéndez, Spain) Glen Flannery (Nabarro, UK) Fedra Valencia (Cuatrecasas Gonçalves Pereira, Spain) Professor Christoph Paulus (Humboldt Universität zu Berlin, Germany)

66 Introduction Why is credit bidding important in insolvency proceedings?

67 What are the benefits and drawbacks of credit bidding? – Defensive mechanism for secured creditor. – Reduces costs for the secured creditor. – ‘Chilling’ the bidding and driving down the potential for creditor recovery. – Increase the likelihood for aggressive challenges to the secured creditor’s claims and liens. – Facilitate the negotiation of a stalking horse bid. – Discourage other bidders. – In the case of a syndicate or group of lenders, may create tension among the members of the lender group. – From a distressed buyer’s perspective, provides control of the process.

68 Credit bidding as a defensive tool for the secured creditor: – Bidding up the sale price. – Deleveraging the assets. – Loan to own. Chilling effect on other potential bidders.

69 Possibility of appropriation of the collateral. – Directive 2002/47/EC of the European Parliament and of the Council of 6 June 2002 on financial collateral arrangements. Who can credit bid in case of syndicated financing or bonds? – Each lender? – The collateral agent on behalf of the entire syndicate? – What treatment must be afforded to those members of the syndicate who oppose the credit bid?

70 Credit bidding by subsequent buyers of the original debt. – Spanish cases: JPI no. 38 of Barcelona exception of unconstitutionality and preliminary ruling to ECJ. Arguments against and for limitation of credit bidding? Who benefits from the restrictions? – U.S.A. court decisions and recent cases. How credit bidding is recognised in different jurisdictions? – Germany – UK – Spain – Cross border and European regulation.

71 Break-out-session IV. Overview and comparison on estate financing practices in several European jurisdictions Henri Bentfort van Valkenburg (DVDW, The Netherlands) Christian Bärenz (GÖRG, Germany) Mandip Englund (Linklaters, UK)

72 I. In a nutshell: Insolvency proceedings in… 1. United Kingdom 2. The Netherlands 3. Germany II. Financing by Stakeholders 1. Secured creditors 2. Customers / business partners 3. Potential buyers / investors III. Cost Mitigation 1. Rent payments 2. Labor costs 3. Tax payments IV. Public interest financing V. Litigation Financing VI. DIP Financing VII. Final remarks / Q&A Overview on panel

73 I.1 In a nutshell: Insolvency proceedings in UK Secured creditors’ remedy Fixed Charge Receivership Administrative Receivership Possible outcomes* Cram-down mechanisms Company Voluntary Arrangement Cram-down Compromi- se of debt Enforcement of security Distribution of proceeds * The above indicates some typical outcomes of each procedure but is not intended to be exhaustive or mutually exclusive. Compulsory Liquidation Voluntary Liquidation Rescue procedures Administration (moratorium) Sale of business “Pre-pack” sale Rescue of entity Liquidation of entity Distribution of proceeds

74 I.1 In a nutshell: Insolvency proceedings in The UK Order of priority in English insolvency proceedings Unsecured asset realisationsFloating charge realisationsFixed charge realisations Liquidation and administration expenses Where unsecured assets are insufficient Liquidation and administration expenses Expenses incurred in preserving or realising the fixed charge assets Preferential debts Preferential debts (primarily certain amounts due to employees) Prescribed part (max £600k – this is made available towards paying the unsecured creditors) Fixed charge holder Unsecured creditorsFloating charge holder Shareholders according to their rights and interests in the company There are amendments made to the order of priority when security involves financial collateral such that a floating charge holder ranks above amounts which would ordinarily come ahead of it (expenses, preferential debts and the prescribed part).

75 I.2 In a nutshell: Insolvency proceedings in the Netherlands applying for pre-pack Filing for insolvency  immediate opening of suspension of payment proceedings / Opening bankruptcy proceedings following hearing preparation period Usually 2 weeks pre-pack proceedings (not yet regulated by Dutch law ) Pre-pack proceedings are not disclosed preparation of (pre-packed) transaction Debtor Typical timeline of Dutch insolvency proceedings main proceedings (duration: one to several years) securing assets Management board loses (sole) authority to act Usually no continuation of business operations but quick asset take over by third party (e.g. m.b.o.) application of insolvency- related measures (i.e. work- force reduction, (early) termination of contracts, etc.) Claw-back action (if applicable) Creditors‘ meeting in case of distibution to ordinary creditors creditors‘ meeting in case of distribution to ordinary creditors No creditors‘ meeting in case only distribution to preferred creditors preparation of distribution schedule preparation of final accounts (partial) distribution to creditors New legislation expected on creditor agreement, pre-pack, etc.

