Insolvency and Restructuring International - September 2013

Insolvency and Restructuring International articles are now available online to members of the IBA Insolvency Section ('IS'). To access the articles in this issue, you will need to sign in using your IBA username and password. Access login details.


A word from the IS Co-Chairs
Pekka Jaatinen and Josef Kruger

Welcome to this edition of Insolvency and Restructuring International (IRI). We informed you in the April 2013 edition of IRI of the changes made to the structure and focus of the Insolvency Section of the IBA (‘IS’). We are happy to tell you that the IS is enjoying a very successful year so far. Of particular importance to us is the continued and steady growth of our membership, particularly among the younger members of the IBA. Our Membership Officer, Laurent Fisch, deserves much of the credit for this good news.

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Co-Editors’ note
Elisabetta Caccavella and Virginie Gauthier

The publication of a journal such as Insolvency and Restructuring International is truly an example of international cooperation! As Co-Editors, it’s extremely exciting to witness the pieces of the puzzle, coming from all over the globe, fitting together in a collage of legal expression.

While the legal and practical issues faced by insolvency professionals are often similar from one jurisdiction to the other, it is interesting to compare the different approaches.

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Informal versus formal restructurings: the Argentine experience
Martín Campbell and Fernando D Hernández

In 2001, Argentina faced a severe systemic financial crisis and domestic currency depreciation which resulted in one of the most active corporate reorganisation periods in Argentine history. At the time this unprecedented crisis arose in Argentina insolvency was regulated under the Bankruptcy Law No 24,522, enacted in 1995 (‘Original ABL’).

Under the Original ABL, the debtor could pursue the reorganisation through a formal proceeding (concurso preventivo) (‘Concurso’), which is similar to the reorganisation procedure regulated under Chapter 11 (11 USC chapter 11 – Reorganization) of the United States Code (11 USC Title 11 - Bankruptcy) (‘US Bankruptcy Code’).

The Original ABL also provided for an informal reorganisation agreement (acuerdo preventivo extrajudicial) (‘the APE’) pursuant to which the debtor could enter into a restructuring agreement with all or some of its creditors. The APE could be submitted to the endorsement (homologación) of the competent commercial court. Upon endorsement, all acts implemented pursuant to the APE were binding vis-à-vis the creditors who were not party to the APE, but such creditors were not bound by the terms and conditions of the restructuring under the APE and, therefore, kept their original claims. Until then, the APE did not have any relevance or use at all.

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The untidy intersection between environmental and insolvency law in Canada
Steven J Weisz, Catherine Powell and Jenna Willis

How do the courts balance the desire to protect the environment and the rights of stakeholders to be treated in accordance with their relative priority provided under applicable insolvency related legislation and court orders? When is it appropriate to stay the regulatory or enforcement actions of environmental regulators and under what circumstances should the restructuring court require debtors to remediate historical environmental contamination? Should an insolvent company be required to spend its limited funds, which may include new advances under a debtorin- possession (‘DIP’) financing facility, remediating historic environmental contamination relating to non-operating properties? If the debtor is required to spend monies to perform historical environmental remediation, the recovery for its other stakeholders (which may include innocent stakeholders such as lenders, employees and pensioners) will be reduced or potentially eliminated. Would this be a deterrent to restructuring efforts and lead to more liquidations? If the company does not remediate, contaminated property may never be cleaned up or the applicable government (and therefore the taxpayers) could end up footing the bill for the clean-up efforts. Recent restructuring cases in Canada have considered these difficult questions (and have gone all the way up to the highest court in the country, the Supreme Court of Canada). This article reviews those recent cases and provides some insights into how Canadian courts are dealing with these issues.

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Thinking about investing in France? Please consider the following
Anja Droege Gagnier

At a time when the industrial sector in France, as in other European countries, is experiencing difficult economic conditions and requiring companies to be more flexible and more forward-thinking, the protection of French jobs appears to be an increasingly important issue.

New bills before parliament and cases decided by the courts are therefore becoming protectionoriented, giving less room for corporations wishing to invest in France. This is true not only for distressed companies already in insolvency proceedings but also for healthy corporations whose profitability may be less promising compared with others on the world market.

The law for the protection of employment significantly strengths the role and power of labour administration in the course of redundancies procedures for economic reasons involving ten employees (or more) over a period of 30 days in companies employing more than 50 persons.

