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rssg thought of the month | london 29 Oct 2021

New restructuring tools in Europe: Keeping up with the competition

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UK RESTRUCTURING PLAN

Debtor in possession: Yes  

Court involvement: Yes – medium involvement. Like a scheme of arrangement, there is a 2 stage process with court having overall discretion for approval.

Entry criteria: The company must have encountered, or be likely to encounter, financial difficulties affecting its ability to carry on business as a going concern.

Basis for jurisdiction: Sufficient connection.

Moratorium: Possibly. No automatic stay or moratorium, although it can be combined with an administration or the separate moratorium under Part A1 Insolvency Act in certain circumstances.

Shareholder approval required: No although modification of shareholder rights is possible.

Ipso facto / onerous contracts: Restrictions on ipso facto clauses in supply contracts.

Required majority: 75% in value.

Cross class cram down: Yes

Absolute priority rule: No

Recognition: The European Regulation on Insolvency Proceedings does not automatically apply.

GERMANY – PREVENTIVE RESTRUCTURING PROCESS

Debtor in possession: Yes. Appointment of insolvency practitioner only on application of the debtor or in exceptional cases (e.g. consumer claims).

Court involvement: Yes – medium involvement.

Entry criteria: Impending illiquidity required; debtor must not be over-indebted or illiquid.

Basis for jurisdiction: COMI

Moratorium: Moratorium and stay possible on application.

Shareholder approval required: Not for content of restructuring plan, although modification of shareholder rights is possible. Shareholder resolution is required to initiate restructuring proceedings.       

Ipso facto / onerous contracts: Ban on ipso facto clauses.  

Required majority: 75% of voting rights.

Cross class cram down: Yes

Absolute priority rule: Yes – with certain exceptions.

Recognition: Yes - the European Regulation on Insolvency Proceedings applies if the restructuring proceedings are public (this option is only available as of 17 July 2022). If proceedings are not public, no automatic EU recognition.

FRANCE – ACCELERATED SAFEGUARD

Debtor in possession: The court-appointed administrator will, exercise ex post facto control over decisions made by the debtor or assist the debtor in making some or all of the management decisions.

Court involvement: Yes

Entry criteria: The debtor must (i) be subject to ongoing conciliation proceedings; (ii) face difficulties which it is not in a position to overcome provided that it is not insolvent ; and (iii) have prepared a draft safeguard plan ensuring the continuation of its business as a going concern which is supported by enough of its creditors involved in the proceedings.

Basis for jurisdiction: COMI. Commercial court where the company's registered office is located.

Moratorium: Automatic stay. Moratorium possible.

Shareholder approval required: No 

Ipso facto / onerous contracts: No. Ban on ipso facto clauses.       

Required majority: Each class must approve by a 2/3 majority of the votes held by its members having cast a vote.

Cross class cram down: Yes

Absolute priority rule: Yes – although the court may, make exceptions.       

Recognition: Yes - the European Regulation on Insolvency Proceedings applies.

SPAIN – CURRENT POSITION PRE-IMPLEMENTATION

Debtor in possession: Yes

Court involvement: Yes, if the debtor or creditors holding financial claims request the homologation of the restructuring agreement.

Entry criteria: Imminent or current insolvency.

Basis for jurisdiction: COMI

Moratorium: Moratorium or stay applies if the debtor files a pre-insolvency notice with the court. Protection lasts a maximum of four months from the filing of the notice.

Shareholder approval required: No although modification of shareholder rights is possible.

Ipso facto / onerous contracts: No. Ban on ipso facto clauses.       

Required majority: More than 2/3 of the amount of the liabilities (pasivo) of that group has voted in favour of the plan. If the group consists of creditors with in rem securities, approved if 3/4 of the amount of the liabilities (pasivo) of that group have voted in favour of the plan.

Cross class cram down: Yes

Absolute priority rule: To be decided. 

Recognition: Yes - the European Regulation on Insolvency Proceedings applies.

DUTCH WHOA

Debtor in possession: Yes

Court involvement: Yes – light touch.

Entry criteria: Where it can be reasonably expected that a company will be unable to continue to pay its debts.

Basis for jurisdiction: COMI (public); sufficient connection (non-public).

Moratorium: Yes

Shareholder approval required: No

Ipso facto / onerous contracts: No. Ban on ipso facto clauses. Amendment or termination of contracts upon request.       

Required majority: 2/3 in value.

Cross class cram down: Yes

Absolute priority rule: Yes – subject to certain limited exceptions.

Recognition: Yes - the European Regulation on Insolvency Proceedings applies if the debtor (or other party initiating the WHOA) makes it applicable. If not made applicable, no automatic EU recognition.

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The information provided is not intended to be a comprehensive review of all developments in the law and practice, or to cover all aspects of those referred to.
Readers should take legal advice before applying it to specific issues or transactions.

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