76 I.2 In a nutshell: Insolvency proceedings in The Netherlands Ranking of claims in Dutch insolvency proceedings Waterfall: 1.Super preferential: Tax and social security contributions prior to opening of proceedings 2.Preferential: 3.various claims (e.g. wages prior to opening of proceedings) 4.Claims privileged on certain proceeds (e.g. insurance benefits) Preferential claims Waterfall: 1.All claims incurred by administrator after opening of proceedings 2.Administrator remuneration 3.Wages and lease instalments for a limited period after opening of proceedings Estate debts Pari-passu: All non-preferential creditor claims incurred prior to opening of proceedings Ordinary claims Pari-passu: redemption of equity vis-à-vis shareholders Equity Waterfall: 1.subordinated debt 2.creditor’s interest due since opening of proceedings Junior administrator is personally liable if estate debt can not be paid in full out of insolvency estate!

77 I.3 In a nutshell: Insolvency proceedings in Germany filing for insolvencyopening of proceedings preparation period Often 3 months preliminary proceedings Max. 3 months if DIP-proceedings: protective-shield may be granted stabilization of business operations drafting of insolvency plan (if applicable) negotiation with banks, suppliers and/or potential investors Continuation of business operations (if applicable) application of insolvency-related measures (i.e. work-force reduction, (early) termination of contracts, etc.) Claw-back action (if applicable) Asset sale / M & A process Debtor preliminary proceedings main proceedings (duration: 9 months to several years) first creditors‘ meeting If applicable: Drafting of insolvency plan and vote hereon by creditors further creditors‘ meetings preparation of distribution schedule preparation of final accounts (partial) distribution to creditors Typical timeline of German insolvency proceedings

78 I.3 In a nutshell: Insolvency proceedings in Germany Ranking of claims in German insolvency proceedings credit facility agreed upon in an insolvency plan in former insolvency proceedings of the debtor senior secured claims Super senior Pari-passu: court costs administrator remuneration creditor committee remuneration/costs all claims incurred by administrator after opening of proceedings if authorized by court: claims incurred by ad- ministrator prior to opening of proceedings certain tax liabilities Super-super senior Pari-passu: senior unsecured claims incurred prior to opening of proceedings Senior Pari-passu: redemption of equity vis-à-vis shareholders Equity Waterfall: 1.subordinated debt 2.creditor’s interest due after opening of proceedings 3.costs of creditors regarding proceedings 4.administrative fines (i.e. “anti-trust”) 5.shareholder loans Junior administrator can be personally liable if super-super senior claims can not be paid in full out of insolvency estate!

79 II.1 Financing by Stakeholders – Secured creditors Germany Jurisdiction Netherlands UK Financing by secured creditors in a nutshell  Existing secured creditors may provide additional funding  Purpose of funding: liquidity vs payment of expenses/priority claims vs ongoing trading?  Type of funding: extended overdraft or term loan  Protection:  unencumbered assets – less likely given prevalence of floating charges  status as administration expenses  secured creditor might allow debtor to collect assigned receivables or to realize collateralized assets  corresponding proceeds are then granted to debtor as credit facility („unechter Massekredit“)  credit facility will rank super-super senior if agreed upon with administrator after opening of proceedings or prior to opening of proceedings with authorization of administrator by court  The proceeds from pledged assets might be higher if the company is sold as a whole instead of in parts  Therefore a secured creditor such as a pledgee might provide for estate financing in order to continue the business for a while to enable the administrator to sell the company going concern.  The proceeds as of bankruptcy date are often used as collateral.

80 II.2 Financing by Stakeholders – Customers / business partners Germany Jurisdiction Netherlands UK Financing by customers / business partners in a nutshell  More likely to be involuntary funding, e.g. payment delays, agreement to finalise contractual termination rights/retention of title rights  Use of customer deposits may be possible but depends on whether Company funds or trust assets?  in practice only relevant in/when:  just-in-time delivery supply-chains (automotive, aviation), or  business partner / joint venture partner runs the risk of joint liability for (substantial) damage claims or contractual penalty (i.e. time- bound completion of large-scale construction projects, e.g. power plants)  Can be relevant in case the customer / business partner is very much dependent on the product or service of the debtor.  The administrator may only cooperate if there is a benefit for the bankruptcy estate.

81 II.3 Financing by Stakeholders – Potential buyers / investors Germany Jurisdiction Netherlands UK Financing by potential buyers / investors in a nutshell  Secured creditor could be potential buyer  Funding by competitors is unlikely, but if provided would want confirmation:  treatment as expense claim  possible personal guarantee of administrator  New investors will typically be investing in the acquiring entity, not a source of capital for insolvent vehicle  rather uncommon / rare  problem: anti-trust law prohibits any control by buyer / investor until the corresponding antitrust proceedings have been successfully completed  When the potential buyer needs some time to prepare a going concern deal or to decide whether or not to propose such deal.  The administrator may only cooperate if the bankruptcy estate runs no risk.

