The Euro Crisis – Contingency Planning for Asset Managers - Private Equity & MBO's

1 Background

1.1 EU legal background

1. This paper seeks to identify, as a matter of contingency planning, legal issues which might arise for asset managers as a result of a contraction or restructuring of the eurozone (a "euro event"). It considers the issues principally with regard to contracts and proceedings which are governed by English law. Where a different governing law applies, many of the issues are likely to be similar but consideration should be given to any differences.

2. A euro event is likely to take the form of either (1) a "controlled exit" by agreement with other states, or (2) a "unilateral exit" by one or more individual states an ("exiting state").

3. A controlled exit is likely to be flagged well in advance and preceded by extensive and public negotiations. A unilateral departure could happen much more rapidly.

1.2 Legal basis for a controlled euro-event

4. Even assuming a controlled exit, the effectiveness of the available legal mechanisms is open to question. The consolidated treaty of European Union ("TEU") contains no predesignated legal mechanism for a country to leave the euro. Because of this, to be completely legal within the framework of the TEU itself, such a departure would require the consent of all 27 EU states. Negotiations are likely to be lengthy and during this process the financial condition of the exiting state is likely to destabilise dramatically.

5. TEU article 50 (introduced by the Lisbon treaty) permits a member to withdraw voluntarily from the EU. It has therefore been suggested that an exiting state should resign from the EU and reapply immediately for membership with an opt-out from the euro zone. However in reality this probably does not improve the position since readmission would also require ratification by all 27 EU states.

Unilateral action by the EU council

6. Arguably, a political agreement at the council level followed by the issue of a simple European regulation would avoid the inherent problems involved in a full TEU renegotiation. However this would technically be an infringement of the TEU and therefore open to legal uncertainty and challenge

The Vienna Convention

7. An exiting state (whether exiting on a controlled or unilateral basis) might seek support from international law in the shape of the Vienna Convention on the Law of Treaties.¹

Article 61 allows a unilateral withdrawal from a treaty because of the impossibility of keeping certain obligations.
Article 62 allows a country to withdraw from a treaty because of fundamental changes in circumstances from those which prevailed at the time the treaty was written, resulting in radical transformation of the exiting state's obligations.
Article 44 allows a state to withdraw from certain clauses of a treaty provided those clauses can be separated from the rest of the treaty and were not an essential reason for the other treaty signatories accepting the treaty.

8. This approach might be challenged on grounds that community law is not part of international public law, though apparently there are several European court rulings which assume that the Vienna convention can be applied in an EU context.

Enhanced cooperation

9. Another mechanism, known as "enhanced cooperation", which has been contemplated in the context of the fiscal cooperation proposed before Christmas 2011 by Germany and France, might also be employed, in some degree, to deal with a euro event.

10. TEU, article 20, provides that EU states which wish to establish enhanced cooperation within the framework of the union may make use of its institutions and apply relevant provisions of the treaties. Any decision enhancing cooperation may be adopted by the Council as a last resort if they cannot be attained within a reasonable period by the union as a whole and provided at least nine EU member states participate.

11. If the area of enhanced cooperation relates to an exclusive competence of the EU then all EU states must consent to it. It is arguable that since article 3 of the TEU provides that the union shall establish economic and monetary union whose currency is the euro, the operation of the euro zone is an exclusive competence of the EU.

12. The Treaty for the Functioning of the European Union ("TFEU") requires expenditures resulting from enhanced cooperation other than administrative costs to be met by the participating states unless the council, after consulting the parliament, decides otherwise. So states planning for such cooperation may want to consider keeping their use of council and commission facilities to a minimum.

1.3 Possible scenario for a unilateral euro event

13. Prior to actual default or exit a weak euro zone state is likely to experience some of the following:

increased cost of sovereign borrowing;
restructuring (i.e. reduction in value) of outstanding internationally-denominated sovereign debt without actual default;
sovereign bond defaults; or
a run on its banks as depositors seek to move their assets abroad.

Unilateral euro-event

14. This might arise from a sequence of events on the following lines.

15. Default on payment of sovereign debt, probably when existing debt was due for refinancing. A defaulting state might still be able to stay within the euro if sufficient external financing was forthcoming .

16. If not, there could be extensive damage to domestic banks in the run up to and after such a default. They could be threatened both by their exposure to domestic sovereign debt and bank runs/withdrawal of deposits. The defaulting state would need to recapitalise its banks to restore confidence and this might prove impossible given the state's own weaknesses.

