Another step towards a lender-friendly environment, but the new form of pledge is being delayed

The Italian Parliament passed law No. 155 of 19 October 2017 to delegate the Government to reform the rules on insolvency and financial distress. This has been commented widely in the press and between commentantors, as it is expected to bring about significant developments (we have previously reported here).

What has received less attention, is that the law also mandates Government to reorganise the system of legal priorities (privilegi), i.e. the rights of preference set out at law for given claims to have preference over other creditors. Further, the delegation includes the authority to introduce a form of non-possessory security over moveable assets. Continue Reading Italy to revamp the system of legal priorities, and introduce non-possessory security

On 9 November 2017, in a rare example of a contested recognition hearing, His Honour Judge Paul Matthews granted recognition of Agrokor’s extraordinary administration (EA) as a foreign main proceeding under the Cross-Border Insolvency Regulations 2006 (CBIR).

Agrokor d.d. is the holding company for a group of companies specialising in agriculture, food production and related activities in Croatia.  Before its financial difficulties, the group’s annual revenue was estimated to amount to around 15% of Croatia’s GDP.  On 6 April 2017, the Law on Extraordinary Administration Proceeding of Companies of Systemic Importance for the Republic of Croatia (the Law, also known as Lex Agrokor) became effective.  On 10 April 2017, following an application by Agrokor, an order for extraordinary administration (EA) was made in respect of Agrokor itself and 50 of its affiliates. In July 2017, Agrokor applied to the English court for recognition of the EA as a foreign proceeding under the CBIR.  A proceeding will be a foreign proceeding if it is “…a collective judicial or administrative proceeding in a foreign State…pursuant to a law relating to insolvency in which proceeding the assets and affairs of the debtor are subject to control or supervision by a foreign court, for the purpose of reorganisation or liquidation”  The recognition application was challenged by one of Agrokor’s largest creditors, who had also brought arbitration proceedings in the English courts, on a number of grounds, all of which were dismissed by the court.

A Hogan Lovells team led by partner Tom Astle is acting for an adhoc committee of bondholders, and providers of a c€1bn super senior DIP facility to the Agrokor Group.

Continue Reading English recognition for Agrokor insolvency: not a tick-box exercise

What has the U.S. Fish and Wildlife Service got in common with the U.S. banking agencies?  Simple: the U.S. Government Accountability Office (the “GAO“), which investigates financial matters on behalf of Congress, has opined that both have wrongly published general statements of policy which are in fact rules under the Congressional Review Act (the “CRA“). The GAO issued an opinion on 19 October 2017 that the Leveraged Lending Guidance (being the final interagency guidance on Leveraged Lending issued on 22 March 2013 jointly by the US banking agencies) (“LLG”) is a rule subject to the requirements of the CRA, meaning that it should have been submitted to each House of Congress before it was implemented, and opening the door for the possibility of it being overturned. This is notwithstanding that the LLG explicitly states that it is not a rule – the GAO has reiterated that an agency’s characterization is not determinative of whether it is a rule under the CRA, and the LLG does not meet any of the CRA exceptions.

What does this mean? Read our full bulletin to find out!

On 24 October 2017 the Court of Appeal handed down its decision in what has become known as the Waterfall IIA and B litigation (Burlington Loan Management Limited and others v Lomas and others [2017] EWCA Civ 1462).  The decision also covered an appeal of one point from the High Court Waterfall IIC decision.  A number of the issues originally intended to be covered in the appeal fell away following the earlier Supreme Court decision in Waterfall I (see the joint administrators of LB Holdings Intermediate 2 Ltd v the joint administrators of Lehman Brothers International (Europe) [2017] UKSC 38).  The remaining  issues concerned the calculation of, and the entitlement of creditors to, statutory interest, in accordance with Rule 2.88 under the Insolvency Rules 1986.  By way of background, as it relevant for a number of the issues forming the subject of the appeal, under Rule 2.88(9) statutory interest accrues either at the rate specified in s.17 Judgments Act 1838 or the “rate applicable to the debt apart from the administration”, whichever is the higher.

Litigation over statutory interest is rare because statutory interest is only payable once all provable debts have been paid in full.  However, following the payment in full of all provable debts, there remains in the LBIE estate a surplus of c.£7.9bn.  There are, accordingly, significant amounts at stake in the litigation.

Continue Reading The latest in the Lehman Waterfall litigation

In Re Lehman Brothers Europe Ltd (in administration) [2017] EWHC 2031 (Ch) a proposal by joint administrators to appoint a director to a company already in administration (LBEL), in order to distribute surplus funds to its sole member (Lehman Brothers Holdings plc (LBH)), as opposed to a creditor, was held to be legally permissible, as well as pragmatic and beneficial.