82 III.1 Cost Mitigation – Rent payments Germany Jurisdiction Netherlands UK Mitigating rent payments in a nutshell  Practice today is “pay as you go”  administrators pay rent day by day for the period during which possession of property is retained for the benefit of the administration  Administrator has no power to “disclaim” the lease (bring it to early end) unlike liquidator  Landlord will need consent (of administrator or court) to exercise forfeiture rights  Rental payments for leasehold property which is not used in the administration will ran as ordinary unsecured claims  non-payment of one monthly rent or less than two monthly rents in preliminary proceedings possible  no early termination right by lessor based on aforementioned non-payment  in case of non-payment: lessor acquires lien on debtor assets  In case the estate is lessee the lessor and he administrator have early termination rights.  Lessor has a highly privileged claim (estate debt) for lease instalments after opening of the bankruptcy proceedings. Payment will only take place if the estate has sufficient funds.

83 III.2 Cost Mitigation – Labor costs Germany Jurisdiction Netherlands UK Mitigating labor costs in a nutshell  Some employee debts benefit from a Government guarantee – though may be subject to time and amount caps  E.g. “arrears of pay” up to 8 weeks before appointment  Government subrogates to rights of the employee to extent of payment and has the same priority ranking  Some employee debts could be administration expenses or preferential debts  Adopted contracts – give rise to expense liability  Wages of salary for 4 months before appointment rank as peferential debt  state salary aid is granted to employees for max. 3 months prior to an insolvency event (= opening of proceedings)  duration of preliminary proceedings generally 3 months to fully exhaust state salary aid period  to keep business running until opening of proceedings, state salary aid typically pre-financed by commercial banks  employees will assign their state salary aid claim to these banks to collaterize pre-financing  State salary aid is granted to employees for max. 13 weeks prior to an insolvency event (= opening of proceedings) + during the notice period (usually 6 weeks).  The state will pay the salary.  The salary claims of the employees are assigned to the state. Payment to the state will only take place if the estate has sufficient funds.

84 III.3 Cost Mitigation – Tax payments Germany Jurisdiction Netherlands UK Mitigating tax payments in a nutshell  No general exemption for insolvent companies from tax liabilities  HMRC is often the petitioning creditor for compulsory liquidation  Pre-insolvency tax liabilities will rank as generally unsecured claims.  Company will continue to be assessed on any profits arising during accounting period following the appointment of the administrator.  non-payment of tax liabilities in preliminary proceedings used to be possible in most German proceedings (before 2011)  law amendment in 2011 has set an end to this practice (tax liabilities now rank super-super senior if incurred in preliminary proceedings)  non-payment of tax liabilities in DIP-proceedings has risk of personal liability for CROs  Tax liabilities incurred during continuation of the business in bankruptcy are highly privileged (estate debt).  The administrator runs a risk of personal liability if the estate is not able to pay such tax debts.

85 IV. Public interest financing Germany Jurisdiction Netherlands UK Public interest financing in a nutshell  Rare - likely to be politically motivated and industry dependant  TBTF problem and move away from tax payer support (banks)  Entities which are free to raise finance also generally allowed to fail  but special insolvency regimes may apply to ensure continuity of service – e.g. health, transport, financial services  possible temporary financial support but subject to State Aid considerations.  no case-law in Germany re state financing / funding of insolvency proceedings to secure services of public interest (i.e. medical care)  concept of public interest financing recognized in academic discussions if funding is required to uphold a necessary / mandatory public service structure  in practice: public interest services can likely be ensured by another institution or service provider (i.e. by a nearby clinic) = funding / financing obligation therefore unlikely  Financing / funding of insolvency proceedings to secure services of public interest by (semi) government is conceivable.  E.g. health insurance agencies are legally obliged to maintain health care facilities. Consequently they are obliged to finance the estate of a bankrupt hospital until adequate measures have been taken to secure services.

86 V. Litigation financing Germany Jurisdiction Netherlands UK Litigation financing in a nutshell  From April 2016, IPs no longer able to recover from a losing defendant success fees under 'no win, no fee' arrangements or 'after the event' insurance premiums  such amounts will have to come out of any damages awarded  But, liquidators and administrators are now allowed to assign “officeholder claims”  e.g. can assign a wrongful trading claim to a litigation funder  Commercial decision whether to pursue the claim (possibly with funding for share of proceeds) or sell the claim  insolvency administrator might be eligible for state litigation aid  administrator needs to seek finacing by creditors first  action needs to have sufficient prospects of success (verified in a preliminary court proceeding)  no sufficient liquidity for litigation with estate  if state litigation aid cannot be optained / creditors not willing/able to finance:  financing of litigation by professional litigation funder (stake approx. 20-30%)  Financing by the government based on a governmental regulation in cases of director’s liability where the estate has no financial resources for litigation.  It must be likely that legal action has prospects of success and recourse.  Financing by creditors or other third parties including professional litigation funders is not common practice.