17. Faced with the collapse of its domestic banking system and economy, the defaulting state might now feel compelled to take emergency measures:

reintroduction of capital and exchange controls, initially to prevent assets moving abroad and later to prevent a newly created currency being exchanged for foreign currency;
temporary suspension of bank payments to prevent withdrawals of euros (an extended bank holiday);
a new law establishing a new national currency and redenomination of existing euro-denominated payment obligations into the new currency at a fixed exchange rate;
there might need to be restrictions on freedom of movement to prevent the workforce moving en mass to another EU state. TEU article 63 prohibits restrictions on the free movement of capital and capital controls so this would prima facie be a breach. Article 65(1b) gives a limited exemption for public policy or public security reasons.

18. This in turn would probably lead to the following:

the new currency would fall significantly in value against its original euro exchange rate. Domestic borrowers whose debt was redenominated would benefit from the reduction in their obligations while their creditors would suffer;
euro or dollar debt which had not been redenominated would now be much more expensive in local currency terms. Domestic borrowers of such debt would have major solvency problems and would probably default;
the exiting state and its businesses would be unable to raise funding in the international markets;

their ability to pay for imports would also be much reduced;
there would be a likelihood of high inflation; and
in the medium term the exiting state would regain control of its monetary policy, while the falling exchange rate would boost the exiting state's competitiveness and allow it to re-enter the international markets at its natural level.

Impact

19. As one EU state moves into default, bond yields for other weak EU states would increase dramatically and could make private funding unaffordable, moving them into the potential defaulter category. There could be runs on banks in any state which was thought to be close to leaving the euro, which might in itself force an exit.

20. The balance sheets of banks in other countries with exposure to the sovereign defaulter/exiter would be detrimentally affected.

21. Stock markets would fall in most countries, including outside the EU.

22. Yields on non-EU government bonds issued by states perceived to be "safe" would fall further.

23. In the currency markets the euro might fall in value, particularly during any prolonged period of uncertainly during which investors and depositors sought "safe havens".

24. If a series of sovereign withdrawals left a rump of euro states the question might arise whether the rump "euro" currency could properly be regarded as the same as the original euro for legal purposes. However the obvious answer would seem to be that the euro would continue to be represented by its now smaller core of more stable euro states.

25. Demand in the EU would weaken due to reduced ability to borrow, retrenchment, reduced spending power and unemployment.

26. Businesses and countries exporting and investing into the EU would be detrimentally affected.

Two tier euro

27. It is possible that rather than the exiting state legislating to create a new currency, a group of weaker states or the EU as a whole could legislate to create two tiers of euro currency: a "hard" euro (for the stronger of the eurozone countries e.g. Germany) and a "soft" euro for the weaker eurozone countries).

28. A two tier hard and soft euro would maximise uncertainty as to the proper denomination of affected obligations. It would be unclear which euro should be the continuing currency in a contract containing payment obligations in euros.

29. On the positive side it seems unlikely that such an event could happen purely as a result of the unilateral exit of one or two EU states. Rather it would appear to require a high level of prior agreement among the EU states including as to the treatment of any redenomination issues.

The position of the asset manager

30. The standard asset manager's contract to manage a portfolio of securities on a discretionary or advisory basis is unlikely to be affected by a euro event.

31. It is possible that some aspects of the mandate might need to be adjusted or reinterpreted if, for example, the investment objectives required a certain percentage of the portfolio to be invested in assets denominated in the currency of the exiting state. Where the client was a fund it would be necessary to determine not only the appropriate adjustments to the mandate but also the mechanism and constitutional powers to achieve this. Would the fund directors have authority to make such a decision, or would investor consent be needed? The restructuring experiences of 2008- 2009 may be relevant here.

32. For the most part, however, the main impact of a euro event is likely to be on the contents of the manager's portfolio. The main issues will be (a) whether an obligation denominated in euros is or is threatened to be redenominated into the new currency, and (b) whether there is payment default, whether as a result of redenomination, the imposition of capital controls, or general insolvency.

33. The treatment of euro-denominated obligations and defaults is discussed in more detail in section 2 below.

2 Impact of a euro-event on contractual obligations

2.1 Redenomination of euro-denominated obligations

1. A contractual obligation denominated in euros could, according to the law of the exiting state, be redenominated into the new, weaker currency. Examples are sovereign bonds issued by the exiting state which are payable in euros, loans where the repayment is euro-denominated, derivatives which use euros as the base currency, foreign exchange transactions where euros represent one of the currency legs, private equity funds where investors' commitments are euro-denominated.

