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

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

In the recent case of Kevin Taylor v Van Dutch Marine Holding Ltd and others, the UK High Court decided that the exercise of existing rights by a secured creditor should not be regarded as a disposal by a defendant, and as a result, enforcement by a secured creditor is not an infringement of a freezing order. The High Court also clarified that it is not necessary for a secured creditor to bring an application for variation of the freezing order.

Continue Reading Secured creditors are not left out in the cold

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?

This article first appeared in the Summer 2017 edition of Recovery Magazine and is published here with their kind permission.

The Companies Act scheme of arrangement – now set out in part 26 of the Companies Act 2006 (CA 2006), has come a long way.  Long gone are the times when schemes of arrangement – never an Insolvency Act process – were merely seen as tools for implementing solvent reorganisations. Schemes of arrangement are nowadays one of the most favoured means for rescheduling, reorganising or otherwise compromising the liability of companies to their creditors in complex multijurisdictional restructurings.

English schemes are popular because of the breadth and flexibility of the legislative provisions and their low jurisdictional threshold. Additionally, the courts take a robust and pragmatic approach to the proponents and opponents of the part 26 process. This article summarises four examples of that pragmatism in action.  Click here to read the full article.

 

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.

Considerations when Changing the Trustee on a Debt Transaction

In recent times there has been an increase in instances of trustees being changed on debt deals. As this phenomenon becomes more widespread, we look at some of the issues and processes that need to be taken into account when issuers, investors or trustees themselves are considering making a change. Continue reading

Across Europe, increased regulation, governmental reforms, higher capital requirements and new accounting standards on valuing non-performing loans (“NPLs”) continue to drive sales of non-core loan assets, including NPLs. That background, coupled with the fact that many investors across Europe have raised capital in order to acquire loan portfolios which now needs to be deployed, is likely to drive further transactions (as well as those in new markets and in relation to more complex asset classes).

The last half of 2016 saw considerable activity in Southern Europe in particular which is likely to continue in 2017 and spread to other jurisdictions in Europe. Equally, the rising trend in NPLs in South-East Asia indicates that deleveraging is likely to become more prevalent there as well in the short to medium term.

Our cross-group team has taken an in depth look at the market, brought together in a report on loan portfolio transactions and their related financings. The report highlights potential structuring and execution techniques and explains key initial considerations for potential investors in a number of key jurisdictions.  Click here for our Client note on loan portfolio transactions or alternatively click here to go to our interactive microsite where you can view country-specific analysis for the jurisdictions covered in our report.