87 VI. DIP financing Germany Jurisdiction Netherlands UK DIP financing in a nutshell  No current market in the UK and typically few unencumbered assets to secure due to floating charges  Recent UK Government proposals – DIP financing being considered  detail sketchy  driven by European harmonisation  typically asset-based financing  in practice only relevant if collaterals are available  credit facility will rank super-super senior if agreed upon with administrator after opening of proceedings or prior to opening of proceedings with authorization of preliminary administrator by court  credit facility will rank super-senior in a subsequent insolvency proceeding if agreed in insolvency plan  In The Netherlands no DIP. In bankruptcy the administrator has sole authority, in suspension of payments joint authority with the management board.  During pre-pack prior to insolvency proceedings the management board maintains full control.  Legislative proposals and academic discussions about future DIP.

88 VII. Final remarks / Q&A

89 Delegate Lunch Kindly Sponsored By www.mcstayluby.ie

90 Afternoon Technical Session Kindly Sponsored By www.moonbeever.com

91 Keynote speaker: José Manuel Durão Barroso Non-Executive Chairman of Goldman Sachs International Immediate Past President of the European Commission (2004-2014) Past Prime Minister of Portugal (2002-2004), Portugal

92 A European Outlook: Pre-insolvency proceedings and the recast Insolvency Regulation Reinhard Dammann (Clifford Chance) Bartłomiej Kurcz (European Commission) Stathis Potamitis (PotamitisVekris) Ben Schuijling (Radboud University)

93 Insolvency at EU level – step by step Dr Bartlomiej Kurcz DG Justice & Consumers

94 Insolvency traditionally the competence of Member States But the growth in Europe cannot be achieved without a new insolvency culture which looks at business failure as an opportunity and helps viable businesses and natural persons in distress.

95 Change of culture – step by step 1) Conflict of laws instrument – EU Insolvency Regulation. 2) 2014 Recommendation on a new approach to business failure and insolvency addressed to the Member States.

96 Main elements of the Recommendation Recommendation on a new approach to business failure and insolvency, C(2014) 1500 final, 12.03.2014 – Minimum standards on: – preventive restructuring procedures enabling debtors in financial difficulty to restructure at an early stage with the objective of avoiding their insolvency, and – discharge periods for honest bankrupt entrepreneurs which would allow them to have a second chance

97 Capital Markets Union Convergence of insolvency and restructuring proceedings would facilitate greater legal certainty for cross-border investors and encourage the timely restructuring of viable companies in financial distress. The inefficiency and divergence of insolvency laws make it harder for investors to assess credit risk, particularly in cross-border investments

98 Evaluation of Insolvency Recommendation – Reforms undertaken in a number of Member States, but only partial implementation of the Recommendation – Some Member States undertook reforms in corporate insolvency, whereas others in personal insolvency (bankruptcy) – Full summary available at: http://ec.europa.eu/justice/civil/commercial/insol vency/index_en.htm http://ec.europa.eu/justice/civil/commercial/insol vency/index_en.htm

99 New initiative Announcement in CMU in 2015 - the Commission will put forward a legislative initiative on business insolvency, including early restructuring and second chance, drawing on the experience of the Recommendation

100 New initiative Focus on: - business restructuring - second chance (debt discharge)

101 Flanking measures benchmarking loan enforcement, including insolvency frameworks establish a reliable system of collecting data at EU level study on loan enforcement

102 Holistic approach to insolvency - Questions of jurisdiction and applicable law - Problems arising before companies are technically insolvent or are insolvent but can be saved - swiftly deal with insolvent companies and their debts (preparatory work) - offer a possibility of a fresh start of economic activity

103 Recast Insolvency Regulation: Moratorium on secondary proceedings & Synthetic proceedings Reinhard Dammann Clifford Chance

104 Moratorium on secondary proceedings Article 38.3 RR is an entirely new provision providing for: – The possibility for a stay of the opening of secondary proceedings for a period not exceeding three months, – if a temporary stay of individual enforcement proceedings has been granted in main proceedings in order to allow for negotiations between the debtor and its creditors, – provided that suitable measures are in place to protect the interests of local creditors.