2. The main question is whether this redenomination is enforceable against the creditor so that he must accept payment in the new currency which may be falling rapidly in value against the euro.

3. While a redenomination by an exiting state of debts into its new currency may be assumed to be legal under the laws of the exiting state, it is likely that the original obligation to pay in euros to someone outside that state would remain legally enforceable under the laws of other countries. This is discussed further below.

4. However, the actual legal position would depend on a number of movable factors, and managers might be advised to make an initial assertion that the currency of payment remained in euros to avoid any risk of deemed acquiescence.

2.2 Contractual validity following redenomination

5. Contracts unconnected with the exiting state should not be affected.

6. Under the continuity of contracts principle a contract governed by the law of the exiting state would continue to be valid and binding and the redenomination in itself is unlikely amount to contractual frustration or to discharge the contract.

7. The redenomination might trigger a contractual event of default. Default events do not normally address the possibility of redenomination. But redenomination might constitute a default under more generally worded provisions such as a material adverse change clause. It might also trigger a force majeure provision.

8. Most likely perhaps is that if the debtor tendered payment in the new currency this would constitute a failure to pay, either under an express default term or under the general law of repudiatory breach, representing a substantive performance failure and allowing the creditor to accept the repudiation and terminate.

2.3 Determining the currency of payment following redenomination

9. On a unilateral euro-exit the currency of payment will fail to be determined on general legal principles.

10. On a controlled euro-exit the legal position post redenomination is likely to be addressed by new legislation at the European level. However, if there was a dispute as to the validity of the controlled event (see section 1.2) general legal principles could still come into play.

11. Generally, it is thought that if a contractual debt is expressed to be payable in euros, and the euro is still in existence, an English court will hold that the obligation to pay remains denominated in euros and a failure to pay in euros is a substantive failure to pay. However, there are a number of detailed points which may come into play in determining this.

12. Where the euro continues to exist as the currency of the euro zone, euro-denominated payment obligations which had no connection with the exiting state would continue to be settled in euros. The position would be less clear if the euro split into a hard and soft euro, making it difficult to say which one, if either, represented a continuation of the original obligation. In that case, it seems likely that either the issue would be addressed at EU level or the same general principles would be applied as for a single redenomination.

Lex monetae

13. Lex monetae is a conflict of law principle recognised in most jurisdictions. It provides that where a contract contains a reference to the currency of a particular country, what constitutes the monetary unit of that currency is governed by the law of that country. In other words there is an implicit choice of the law of that country to determine what constitutes that currency and its relationship (including conversion rate) to other currencies.

14. Thus, where a deutschmark-denominated contract governed by English law was entered into prior to EMU, English courts could not contest the replacement of the deutschmark by the euro because this was a matter of German law.

15. Redenomination is easier to establish where the old currency disappears completely. When Czechoslovakia divided into Slovakia and the Czech Republic, the existing currency was replaced by two completely new currencies. As the original currency disappeared, there was no basis for contesting the automatic conversion of all debts into either of the new currencies.

16. The difficulty with applying the lex monetae to a euro event is that it is not the currency of single country but of 17 EU states. So whose lex monetae should govern?

The domestic/international nexus

17. If the payment obligation was purely domestic to the exiting state then it can be expected that redenomination would be effective. This "domestic" legitimacy would be expected to cover a sovereign bond issued by the exiting state's government and directed at domestic investors, a loan by a domestic bank in the exiting state to a domestic borrower or a loan by a foreign bank though a subsidiary (or branch?) located in the exiting state to a domestic borrower. It might also prima facie govern a bond issued in euros but traded from the start on the exiting state's secondary market, or a euro debt that stipulates (without more) that physical payment is to be made in the exiting state. However, where the redenomination was in breach of the TEU some of these situations might not be recognised by the courts of other countries.

18. Where there is a clear international element, whether in terms of parties, place of payment or performance and governing law, redenomination ought not to be effective for the purposes of that contract. Examples would be a euro-denominated bond issued by an issuer in the exiting state directed at international investors, traded on foreign markets or payable abroad (i.e. a eurobond), or a euro loan granted by a lender located and payable outside the exiting state.

19. However, the exiting state's courts might uphold the redenomination even in these circumstances. It would then be necessary to determine whether their decision would or would not be recognised in England and elsewhere under applicable rules for recognition and enforcement of foreign decisions.

