Valencia / Spain October 28 November 1, 2015 BANKRUPCY LAW. CROSS-BORDER INSOLVENCY PROCEEDINGS - New EU Regulation on Insolvency

Transcription

1 59th UIA CONGRESS Valencia / Spain October 28 November 1, 2015 BANKRUPCY LAW Date of the session: e.g.: Saturday, October 31, 2015 CROSS-BORDER INSOLVENCY PROCEEDINGS - New EU Regulation on Insolvency Sergio Velez (FTI Consulting FTI & Partners Recovery Practice), C/ Montalbán, 7, Madrid, Spain, (+34) Sergio.Velez@fticonsulting.com UIA 2015

2 Contents Cross-border insolvency of a group of companies with branches and subsidiary companies in various jurisdictions within the European Union - New EU Regulation EURoI 20 th May Case Study New EU Law: EURoI 20 th May 2015, which shall come into force on 26 June 2017 Key Considerations Practical Approach to Value Recovery on Cross-border Insolvency Key Messages Annexes FTI Consulting: FTI & Partners Recovery Division 2

3 Reciprocal guarantees / pledges Case Study Hold Co UK Group debt Description International automotive group of companies Securities and main assets: Each company, except the UK parent Company, owns real estate properties and has debts with local financial entities, employees and suppliers (in addition to the Group Debt). UK Branches Belgium Ireland Spain SA Germany GmbH Local bilateral debt & Guarantor of Group Debt Italy SpA Situation as of 31 st March 2015 Spain SA and Germany GmbH booked financial losses in 2014 due to derivatives and fall of sales and the insolvency of customers in Turkey and East Europe. The turnover of Belgium &Ireland branches were low in 2014, due to the plunge of purchase orders from the rest of the Group. Liquidity shortfalls severely impacting each entity in Q1 2015, resulting in the Spanish company failing to cover on 1 st April 2015 one of the credit facilities that make up the Group Debt. = Parent Company = Manufacturing, Distribution & Management = Distribution = Warehouse 3 Credit event of default Financial creditors of Spain SA and Germany GmbH declare the early termination of the credit facilities and claim the payment of the amounts owed under those facilities. At the same time, they request the payment of the outstanding amount to the UK parent company and to Italian SpA in their capacities as guarantors of the Group Debt. Insolvency All subsidiaries and branches enter into a legal and financial situation of insolvency, as their cash flow availability is unable to meet their short-term liabilities. The Administrators of Spain SA file a petition for voluntary bankruptcy before the Spanish Commercial Courts. Two weeks later, several financial creditors of the Irish branch of the UK parent company file a petition for compulsory bankruptcy before the Courts of Ireland.

4 New EU Law The EURoI When can we really speak of real cross-border insolvency proceedings? When an insolvent debtor has establishments spread among the territories of various jurisdictions and /or The main procedure where the debtor has its centre of main interests - COMI ) and secondary proceedings in the rest of the territories where the debtor has assets or interests. Group proceedings : When several insolvency proceedings conducted in various jurisdictions are managed following certain coordination and cooperation rules. This would the case of the UK parent company and its two branches in Belgium and Ireland. Neither the courts of Ireland nor those of Belgium would be entitled to open main insolvency proceedings in their respective jurisdictions, separately from their UK parent company. This would be the case of the various insolvency procedures that would be started in the UK, Spain, Germany, and Italy for each subsidiary company of the Group. Applicable Law within the European Union Currently governed by the EU Regulation 1346/2000, which Shall be replaced from 26 June 2017 by the EU Regulation 848/2015, dated 20 May 2015 (hereinafter, EURoI ). Outside the EU, cross-border insolvencies are regulated by the 1997 UNCITRAL Model Law on Cross-Border Insolvency (adopted by 40 States) 4

5 Key Considerations Jurisdiction of the main procedure - Location of the COMI Undertaking by the Insolvency Administrator of the main insolvency proceeding How it works?: coordination and cooperation between Insolvency Practitioners and Courts Group coordination proceedings 5

6 Key Considerations Jurisdiction of the Main Procedure Main Proceedings Location of the COMI: Still an open question? Article 3.1 EURoI: The courts of the Member State within the territory of which the centre of the debtor's main interests is situated shall have jurisdiction to open insolvency proceedings ( main insolvency proceedings ). The centre of main interests shall be the place where the debtor conducts the administration of its interests on a regular basis and which is ascertainable by third parties. In the case of a company or legal person, the place of the registered office shall be presumed to be the centre of its main interests in the absence of proof to the contrary. Secondary Proceedings Article 34 EURoI: The effects of secondary insolvency proceedings shall be restricted to the assets of the debtor situated within the territory of the Member State in which those proceedings have been opened. According to this basic rule, the competent courts for assuming the main insolvency proceedings are the UK courts The financial creditors of the Irish subsidiary could oppose the opening of a main insolvency proceedings before the UK courts, arguing that the UK parent company is a mere letter-box company - as the Irish branch is actually administrated and managed by the Irish executives and directors However, the European Court of Justice ( ECJ ) has ruled in the Eurofood case [Case C-341/04, 2006 WL , 17 (May 2, 2006)] that the mere fact that its economic choices are or can be controlled by a parent company in another Member State is not enough to rebut the presumption laid down by that Regulation. The interpretation of the concept COMI in the framework of insolvency proceedings has a different scope than the one it has in multinational debt out-of-court restructuring agreements, where third parties creditors- who are alien to the debt restructuring agreement may be affected by it. Main Proceedings UK courts Secondary Proceedings Local courts 6