105 Scope of the provision (I) Initially, the moratorium has been introduced in order to avoid the opening of secondary proceedings when debtor and creditors are negotiating in the framework of the Spanish Moratorium – Article 38.3 RR does not refer specifically to the Spanish Moratorium, but talks about “a temporary stay of individual enforcement proceedings” Linkage with the pre-insolvency proceedings under the future Directive is evident

106 Scope of the provision (II) Thus, broad interpretation has to be made in order to facilitate debt restructurings within the main proceedings, avoiding the opening of secondary proceedings. Examples: – French Financial Safeguard procedure – German Schutzschirmverfahren

107 Scope of the provision (III) The Moratorium proceedings must fall within the scope of the RR, which is the case for both procedures of Financial Safeguard and Schultzschirmverfahren. Is the scope of Article 38.3 RR limited to the procedures which are cited in Article 1.1(c)? – The Scheme of Arrangement, however, does not fall in the scope of Article 38.3 RR since it does fall in the scope of Article 1 RR.

108 Protective measures Suitable measures to protect the interests of local creditors such as no removal or disposal of assets which are located in another Member State where the establishment is located: – Unless this is done in the ordinary course of business; – Unless this is incompatible with the national rules on civil procedure.

109 Termination of the stay (I) The stay may be lifted by the court of its own motion or at the request of any creditor – If the continuation of the stay is detrimental to the creditor’s rights, – In particular if: Negotiations have been disrupted; or It has become evident that they are unlikely to be concluded.

110 Termination of the stay (II) The stay may also be lifted – if the insolvency practitioner or the debtor in possession has infringed the prohibition on disposal of its assets – or on removal of them from the territory of the Member State where the establishment is located.

111 Synthetic proceedings Article 36 RR is an entirely new provision providing for procedures which have been referred to as virtual secondary procedures or synthetic procedures.

112 History Created by insolvency practitioners – Examples: - the Collins & Aikman Case - the Rover Case - the Nortel Case The proposal by the Commission, following the recommendations of the expert group, retained a rather simple mechanic: – The insolvency practitioner in the main proceedings may give a unilateral undertaking that it will comply with the distribution and priority rights under national law that creditors would have if secondary insolvency proceedings were opened in the Member State where the assets are located in.

113 Scope of provision The final wording of Article 36 RR provides for a much more complicated and protective procedure in favour of local creditors Article 36 RR applies to virtual secondary procedures only when distributing the assets located in the Member State in which secondary insolvency proceedings could be opened or of the proceeds received as a result of the realisation of these assets. Therefore, the synthetic secondary proceedings must have a liquidative objective.

114 Protective measures in favour of local creditors (I) Article 36.5 RR states: – Undertaking must be approved by known local creditors according to applicable majority rules for the adoption of restructuring plans, under the law of the Member State where the secondary proceedings could have been opened. – The IP shall inform the known local creditors of the undertaking, of the rules and the procedures for its approval.

115 Protective measures in favour of local creditors (II) Article 36.6 RR states: – In case of opening of secondary proceedings, the IP of the main proceedings must transfer back to the IP of the secondary proceedings any assets which it removed from the territory of that Member State after the undertaking was given or, where those assets have already been realised, their proceeds.

116 Protective measures in favour of local creditors (III) Article 36.7 RR states: – The IP must inform local creditors about the intended distribution prior to distributing the assets and proceeds. – The local creditors may challenge such distribution before the courts of the Member State in which main insolvency proceedings have been opened.

117 Liability of the IP Article 36.10 RR states: – The IP shall be liable for any damage caused to local creditors as a result of its non-compliance with the obligations and requirements set out in Article 36 RR. Problem: no misbehaviour is required. Thus, the IP must have insurance...

118 Conclusion Article 36 RR is too cumbersome.

119 Pre-insolvency proceedings: Debt equity swaps & New Financing Stathis Potamitis PotamitisVekris, Greece

120 Cram down on equity: debt equity swaps Shareholders are not generally involved in restructuring proceedings Yet may be required to approve material transactions or changes to equity That may provide shareholders with ability to hold out in the hope of extracting concessions

121 Dealing with shareholder hold out - Number of countries have legislated to address hold out problem in face of the ECJ Greek cases and the rules of the Second Company law directive (reserving capital increase decisions to shareholder meeting) - Legislation either aimed at dealing with holding out as abusive exercise of voting rights (France, Greece) or allow for shareholder cram-down when equity holders are out-of-the-money (Germany)

122 The approach of the experts group: the principle Shareholders should not be able to impede a restructuring that would save a distressed but viable company. Since restructuring is consensual, this assumes agreement of debtor management Shareholders whose opposition is overridden should be those whose stake is worthless; other creditors should be able to cram down on shareholders if they oppose restructuring adopted by a sufficient number of other classes Alternatively, hold outs whose equity is worthless should be liable if they prevent the restructuring

