The recently published report on the evaluation of the ESUG, the German law to facilitate the restructuring of companies, states that the changes introduced by the ESUG have been received positively overall, but that there is still room for improvement in many areas. Should the EU Restructuring Directive actually be adopted at the beginning of 2019, the legislator would have the opportunity to improve the ESUG legislation and implement the EU requirements for pre-insolvency restructuring proceedings in one bill. This would give the legislator the opportunity to further increase the global competitiveness of the German insolvency code and thereby strengthen the German market as such. Continue Reading Evaluation of the ESUG – essentially a success!?

In 2016, the insolvency and bankruptcy landscape in India was radically overhauled by the introduction of the new Insolvency and Bankruptcy Code (IBC). In addition to consolidating the complex set of existing laws and regulations on insolvency and bankruptcy into a single law, the IBC introduced time bound and creditor driven resolution process for distressed companies overseen by the newly formed National Company Law Tribunal (NCLT).

These changes were supported by amendments to the Banking Regulation Act to enable the Reserve Bank of India (RBI) to force banks to file insolvency applications against defaulting borrowers under the IBC. Since the new law was enacted, more than 500 cases have been admitted by the NCLT with around 1000 applications pending. The restructuring and/or liquidation of these companies under the new system and the accompanying foreign investment reforms has opened up a number of opportunities through different avenues for foreign investors to invest in distressed Indian assets.  Continue reading for a summary of the principal avenues for foreign investment in India.

Continue Reading New insolvency and bankruptcy law creates opportunities for foreign investment in India

 

In July 2017, we wrote about the case of Hamersley Iron Pty Ltd v Forge Group Power Pty Ltd (in liquidation) (receivers and managers appointed)[1], in which the Western Australian Supreme Court held that rights of set off enjoyed by an insolvent company’s contractual counterparties would not apply if the company had granted a security interest over the relevant contractual rights under the Personal Property Securities Act 2009 (PPSA).

The decision has been overturned by the Court of Appeal of the Supreme Court of Western Australia[2], such that the existence of a security interest will not necessarily of itself preclude the operation of statutory or contractual set off rights in favour of third parties.

The decision is significant because it potentially has a dramatic impact on the competing rights of secured and unsecured creditors in liquidation, and may prevent secured creditors from enjoying a windfall at the expense of unsecured creditors. It also places the emphasis firmly on the terms of the relevant security interest and underlying contract, which will now need to be considered in detail each time there is a claim for set off by the insolvent company’s contractual counterparties.

[1]               [2017] WASC (2 June 2017)

[2]               Hamersley Iron Pty Ltd v Forge Power Group Pty Ltd (in liquidation) (receivers and managers appointed) [2018] WASC 163

 

Continue Reading Court of Appeal overturns Hamersley Iron v. Forge Group Power – set off rights in liquidation restored

Nearly a year ago, the Italian Parliament passed Law 155/2017 giving the Government twelve months to adopt a root and branch reform of the rules governing business distress and insolvency procedures, taking into account European legislation (EU Regulation 2015/848, Commission Recommendation 2014/135) and the principles of the United Nations Commission on International Trade Law.  On 11 October 2018 the Italian Government issued the long-awaited draft of the legislative decree establishing the new Code for Distress and Insolvency (Codice della crisi d’impresa e dell’insovenza, the “New Code“).

The demise of insolvency?

At the heart of the New Code is the concept that the notion of “bankruptcy” (fallimento) is a thing of the past, to be replaced by “judicial liquidation” (liquidazione giudiziale), which becomes the last resort, available only when the debtor has failed to propose any other suitable solution. Seeking to ensure the best interest and satisfaction of creditors, the New Code prioritises procedures aimed at overcoming the crisis by keeping the business as a going concern (even if under new ownership).

Continue Reading Business Restructuring and Insolvency in Italy – a revolution in the making?

US federal banking regulations that go into effect next year require certain major financial institutions to ensure that their qualified financial contracts (QFCs), such as swaps and repurchase agreements, are subject to temporary or permanent limitations on counterparties’ legal abilities to exercise default rights in the event that the financial institution becomes subject to a resolution regime as a result of financial distress, such as that which may result from capital or liquidity problems.