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German reform of private insolvency and news from the bench
Peter Fissenewert

From July 2014 onwards, it will be possible to reduce the discharge phase of private insolvency proceedings from six to three years. This amendment represents a great step forward for insolvency debtors and the possibility to start a new life free of debt more quickly. However, the insolvency law stipulates conditions for this.

In order to achieve the discharge of residual debts and make a fresh financial start after three years, debtors must satisfy 35 per cent of their creditors’ claims. The lower house of the German parliament, (Bundestag) thereby put the amount in the higher range of the sums discussed in the course of the planning. However, the insolvency debtor’s rights are not only strengthened by the reform of insolvency law. According to one important amendment, there is a negative effect for debtors as well: creditors may now obtain the refusal of the discharge of residual debts more easily. Contrary to the law as it currently stands, once the reform comes into force creditors will be permitted during their entire duration to file an application for the refusal of the discharge of residual debts and not only at the final hearing of the proceedings.

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Bankruptcy law, corporate capital and duties of directors: new perspectives of Italian legal system
Paolo Preda

Further to the recent reformation of the Italian Bankruptcy Law, the rules concerning the mandatory reduction of the corporate capital are ‘frozen’ in the case that a company decides to trigger a reorganisation procedure (ie, an arrangement with creditors before bankruptcy or restructuring agreement pursuant to section 182-bis of the Italian Bankruptcy Law). Furthermore, for the entire duration of this procedure, the general rule which obliges the directors to manage a company in a conservative manner (ie, with the aim to preserve the corporate assets to be liquidated for the satisfaction of the creditors) does not apply. Despite the critical situation, the business judgement rule shall represent the criterion to follow in the conduct of business.

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Direct lending to Spanish debtors in distressed situations
Fedra Valencia, Iñigo de Luisa and Ignacio Buil Aldana

The Spanish banking sector has changed significantly due to the financial crisis. Until recently, it mainly consisted of 80 private banks and 45 saving banks. However, the integration of bank groups and the change of most saving banks into standard banks have reduced the number of relevant active players to a dozen. Most of the financial institutions have geographical or operational limitations. Some of them have internal restrictions on approving new financing and extending existing financing, together with other regulatory constraints. Although several high-yield transactions have been successful, they are only possible for large groups and not an option for most Spanish companies. Thus, Spanish companies claim that the loan market is virtually closed to them.

Another relevant change is that Spain has had no tradition of debt structuring. Financing was so easy and inexpensive to obtain through large long-term syndicated loans that there was no need for debt structuring except for large listed companies. However, financing is now expensive and difficult to obtain for everyone, despite governmental efforts to reactivate and promote the loan market and to create a debt capital market for mid-size companies.

These factors result in a unique opportunity for debt funds to lend to Spanish companies and corporate groups in financial need or going through debt refinancing processes. International funds have traditionally showed interest in debts of Spanish companies traded at discount, but now they are also have an appetite for the origination business. It is not only about loans and credit facilities, but also factoring, financing capex, discount of receivables and other shortterm financing. ‘Shadow banking’ has arrived in Spain.

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Revised restructuring law of Switzerland – an overview
Benedikt Meier

Although the Swiss law of restructuring has generally been perceived as being effective, recent cases, such as the collapse of the national carrier Swissair, have revealed some weaknesses. As a result, the relevant proceedings have been revised and this article sets out the main changes.

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Conference report
19th Annual Global Insolvency and Restructuring Conference, Prague
 26–28 May 2013

Elisabetta Caccavella

On 26–28 May 2013, the amazing city of Prague was a perfect setting for the 19th Annual Global Insolvency and Restructuring Conference, which was presented by the IBA Insolvency Section and supported by the IBA European Regional Forum. During the conference insolvency practitioners from all around the world were perfectly guided by Co-Chairs Marcel Willems and Ernst Giese. The theme of the conference was ‘When sun goes down: insolvency in the energy sector’.

The programme of sessions offered an interesting and variegated panorama of experiences and points of view, expressed by extremely experienced panellists from different countries and juridical backgrounds.

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IS Subcommittee update
 Note from the new Co-Chairs of the Creditors’ Rights Subcommittee of the Insolvency Section

 Richard Joseph Mason and Kirsten Schümann-Kleber

First of all, please let us express our gratitude and thanks to Anja Droege Gagnier and Chris Donoho, the past Co-Chairs of our Subcommittee dealing with the position of creditors in restructuring and insolvency scenarios. Both have done a fabulous job in leading the Subcommittee during the last two years. Thanks, Anja and Chris, for all the hard work you put into this in connection with your Chair activities.

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