123 The approach of the experts group: possible rules Member states to adopt rules to prevent holding out by shareholders against a restructuring plan that would restore viability of debtor’s business Creating a separate shareholder class for the purposes of plan approval and cram down to be an option for member states If: – Approved by at least one affected class, and – Plan satisfies the fairness test (the absolute priority rule applies and no class gets more than the value of its claims under a valuation of the debtor’s business as a going concern)

124 Debt-equity swaps: some comments Part of the difficulty is the Second Company Directive (article 29: any increase in capital to be decided by the general meeting) – Should we establish an exception for companies in the restructuring proceedings? Should that power be vested by law with the company management? Is it proper to treat shareholders like any other class of creditors? Should we generally adopt a rule strengthening the role of creditors vis-à-vis that of equity in a distressed entity (similar discussion to the switch of fiduciary duties of directors to creditors)

125 New Financing Restructuring involves the continuation of the business by the debtor pending the negotiation of the restructuring agreement and its implementation. Securing new financing is a critical factor for the success of a restructuring effort (as a necessary means for preserving the value of the business). The law needs to recognize the need, provide suitable protections and, where appropriate, create priority for such funding When lead up time to agreement ratification is long, keeping the business alive until the conclusion of the restructuring is an additional critical challenge Financing can take many forms, can be an equity contribution (including a debt-equity swap) or a loan, other types of credit or even the sale of an asset not critical to the continuation of the business Main challenge is avoidance actions; financing cost is another issue given that the debtor is in poor health and is unlikely to have valuable unencumbered assets enhancing its creditworthiness

126 The approach of the experts group: the principles The threat of avoidance actions should not discourage good faith restructuring efforts. Creditors and third parties transacting with distressed debtors with a view to helping them out of their predicament are entitled to protection of their contractual rights. New financing, i.e. financing provided pursuant to a ratified restructuring plan, as well as interim financing, i.e. financing provided pending the ratification of a plan that is reasonably necessary for the preservation or enhancement of the value of that business, are both deserving of protection New financing to be protected from avoidance actions, from civil and criminal liability and should be provided with priority Interim financing should also be protected from avoidance actions and should not expose persons who agree it to civil or criminal liability; however, no priority envisaged for interim financing The fact that new financing is provided pursuant to a plan ratified by a court is sufficient justification for interference with prior creditors’ rights

127 The approach of the experts group: the rules Both new and interim financing to be protected from voidance action in case of subsequent insolvency proceeding, while those agreeing such financing to be protected from civil and criminal liability In addition, new financing to rank at least senior to ordinary unsecured creditors (i.e. member states may provide them with higher seniority)

128 Interim and new financing: some comments Emphasis is placed on protecting the financing agreements from subsequent challenges and the persons responsible from civil and criminal liability; priority provided only for financing that is provided for in the plan that has been ratified It would seem to me that the impact of new financing (and interim financing?) on dissenting creditors should be taken into account for the purpose of establishing the plan’s impact on dissenting creditors Additional protections contemplated under the draft for transactions entered into in the process of negotiation of a restructuring plan, including the grant of security interests, are also of interest in connection with new and interim financing: the draft provides that they should be protected unless entered into in bad faith

129 Hot topics for an Insolvency Office Holder in 2016 Stephen Harris (Ernst & Young, UK) Daniel Fritz (hww hermann wienberg wilhelm, Germany)

130 INSOL EUROPE IOH FORUM Hot Topics for an Insolvency Office Holder in 2016 presented by the Forum´s Co-Chairs Stephen Harris, EY, London Daniel F. Fritz, hww hermann wienberg wilhelm, Frankfurt am Main

131 Thank you!

132 Remember September … Berlin 2015 Poll results Highlights Harmonise qualifications? 50/50 IPs and 66/33 Non IPs (Yes / No) Should the EU implement legislation re IPs? 50/50 IPs and 48/52 Non IPs (Yes / No) Does national legislation work effectively re IPs? 75/25 IPs and 54 /46 Non IPS (Yes / No)

133 IOH Forum Survey 2015/16 Questions asked: the types of insolvency office holders; size of the profession; practising norms; qualification training and entry into the profession; professional bodies; continuing professional education (“CPE”); body corporate or individual; sanction for acting as an IOH without proper authorisation; bonding and insurance; appointment of IOHs; remuneration; personal liability of IOHs; release of IOHs from liability; and independence.