7 Key Considerations Undertaking Procedures Possible undertaking by the insolvency administrator of the main proceedings, in order to avoid secondary proceedings The insolvency administrator of the main proceedings may assume a unilateral undertaking ( the Undertaking ) with respect to the goods located in other EU jurisdictions One of the main purposes of this Undertaking would be to avoid the opening of secondary insolvency proceedings. The Undertaking shall be approved by the local creditors. The sale of the assets, the allocation of their proceeds among the local creditors and the legal classification and rights of the creditors would be governed by the law of the member State where the secondary proceedings would have been opened. [Article 36 EURoI] Transfer of stock to UK jurisdiction The UK insolvency administrator may decide to transfer to the UK the stock of the Belgium and Irish subsidiaries, voiding the opening of any secondary insolvency proceedings in Belgium or Ireland. Local Belgian and Irish creditors (commercial, employees, financial, public) would need to approve it One of the key issues in our case would be to establish whether the financial creditors who make up the Group Debt would be admitted as local creditors of the Belgian and Irish branches for these purposes and would therefore be entitled to vote on the approval of the Undertaking put forward by the UK insolvency administrator. 7

8 Key Considerations How it Works?: Coordination and Cooperation between Insolvency Practitioners and Courts The main proceedings must lead the way Coordination between the courts in charge of the main proceedings and the ones who conduct the secondary proceedings for the appointment of insolvency administrators, the administration of the debtor s assets and businesses, etc.; The insolvency administrators of both the main and secondary proceedings shall cooperate with each other, including Exchange of any information concerning the lodging of claims by the creditors, Analysis of the possibilities of restructuring, and coordination the process for the realisation of assets. The insolvency administrator of the main proceedings: Is entitled to oppose to the opening of secondary proceedings in certain cases, May seek the temporary stay of the realisation of assets in the secondary proceedings, Is entitled to propose composition or restructuring plans in the secondary proceedings. If, by the liquidation of assets in the secondary insolvency proceedings, it is possible to meet all claims allowed under those proceedings, the insolvency practitioner appointed in those proceedings shall immediately transfer any assets remaining to the insolvency practitioner in the main insolvency proceedings. [Article 49 EURoI] 8

9 Key Considerations Group Coordination Proceedings Insolvency proceedings of a Group of companies: A group of companies for these purposes is made up of a parent company and its subsidiary companies There are no main proceedings and secondary proceedings in this situations and therefore all proceedings are treated equal. The insolvency administrator of any group company is entitled to file a request to open group coordination proceedings and be heard by the competent court in any insolvency proceedings of other group company; Group coordination proceedings [Articles EURoI] A insolvency practitioner appointed at any member of the Group may request Group coordination proceedings Proposes a Coordinator Key considerations of the role of the Coordinator A Restructuring Plan for the whole Group should be prepared Mediate any dispute arising between two or more insolvency practitioners of group members Might requests a stay for a period of up to 6 months of the proceedings opened in respect of any member of the group Spanish Insolvency Administrator filing for Group Coordination Proceedings In our case, probably the most advisable course of action would be for the insolvency administrator of the Spanish subsidiary to file a request for group coordination proceedings with the Spanish insolvency court. Should this request be the first one seized, any other subsequent petition file with another court for the same purposes should be dismissed. The sale of a production unit that comprises assets and liabilities belonging to the German and Italian companies and allocation of the proceedings of the sale shall be envisaged in the group coordination plan to be proposed by the Coordinator, pursuant to the request of the Spanish insolvency administrator. 9

10 Practical Approach to Value Recovery Avoiding local Insolvency proceedings at Subsidiaries: Appointment s generally sought at holding company level to minimise value impact on operating entities Use of other value preservation procedures at specific jurisdictions. Example: Administrator at Holding level in UK Particularly seek to avoid formal insolvency process in other jurisdictions (director comfort letters, short term funding), while a share sale is pursued. Seek consensual agreement through negotiations with defaulted creditors Standstills / waiver agreements utilised to provide period for negotiations Give directors comfort that there is a prospect of a consensual solution Contingency planning is undertaken to prepared for insolvency scenarios and the insolvency outcome including recovery value Potential practical approach for our case study Appointing Administrators / Receivership at the UK Holding Co Negotiation with Spain SA and Germany GmbH financial creditors to maintain bilateral lines / avoid execution of Group debt guarantees in exchange of additional Group security, and / or New money provided by financial creditors at Group debt Group comfort letters sent to all local Directors Special consideration given to Germany GmbH Director Sale of assets. Ex Italian and Irish branches Restructuring of activities: Spain SA manufacturing activities winded down, sold or outsourced Launch of a Restructuring process to right size debt structure at Group level 10