Contractual intention

20. The contractual intention of the parties is also relevant. Is there a "clear contractual intention" that the debt is payable in euros. For example:

"euro means the lawful currency of the member states of the European Union that adopt the single currency in accordance with the treaty of Lisbon amending the Treaty of European Union and the treaty establishing the European community"; or that it is payable in the currency of the exiting state; e.g.:

"euro means the lawful currency of [the exiting state] as this currency may change from time to time."

21. Place of payment is relevant to the contractual intention. If payment is to be made in the exiting state this creates a rebuttable presumption that payment is intended to be in the currency for the time being of the exiting state. This could be the case for a simple bank account opened with a bank in the exiting state. If the contract provides for payment outside the exiting state or for multiple places of payment in more than one country this presumption may be rebutted.

Illegality of a unilateral euro event or a euro event based on a council regulation

22. A redenomination might also be challengeable if it was based on an exit from the euro zone which was itself an illegal act. This would certainly be the case on a unilateral euro event, which would be a breach of the TEU and potentially invalid on grounds of public policy. However even a controlled euro event might be challengeable on legal grounds if it did not follow the precise process required for a treaty amendment. See section 1.2 above.

2.4 Compensation for loss caused by the depreciation of redenominated currency?

23. As a separate or alternative course of action, if redenomination is upheld, could the creditor claim compensation for loss caused by the depreciation of the redenominated currency or require the debtor to top up the payments?

24. Under English law a creditor would not generally be able to claim for this unless this is provided for in the contract. The position may be different under some other legal systems.

25. Consider availability and applicability of any currency clauses (i) requiring the debtor to indemnify the creditor for any loss due to payment in a different currency, or (ii) authorising the creditor to convert payment received in a different currency into the contractual currency of payment and charge the cost to the debtor.

Redenominated sovereign obligation

26. There is a presumption in many jurisdictions that a sovereign has contracted in its own currency. So unless the terms of the contract can be used to challenge this, eurodenominated government bonds of the exiting state may well be viewed legally as having been redenominated into the new currency.

Guarantees of a redenominated debt

27. The availability and effectiveness of a guarantee of the obligations of the primary debtor would depend on the terms and governing law of the guarantee. This would be subject to similar legal principles to those described in relation to the default of the primary debtor.

Jurisdiction

28. The locus of a court depends in particular on the governing law and submission to jurisdiction provided for in the contract.

29. Where a contract specifies a particular governing law the contract should be interpreted in accordance with that law. Many financial contracts are governed by English or New York law rather than the law of the debtor's home state.

30. Jurisdiction is additional to governing law. If a contract is governed by Greek law but there is a submission to the jurisdiction of the English courts, the English courts would have locus to interpret the contract in accordance with Greek law. The English courts are thought likely to uphold payment in euros if a redenomination was unilateral and therefore illegal under EU law.

31. If the courts of the exiting state have jurisdiction then, whatever the governing law, they may well uphold payment in the new currency.

32. If the governing law is that of the exiting state the local court will (presumably) give effect to the exiting state's redenomination legislation pursuant to the Rome I Regulation.

33. Conflicting findings relating to the same obligation may be extant where the same issue is litigated in both English and local courts.

34. An English judgment will be hard to enforce in the courts of the exiting EU state if it is contrary to the law of that State. Enforcement may be limited to seeking to enforce against assets of the debtor located outside the defaulting state. These assets may themselves be frozen or subject to competing claims including insolvency proceedings.

35. An English court may seek to stay an action where it is shown that there is some other forum, having competent jurisdiction, which is more appropriate for the trial of the action, where the case can be tried more suitably for the interests of the parties and the ends of justice, and where staying the action is not inconsistent with the EEC Convention on Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters of 1968 (as amended) as applied by virtue of the Civil Jurisdiction and Judgments Act 1982 (as amended) and subordinate legislation made thereunder or with the Lugano Convention on Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters of 1988 as applied by virtue of the Civil Jurisdiction and Judgments Act 1991 or Council Regulation (EC) No. 44/2001 on Jurisdiction and the Recognition and Enforcement of Judgments in Civil and Commercial Matters.

Enforcement of foreign judgments

36. An English judgement is of course enforceable in the English courts. A foreign judgment may also be enforceable in the English courts, either at common law or under the Foreign Judgments (Reciprocal Enforcement) Act 1933.