134 Answers received: Austria (Norbert ABEL from Abel Rechtsanwälte); Belgium (Bart DE MOOR from STRELIA Law Firm); Bulgaria (Peneva MIGLENA from Georgiev, Todorov & Co. Law Offices); Czech Republic (Ernst GIESE from Giese & Partner); Denmark (Piya MUKHERJEE from Horten Law Firm); Estonia (Peter VIIRSALU from VARUL); France (André MARC from Etude Marc André); Germany (Axel BIERBACH from MHBK Rechtsanwälte, Daniel FRITZ from hww hermann wienberg wilhelm and Robert HAENEL from Anchor Rechtsanwälte); Greece (George BAZINAS and Yiannis SAKKAS from Bazinas Law Firm); Ireland (Jim LUBY and Enda LOWRY from McStay Luby); Italy (Gofredo CAVERNI from Goffredo Caverni); Latvia (Edvins DRABA from SORAINEN); Lithuania (Ieva STRUNKIENE from Triniti); Luxembourg (Martine GERBER from Dentons); The Netherlands (Krijn HOOGENBOEZEM from BOEKEL); Portugal (Nuno SALAZAR CASANOVA and David SEQUEIRA DINIS from Uría Menéndez – Proença de Carvalho); Romania (Radu LOTREAN from CITR); Slovakia (Slavomir CAUDER from Giese & Partner); Spain (Vicente Estrada from Forest Partners); Sweden (Niklas KÖRLING from Wistrand); Switzerland (Sabina SCHELLENBERG from Froriep); and United Kingdom (Alastair BEVERIDGE from AlixPartners).

135 IOH Forum Survey 2015/16 Lessons learned?

136 Harmonization Perfect Harmony or…

137

138 Action Plan on Building a Capital Markets Union, COM(2015) 468 final, 30.9.2015 The Commission, working with Member States, will map and work to resolve unjustified national barriers to the free movement of capital, stemming, amongst other things, from insufficient implementation or lack of convergence in interpretation of the single rulebook and from national law that are preventing a well-functioning Capital Markets Union and publish a report by the end of 2016. Convergence of insolvency and restructuring proceedings would facilitate greater legal certainty for cross-border investors and encourage the timely restructuring of viable companies in financial distress. Consultation respondents broadly agreed that both the inefficiency and divergence of insolvency laws make it harder for investors to assess credit risk, particularly in cross-border investments. The Commission will propose a legislative initiative on business insolvency, including early restructuring and second chance, drawing on the experience of the Recommendation. The initiative will seek to address the most important barriers to the free flow of capital, building on national regimes that work well.

139 Harmonization Pre-Insolvency Proceedings as Safe Harbor?

140

141 Harmonization beyond Pre- Insolvency Proceedings Who´s your Captain?

142 Study on a new approach to business failure and insolvency Insolvency report 2016 e.g. IOH Licensing and registration Qualification and Training Appointment System Work Standards Powers and Duties Remuneration etc. 142 IOH Avoidance Law Director´s Liability and Disq.

143 Revised Minimum Standards for IOH IOH Forum Proposal

144 Minimum Standards as proposed by the IOH Forum: 1. Licensing and Registration -IOH licensing and registration should be governed by the Member States. Member States should be free to have IOHs licensed and registered as such, i.e. as a profession of its own, or as members of other professions (e.g. as lawyers or chartered accountants), and by self-regulated or public bodies, or by agencies or courts. 2. Regulation, supervision and discipline - Given the nature of their work and responsibilities, IOHs should be subject to a regulatory framework with supervisory, monitoring and disciplinary features. Member States should be free how to organize such supervision and disciplinary actions and whether and to which extend to delegate such supervision and disciplinary actions to IOHs’ self-regulated or public bodies, to agencies or to courts.

145 Minimum Standards as proposed by the IOH Forum: 3. Qualification and training - IOHs candidates should meet relevant qualification and practical training Standards. Qualified IOHs should keep their professional skills updated with regular continuing training. Member States should encourage cross-border training and exchange of knowledge and best practice standards. For this purpose any CPE system in the Member States should encourage and allow for theoretical and practical training in other Member States. 4. Appointment system - There should be a clear system in the Member States for the appointment of IOHs safeguarding the independence and avoiding conflicts of interest for the appointee. As far as not harming the general independence of the specific IOH the appointment system in each Member State may formally vary, but may reflect debtor and creditor preferences with regards to the skills and experience of the IOH and should encourage the appointment of an appropriate IOH candidate.

146 Minimum Standards as proposed by the IOH Forum: 5. Work standards and ethics - the work of IOHs should be guided by a set of specific work standards and ethics for the profession. 6. Legal powers and duties - IOHs should have sufficient legal powers and standing to carry out their duties, including powers aimed at recovery of assets belonging to the debtor’s estate. IOHs should hold some form of official authorization making sure that the identification of an IOH as the responsible person for the assets he is responsible for is possible and to be acknowledged in all Member States

147 Minimum Standards as proposed by the IOH Forum: 7. Transparency – Member States should take care, that IOHs are subject to a duty to keep all parties to the proceedings regularly informed of the progress of the insolvency case. 8. Remuneration - a statutory framework for IP remuneration should exist to regulate the payment of IP fees and protect stakeholders. The framework should provide ample incentives for IOHs to perform well and protection for IOH fees in all types of insolvency proceedings, including but not limited to preliminary, hybrid and restructuring or reorganization proceedings