It is unlikely that many (perhaps any) future administrations will result in a surplus of the size that has been generated in the Lehman administrations. For that reason, the decision in this case is unlikely to be of frequent direct application. Nevertheless, the case is a useful illustration that, while being mindful of Lord Neuberger’s stricture as to the need for legal certainty and to avoid unjustified judicial creativity outside the insolvency legislation, the courts are still willing to adopt a pragmatic approach in assisting insolvency practitioners who need to act quickly in circumstances where their proposed actions are not are not expressly addressed in IA 1986. The decision also provides a pertinent reminder for insolvency practitioners that they must carry out their functions as administrators with the aim of achieving the statutory purpose of the administration—merely avoiding conflict with that purpose is not sufficient.

Hogan Lovells acted for the administrators of Lehman Brothers Holdings PLC in this case.

Click here to read more (the article previously appeared in LexisPSL).

 

In a decision that will be welcomed both by second-ranking secured creditors and by administrators, the Court of Appeal recently held that a second-ranking floating charge (SRFC) was still capable of being a qualifying floating charge for the purposes of Schedule B1 of the Insolvency Act 1986 despite the earlier crystallisation of a prior-ranking floating charge (PRFC).  In addition, the SRFC was capable of being enforceable notwithstanding the fact that there were no assets of the chargor which were not covered by the PRFC.  Accordingly, the appointment of administrators by the holder of the SRFC was valid.  Case: Saw (SW) 2010 Ltd v Wilson [2017] EWCA Civ 1001

Continue Reading Administration appointment valid notwithstanding crystallisation of prior-ranking floating charge

We have advised the Single Resolution Board, the banking resolution authority of the Eurozone, with respect to the two Italian banks Banca Popolare di Vicenza S.p.A. and Veneto Banca S.p.A.

Following the decision taken by the European Central Bank on 23 June 2017 to declare Banca Popolare di Vicenza S.p.A. and Veneto Banca S.p.A. as ‘failing or likely to fail’, the Single Resolution Board has decided that resolution action by the Single Resolution Board is not warranted for these banks. As a consequence, the winding up of the banks will take place under national Italian proceedings. With the approval of the European Commission the Italian government has subsequently decided to grant aid to facilitate the liquidation of Banca Popolare di Vicenza S.p.A. and Veneto Banca S.p.A. under national Italian insolvency law.

The Single Resolution Board has been supported in this process by a cross-border team of Hogan Lovells supervised by the Frankfurt based partner Dr. Tim Oliver Brandi and Italian Partners Jeffrey Greenbaum, Luca Picone, Francesco Stella, Federico Del Monte, Fulvia Astolfi,  Filippo Chiaves and Vittorio Moresco.

 

On 13 July 2017 the High Court gave its judgment in UBS AG, London Branch v. GLAS Trust Corporation Limited [2017] EWHC 1788 (Comm), a case brought by UBS against the trustee for notes issued as part of a securitisation transaction by Fairhold Securitisation Limited (the “Issuer“). UBS disputed the ability of the trustee to absorb costs incurred by a group of noteholders pursuing a potential restructuring of the debt. The case will be of interest to trustees, investors and other stakeholders involved in the restructuring of finance transactions involving a trustee. The case provides some useful guidance on the test to be applied in determining whether expenses of a trustee have been “properly incurred“. Continue Reading Paying for a debt restructuring – can costs be adopted by the Trustee?

Der Wert der Insolvenzmasse ist Berechnungsgrundlage sowohl für die Vergütung des Insolvenzverwalters als auch die Gerichtsgebühr im Insolvenzverfahren. Obwohl die Regelungen hierzu gleich lauten, legt sie das OLG München unterschiedlich aus. Die Folge im aktuellen Fall ist eine knapp sechsfach höhere Bemessungsgrundlage zugunsten der Gerichtskasse. Die Mehrheit der Oberlandesgerichte teilt diese Sichtweise nicht. Damit begründet die Rechtsprechung des OLG München einen deutlichen Standortnachteil für Betriebsfortführungen im Insolvenzverfahren im Bezirk des Oberlandesgerichts München. Diese Rechtsprechung kann weiter gedacht dazu führen, dass der Verwalter bei einem margenschwachen Geschäft den Betrieb einstellen muss, um nicht durch die Begründung hoher Gerichtskosten die Bezahlung der sonstigen Masseverbindlichkeiten zu gefährden.

Continue Reading Gerichtsgebühren im Insolvenzverfahren: Standortnachteil München?

In order to promote a “rescue culture”, the Transfer of Undertakings (Protection of Employment) Regulations 2006 – better known as TUPE –  says that where the transferring business is the subject of bankruptcy or insolvency proceedings instituted “with a view to the liquidation of the assets of the transferor”, the employees will not transfer and any dismissals connected with the transfer are not automatically unfair.

The wording of this insolvency exemption is contained in the European Acquired Rights Directive from which TUPE is derived. In Federatie Nederlandse Vakvereniging v Smallsteps BV the European Court was asked to decide if a pre-pack sale – designed to prepare the business transfer in advance so as to allow a swift re-launch once the insolvency had been declared – fell within this exemption.  The decision was published on 22 June, click here to read our note on the case.