37. Strictly speaking, a foreign judgment is not enforceable at common law as such, but is regarded as creating a simple contractual debt. To enforce a foreign judgment in England at common law, it is therefore necessary to bring an action on the foreign judgment.

38. No action to enforce a judgment at common law may be brought where the judgement is capable of registration under the Foreign Judgments (Reciprocal Enforcement) Act 1933. For example, the Reciprocal Enforcement of Foreign Judgments (Jersey) Order 1973, SI 1973/612 extends the application of Part I of the Foreign Judgments (Reciprocal Enforcement) Act 1933 to Jersey. The effect of such "registration" is that the foreign "judgment" has the same force and effect as if it was a judgement of the English court and may be executed in the same way.

2.5 Contractual default arising from redenomination

39. Default and early termination clauses based on a euro-event are beginning to appear in new contacts. See the following ISDA-based example:

"A party is not able to discharge its obligations with respect to a Transaction through the relevant specified Office as a result of any law (other than bankruptcy, insolvency or similar laws), order or other act or threat of any authority (de jure or de facto) at the location of such specified Office."

40. However, most contract terms do not refer to the possibility of a redenomination. In such a situation the question will be whether there are other terms or principles which might give a right to terminate or to call an event of default.

41. Material adverse change. Where material adverse change is specified as an event of default this may well be triggered by a redenomination or other euro event.

42. Force majeure. If force majeure applies then (depending on the drafting) the obligation to pay may simply be suspended. In cases where the drafting so provides (as in the 2002 ISDA) then a right to terminate may also arise.

43. If a named entity under a CDS is based in an exiting state or otherwise affected by a euro-event it will be necessary to consider whether this could come within the "restructuring" limb of the credit event definition so as to trigger a credit event.

44. Frustration. The English common law doctrine of frustration may operate to discharge the parties from their contractual obligations on the occurrence of an event which renders it physically or commercially impossible (or illegal) to perform the contract, or transforms the contract into radically different obligations from those envisaged by the parties at the time of contracting. Commercial contracts may also expressly provide for termination based on illegality and/or impossibility. . The effect of an express provision of this sort will depend on its terms. Otherwise redenomination in itself may not satisfy the "radically different" requirement of the doctrine, even if the redenomination rendered the contract more expensive to perform, and would probably not qualify as contractual frustration under general principles of contract law. However, the imposition of capital or exchange controls (in connection with redenomination) making payments in or out of an exiting state illegal or impossible, probably would constitute frustration.

45. Illegality. If payment becomes illegal because of e.g. capital controls then this is likely to trigger any event of default/termination event relating to illegality.

46. Substantive non-performance. It may also be possible to argue the common law doctrine of substantive non-performance, if payment is tendered in a currency other than the contractual currency. The basic rule is that a promisor must perform exactly what he undertook to do. The promisor is not entitled to substitute something else for what he has promised, even where this is equally advantageous to the promisee. The parties may, however, by express agreement or waiver substitute a different mode of performance for that originally agreed on.

47. It is an insufficient answer to a plea of no exact performance that the promisor has acted in a way which appeared to make commercial sense. In all cases, however, the requirement of exact performance is qualified by the de minimis rule (that minute and unimportant deviations from exact compliance will be ignored).

2.6 Contractual default arising from failure to pay

48. An event of default relating to failure to pay may be triggered where (1) payment is tendered in the new currency instead of in euros and this amounts to substantive nonpayment; or (2) a counterparty in an exiting state is prohibited from making payment at all due to capital controls.

Enforceability of exchange and capital controls

49. Article VIII section 2(b) of the IMF Treaty provides that EU states' exchange controls are mutually enforceable in the laws of other states. Greek exchange controls would therefore be prima facie enforceable in the UK and US.

50. On this basis, if the place of payment is the exiting state and exchange controls make it illegal to pay in a foreign currency in the exiting state, English courts would not force payment in the foreign currency (euro) because it would be illegal in the place of performance. This is potentially inconsistent with other principles discussed. Such an inconsistency would have to be resolved by the courts. For example, would the right to impose exchange controls trump a resulting breach of the TEU and if so then on what grounds?

Ability to claim for interest on unpaid amounts

51. Interest on late payments will often be covered in the contract terms. If a contract does not provide a 'substantial contractual remedy' within the meaning of section 9 the Late Payment of Commercial Debts (Interest) Act 1998 in respect of the late payment of any amount due, the creditor may have a right to statutory interest (and to payment of certain fixed sums) in respect of that late payment at the rate (and in the amount) from time to time prescribed pursuant to that Act. Any term of the contract may be void to the extent that it excludes or varies that right to statutory interest, or purports to confer a contractual right to interest that is not a substantial remedy for late payment of that amount, within the meaning of that Act.