148 What´s your view?

149 Q1: “Are you an IOH?” Answer: 1) Yes 2) No

150 Minimum Standards as proposed by the IOH Forum: 1. Licensing and Registration -IOH licensing and registration should be governed by the Member States. Member States should be free to have IOHs licensed and registered as such, i.e. as a profession of its own, or as members of other professions (e.g. as lawyers or chartered accountants), and by self-regulated or public bodies, or by agencies or courts. Agree: 1) Yes 2) No

151 Minimum Standards as proposed by the IOH Forum: 2. Regulation, supervision and discipline - Given the nature of their work and responsibilities, IOHs should be subject to a regulatory framework with supervisory, monitoring and disciplinary features. Member States should be free how to organize such supervision and disciplinary actions and whether and to which extend to delegate such supervision and disciplinary actions to IOHs’ self-regulated or public bodies, to agencies or to courts. Agree: 1) Yes 2) No

152 Minimum Standards as proposed by the IOH Forum: 3. Qualification and training - IOHs candidates should meet relevant qualification and practical training Standards. Qualified IOHs should keep their professional skills updated with regular continuing training. Member States should encourage cross-border training and exchange of knowledge and best practice standards. For this purpose any CPE system in the Member States should encourage and allow for theoretical and practical training in other Member States. Agree: 1) Yes 2) No

153 Minimum Standards as proposed by the IOH Forum: 4. Appointment system - There should be a clear system in the Member States for the appointment of IOHs safeguarding the independence and avoiding conflicts of interest for the appointee. As far as not harming the general independence of the specific IOH the appointment system in each Member State may formally vary, but may reflect debtor and creditor preferences with regards to the skills and experience of the IOH and should encourage the appointment of an appropriate IOH candidate. Agree: 1) Yes 2) No

154 Minimum Standards as proposed by the IOH Forum: 5. Work standards and ethics - the work of IOHs should be guided by a set of specific work standards and ethics for the profession. Agree: 1) Yes 2) No

155 Minimum Standards as proposed by the IOH Forum: 6. Legal powers and duties - IOHs should have sufficient legal powers and standing to carry out their duties, including powers aimed at recovery of assets belonging to the debtor’s estate. IOHs should hold some form of official authorization making sure that the identification of an IOH as the responsible person for the assets he is responsible for is possible and to be acknowledged in all Member States Agree: 1) Yes 2) No

156 Minimum Standards as proposed by the IOH Forum: 7. Transparency – Member States should take care, that IOHs are subject to a duty to keep all parties to the proceedings regularly informed of the progress of the insolvency case. Agree: 1) Yes 2) No

157 Minimum Standards as proposed by the IOH Forum: 8. Remuneration - a statutory framework for IP remuneration should exist to regulate the payment of IP fees and protect stakeholders. The framework should provide ample incentives for IOHs to perform well and protection for IOH fees in all types of insolvency proceedings, including but not limited to preliminary, hybrid and restructuring or reorganization proceedings Agree: 1) Yes 2) No

158 Thank you for your vote!

159 Delegate Coffee Break Kindly Sponsored By www.profpannen.de

160 When it all ends Francisco Patrício (Abreu Advogados, Portugal) Krijn Hoogenboezem (Boekel, The Netherlands) Frances Coulson (Moon Beever, United Kingdom) Stefan Weniger (hww hermann wienberg wilhelm, Germany)

161 In the last decade MEP has grown a lot, leveraged in bank facilities Interest rates were low / money was easy to get / there were no serious competitors with MEP MEP quite easily became an European reference in the area of motorcycle engine producers

162 The market changes very quickly especially in this sector which requires a high level of technology and skilled workforce MEP realizes now that most of it success was based in the reduced bank facilities and not in the market share the company holds Banks decided to increase interest rates to standards that are no longer acceptable to MEP

163 Banks have decided not to renew receivables and escrow accounts The sales are becoming not sufficient to support production costs MEP is being pressed by the banks to grant new collaterals: in particular personal guarantees of the directors as the previous securities granted are no longer sufficient to cover the debt equity ratio

164 Otherwise the bank will terminate the credit facilities granted UK, Germany and Dutch branches have also entered into credit agreements with the same bank, subject to the law of each jurisdictions

165 Brainstorm between the jurisdictions

166 Dank je Vielen Danke Thank you Muito Obrigado

167 Closing remarks of the day Alberto Núñez-Lagos Burguera (President of INSOL Europe, Uría Menéndez, Spain)

168 Young Members’ Group Reception Kindly Sponsored By www.abreuadvogados.com


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