In lieu of requiring each QFC to be amended on a bilateral basis to comply with the new federal regulations, covered financial institutions are allowed a regulatory “safe harbor,” allowing counterparties to QFCs to adhere to a uniform protocol that would have the effect of amending each QFC. Such protocols would override QFC participants’ usual contractual rights to exercise default rights as a result of a bankruptcy or insolvency event and would also override the exceptions to the US Bankruptcy Code’s and Federal Deposit Insurance Act’s automatic stays.  This summer, the International Swaps and Derivatives Association (ISDA) introduced the ISDA 2018 U.S. Resolution Stay Protocol (the US Stay Protocol), and in the coming months, swap participants, including funds and commercial end users, may be asked by their bank counterparties to adhere to this protocol via the ISDA website.  Click here to read our full bulletin on this significant development.

A recent High Court case (Fairhold Securitisation Limited v Clifden IOM No 1 Ltd) has affirmed that in debt issuances involving a trustee, noteholders have only limited rights to take direct enforcement action.  The case confirmed that:

  • trustees do not need to act on holders’ instructions until holdings have been verified;
  • on receipt of instructions, a trustee is not bound to act until it has had a reasonable time to verify holdings, review instructions, take advice and obtain satisfactory indemnification;
  • where a trustee holding a floating charge is obliged to take enforcement action, its failure to do so does not entitle noteholders to step into the shoes of the trustee and appoint administrators.

Continue Reading When the shoe does not fit: direct action clauses – can investors step into the Trustee’s shoes to enforce?

First published in LexisPSL Banking and Finance Mini-Mag: Autumn 2018 as distributed at the Loan Market Association Conference 2018

Many investors have voiced concerns in recent months that loan documentation terms havebecome so flexible in favour of sponsor-backed borrowers that they may lack key lender protections.

Faced with such terms, lenders’ focus has centered on the following fundamental principles: how much secured debt can be added to this deal going forward? How can I get to the table should things go wrong? Can I trade out if I need to?

In that context, we summarise below some of the hot topics in today’s market.

Continue Reading Key documentation issues in the European leveraged finance mid-market

Astaldi, the Italian multinational construction company, filed on Friday (28 September) for concordato in bianco. This is an in-court restructuring proceeding under the Italian Bankruptcy Law, which imposes a standstill period for up to six months. Astaldi’s reference to certain provisions in the Bankruptcy Law indicates that it intends to use the standstill period to prepare for a concordato preventivo filing. Astaldi again delayed publication of its 30 June 2018 financial report, and said that it would voluntarily migrate from the “Star” segment of the Borsa Italiana to the general MTA segment. The full text of the announcement is available here.

Astaldi’s €620m RCF matures in 2019, and its €750m bonds mature in 2020. Astaldi had previously announced a €300m capital raise plan, conditioned on the sale of its stake in the Third Bosphorus Bridge. This plan stalled after the sale was delayed amidst the recent economic uncertainty in Turkey. Astaldi announced that its new preliminary restructuring proposal contemplates a lease of its business units to two new Astaldi SPVs, new super senior funding and a capital raise.

In this report, we will discuss:

  • Key takeaways for bondholders;
  • Concordato in bianco; and
  • Concordato preventivo.

Continue Reading Astaldi files for concordato in bianco

Hogan Lovells’ London restructuring team led by partner Alex Kay has acted as lead transaction counsel and advisor to the ad hoc committee of Noteholders in the successful, landmark US$1 billion restructuring of Mriya Ago, the Ukrainian agricultural conglomerate.

Completion of the restructuring is the culmination of a multiyear process which has resulted in the first example of creditors taking control of a Ukrainian corporate. Continue Reading Successful completion of financial and corporate restructuring of Mriya Agro

Substantial reforms to Regulation (EC) 1346/2000 on insolvency proceedings were made under Regulation (EU) 2015/848 of 20 May 2015 on insolvency proceedings (recast) (the “Recast Insolvency Regulation“).  The Recast Insolvency Regulation applies to insolvency proceedings commenced on or after 26 June 2017.   Following changes to the insolvency laws in a number of Member States, the European Commission has adopted new Annexes A and B, which contain the details of the insolvency proceedings and insolvency practitioners falling within the scope of the Recast Insolvency Regulation. Continue Reading Adoption of new Annexes A and B to the Recast Insolvency Regulation