2.7 Sovereign Immunity

52. The State Immunity Act 1978 ("SIA") provides in section 3(1) that:

"a State is not immune as respects proceedings relating to: (a) a commercial transaction entered into by the State..."

53. SIA section 3(3)(b) says:

A "commercial transaction" includes "any loan or other transaction for the provision of finance".

54. The Civil Jurisdiction and Judgments Act 1982 ("CJJA") section 31(1) provides that:

"a judgment given by a court of an overseas country against a state other than the United Kingdom or the state to which that court belongs shall be recognised and enforced in the United Kingdom if and only if ...

(a) it would be so recognised and enforced if it had not been given against a state; and (b) that court would have had jurisdiction in the matter if it had applied rules corresponding to those applicable to such matters in the United Kingdom in accordance with sections 2 to 11 of the State Immunity Act 1978..."

55. Accordingly an investor contracting with a sovereign state should consider the following:

ensure that the wording of the agreement contains express submission to the jurisdiction(s) of its choice, both for adjudication, and for enforcement;
if the agreement does not provide submission in this way and the investor still wishes to enforce a foreign judgment against the state's assets in the UK, ask whether the state would have been immune under SIA 78 if the investor had sued in the UK; if not, the investor may be able to use the CJJA section 31 route to lift immunity;
if those arguments fail, argue the restrictive doctrine of statutory immunity, i.e. that SIA section 3 should be given a wide interpretation to permit enforcement against states of any proceedings relating to acta jure gestionis.

NML Capital's proceedings against Argentina

56. NML Capital invested in Argentine bonds between 2001 and 2003, amounting to US$ 172,153,000, at a price that was a little over half of their total face value. The bonds defaulted in the Argentinean crisis. NML obtained judgement under New York law for US$ 248,184,632m in 2006. Although judgment was obtained in New York, the debtor had assets in London. NLM Capital therefore sought to enforce the New York judgment in the UK under common law. In 2008 NML Capital was granted permission by the English High Court to serve these proceedings out of the jurisdiction under CPR 6.2 (9).

57. Argentina argued that as a sovereign state, it was immune from suit under section 1 of the SIA, which grants a general immunity to states unless specific exceptions apply. There was no dispute that the bonds between NML and Argentina constituted a commercial transaction, and no dispute that the NML's action in New York was proceedings relating to a commercial transaction. The issue was whether the UK proceedings, for the enforcement of a foreign judgment, could also be said to be relating to a commercial transaction, which the court decided it was, because of Parliament's intention at the time the legislation was drafted and market practice at the time in international capital markets.

58. See also paragraph 2.4 above on the redenomination of sovereign obligations.

2.8 Insolvency proceedings

Insolvency of EU companies

59. If an obligation is enforceable in euros a debtor affected by the euro event may well be unable to meet its obligations and go into administration or insolvent liquidation.

60. Insolvency law will then be relevant in determining issues such as the effectiveness of redenomination or the imposition of capital controls, and whether a creditor can have recourse to assets of the debtor located in a different jurisdiction from its place of incorporation.

61. Generally, the insolvency of a company incorporated in the EU will be governed by the laws of its home state. So if a defaulting company is incorporated in Greece its bankruptcy will be governed by Greek insolvency law. This will also be the case where the asset manager has been dealing with the London branch of the Greek defaulter.

62. This is established in the UK by the EU Insolvency Regulation which came into effect on 31 May 2002 and governs the opening of insolvency proceedings in respect of companies with their "centre of main interests" in the European Union. The EU Insolvency Regulation provides for two types of insolvency proceeding: "main insolvency proceeding" and "secondary proceedings". Main insolvency proceedings are opened in the courts of the EU state in which the debtor has its centre of main interests. These proceedings have universal scope and encompass all of the debtor's assets and affect all creditors, wherever located. Secondary insolvency proceedings may then be opened in one or more other EU states where the debtor has a place of operations where it carries out a non-transitory economic activity with human means and goods. Secondary proceedings are limited to the assets in that state and run in parallel with the main proceedings.

Footnotes

1 Note that some EU states: France, Malta, and Romania, have not ratified this treaty.

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UK: The Euro Crisis – Contingency Planning for Asset Managers