11 Key Messages EU legislation is evolving towards a centralised cooperation and coordination rather than a common legislation on insolvency Someone should lead the way: Main procedure ; or The Coordinator at Group proceedings COMI looking forward to reduce competition among EU states In practice, different Court efficiency and time for resolution among the States might delay the coordinated Group approach Insolvency Practitioners with international profile/capabilities likely to manage cross border (Group) insolvency proceedings 11

12 FTI & Partners: Who we are? FTI & Partners is a partnership formed by specialist firms in the areas of insolvency, restructuring, legal and audit / accounting multidisciplinary offering new challenges posed by insolvency proceedings solutions. Joined by a culture of urgency, our professionals are organized to provide critical assistance where and when needed. World Leader in Restructuring Legal FTI Consulting - FCN Publicly traded NYSE 1982 Year founded 80 Law firm specializing in business law since 1985 FTI Consulting is a global leader in financial and restructuring services FTI is listed on the NYSE and is free from conflicts of interests Specialized on In&out-of Court restructuring Present in Spain since 2010 we advise on restructuring services, forensic, M & A advisory, regulatory and recovery services The Firm has created a specific team focused on corporate and labor law in in various sectors including pharmaceutical and real estate. Some of its members participated in the prelegislative work groups contributed ideas to the development of the current Spanish Bankruptcy Act. $1.700 Millions NYSE listed enterprise value Different disciplines Bankruptcy Professional services firm with over 15 years experience in Insolvency and Insolvency Administration. Compose of a team of 14 people & 5 Partners. Offices in Madrid and Barcelona 4,400 Employees worldwide 700+ Industry specialist 440+ Senior Managing Directors 2 Nobel Laureates 10 of 10 Advisor to 10 of 10 of the world s top bank holding companies of all Fortune 100 corporations are clients 94% Advisor to 94 of the world s top 100 law firms Accounting and Audit 26 Countries with Direct presence Professional services firm with over 20 years experience in audit. Team of 70 people in Madrid and Barcelona. Belonging to MSI Global Alliance international association of audit and advisory firms with a presence in 100 countries, and over 200 members. Registered in the PACOB, an agency of the "Securities and Exchange Commission - SEC," and assigned members to the ROAC 12

13 FTI Consulting Sergio Vélez Senior Managing Director Madrid About Sergio is General Manager of FTI Spain and Co-leads the Corporate Finance Spain practice He has more than 16 years of business and restructuring experience (out and in Court) in Europe and Latin America. He has advised multinational and domestic clients in several countries such as Spain, France, Italy, Germany and Argentina on operations and corporate finance including business restructuring, turnarounds, cash management, cost reduction, forecasting and consulting. His experience has covered a wide variety of business sectors, including, in particular, travel & leisure, automotive, manufacturing, heavy industry (including chemical, steel, paper, cement, printing, etc), distribution, media, commercial, renewable energy, pharma and apparel industries. Sergio was a Director within the European Restructuring Practice of Alvarez & Marsal for 3 years. Before A&M, Sergio was interim CEO (6 months), and CFO (3 years) of Valeo Service Italy, a division of the leading Paris-listed automotive supplier. Previously, he was Finance Director of the Valeo JV in Argentina during 3 years and Controller of Spain & Portugal. Prior to Valeo, Sergio was Finance Director of an industrial unit at the Irish-American Group Smurfit Kappa. Sergio received a bachelor s degree in Business Studies and Economics and a master's degree in business administration (MBA) from Instituto de Empresa (IE) Business School in Madrid. Sergio is BoD member of one of the largest RE land owner group in Spain Sergio is fluent in English, Spanish, Italian and has working knowledge of French. Relevant experience Sergio, leading the FTI & Partners Recovery Practice was Insolvency Administrator appointed by the CNMV of a listed industrial Group in Spain, and of a Hotel Reservation Group with international operations in 20 countries Sergio has been supporting Spanish and US corporations with interests in Latam. Sergio recently was Interim CFO for one of the largest media sports group in the South cone; and was CRO supporting the CEO/Board of an Engineering Group in Mexico during the sale process of the Group. Main focus was to assure on-going activities during the transition, reorganization of structure and liquidity management. Sergio was interim CFO during 1 year of the largest South European leisure & travel group, with revenues of 2.0b, including activities at tour operation, airline, travel agency, hotels and incoming services. Sergio supported the refinancing ( 600m) focusing on negotiations with banks and commercial stakeholders, working capital and liquidity management. Finance area was also fully reorganized +200 FTE s Advised a 4.5b turnover forklift trucks, part of a US PE firm portfolio. He led the PMO on the implementation of a 25m cost reduction program at the French operations (with 1.0b turnover and 3,700 FTE s) including sales & service, production and support functions. Advised a listed chemical Group with turnover of 600m on preparing an Operational Efficiency Program (OEP) that identified a potential cash generation of 100m and led the restructuring of the debt of the Group amounting to 107m. Was CRO, advising a leading US investment firm specialized in the energy industry, of its investment in a 200m turnover renewable solar energy group. 13