Worldwide: EuroResource - Deals and Debt - April 2013

Recent Developments


On 29 March 2013, the Republic of Argentina proposed an alternative payment formula to the U.S. Court of Appeals for the Second Circuit that, if accepted, would allow Argentina to resolve litigation with creditors holding defaulted bonds. The proposal was filed in response to a 1 March 2013 order of the court. The order directed Argentina to submit in writing to the court the precise terms of any alternative payment formula and schedule for repaying defaulted bond debt as well as exchange bonds to which it is prepared to commit in lieu of the ratable payment formula ordered by the U.S. district court in its ruling of 21 November 2012. That ruling, which was appealed to the Second Circuit, required Argentina to pay $1.3 billion to holdout bondholders no later than 15 December 2012.  

Argentina proposed to offer holdout bondholders a choice of bonds equal to the debt's value at the time of the country's 2002 default or discount bonds, the same terms offered to bondholders during a 2010 debt restructuring. Holdout bondholders, who are seeking full payment immediately, previously rejected this offer. Moreover, the par-value option would be limited to investors holding less than $50,000 in face value bonds, effectively meaning that the hedge fund plaintiffs involved in the litigation could be compensated under Argentina's proposal only by taking a big cut to their possible recovery. 

On 2 April 2013, the Second Circuit directed holdout bondholders to submit a response to Argentina's latest proposal no later than 22 April. Bondholders rejected the proposal on 19 April, paving the way for the Second Circuit to issue a ruling on the merits of the underlying dispute. 

Global—On 16 April 2013, the U.S. Court of Appeals for the Second Circuit ruled, in a matter of first impression, that a foreign debtor's "center of main interests" ("COMI") for the purpose of determining whether its foreign bankruptcy proceeding should be recognized under chapter 15 of the U.S. Bankruptcy Code must be determined based on the debtor's "activities at or around the time the Chapter 15 petition is filed," rather than on the commencement date of the foreign proceeding. In Morning Mist Holdings Ltd. v. Krys (In re Fairfield Sentry Ltd.), No. 11-4376, 2013 BL 102426 (2d Cir. 16 Apr. 2013), the court also held that the "public policy exception" to relief under chapter 15, which is based on UNCITRAL's Model Law on Cross-Border Insolvency (the "Model Law"), is to be narrowly construed, and that restricted access to documents in a debtor's British Virgin Islands liquidation proceeding "is no basis on which to hold that recognition of the BVI liquidation is manifestly contrary to U.S. public policy." 

However, the Second Circuit cautioned, "given the EU Regulation [Council Regulation (EC) No 1346/2000 of 29 May 2000] and other international interpretations, which focus on the regularity and ascertainability of a debtor's COMI, a court may consider the period between the commencement of the foreign insolvency proceeding and the filing of the Chapter 15 petition to ensure that a debtor has not manipulated its COMI in bad faith." Factors that may be considered in determining COMI, the court explained, "are not limited and may include the debtor's liquidation activities." 

By its ruling, the Second Circuit resolved a split among lower courts in the circuit on the issue and aligned itself with the approach taken by the Fifth Circuit Court of Appeals in In re Ran, 607 F.3d 1017 (5th Cir. 2010). This approach has been criticized as an invitation to bad-faith "COMI manipulation" or forum shopping by corporate debtors seeking to liquidate in countries that have favorable laws but have little or no connection to their pre-filing activities. In fact, an UNCITRAL working group considering various proposed changes to the Model Law adopted a proposal in 2012 to amend the Model Law to clarify, among other things, that the date of commencement of a foreign insolvency proceeding should be used to determine both COMI and the related concept "establishment." 

The UK and France—The English Court (Chancery Division) has again considered the problem created for French companies that are parties to litigation outside France by French Law No 68-678 of 26 July 1968 (the "Law"). The Law prohibits the communication or disclosure (and possibly even the search for) documents or information of an economic, commercial, industrial, financial or technical nature for use as evidence in foreign judicial or administrative proceedings without an order of the French Court. Breach of the Law is a criminal offence exposing the company and individuals to up to six months' imprisonment and/or a fine. In National Grid Electricity v. ABB and Others, [2013] EWHC 822 (Ch), 11 April 2013, the English Court considered whether to order disclosure of documentary evidence for the purpose of establishing damages in litigation commenced by National Grid against various companies for breach of European competition rules. 

The court decided to order disclosure. The judge considered it virtually inconceivable that, where another European court had assumed jurisdiction over a French company in accordance with the Brussels Regulation in order to determine a claim for damages alleged to result from an established and serious violation of a fundamental provision of EU law, the public authorities of France would, in the exercise of their discretion, institute criminal proceedings against that company for complying with the procedural rules of the Member State where the proceedings had been brought. This was particularly so where the proceedings served an objective of EU policy. Follow this link for a more detailed description of the case. 

Cyprus—On 18 April 2013, the Cypriot House of Representatives approved a number of tax law changes as part of the agreement concluded with the European Stability Mechanism and the International Monetary Fund for up to €10 billion in financial assistance to Cyprus over the next three years. The changes include: (i) an increase in the tax on corporate profits from 10 percent to 12.5 percent, retroactive to 1 January 2013; (ii) an increase in the "special defence contribution" on interest income earned by Cyprus tax residents from 15 percent to 30 percent, subject to certain exceptions, effective upon publication of the legislation in the Government Gazette; (iii) an increase in the special levy imposed on credit institutions operating in Cyprus from .11 percent to .15 percent of total deposits, retroactive to 1 January 2013; (iv) regular increases in the consumption tax rates; and (v) a freeze in promotions for public sector employees. 


Jones Day was named as one of the six "best movers and shakers," the top tier among firms making waves as innovators, in the 2013 "BTI Brand Elite: Client Perceptions of the Best-Branded Law Firms" report issued by The BTI Consulting Group. The report is based upon the recommendations of general counsel at some of the world's largest companies, who recognized six firms that have adopted innovative techniques and targeted them to their clients' wants and needs as those that are shaking up the legal market.

Jones Day is advising the German Federal Agency for Financial Market Stabilization, which manages the German Financial Market Stabilization Fund ("SoFFin"), in connection with the contemplated €2.5 billion rights offering of Commerzbank, the second-largest German bank. In support of the transaction, SoFFin intends to exercise its subscription rights in full and, in proportion to its 25 percent stake in Commerzbank, to contribute silent participations for shares. It is also intended that a consortium of banks under the lead of Deutsche Bank, Citi and HSBC will place Commerzbank shares held by SoFFin with investors at the beginning of the subscription period. SoFFin will thereby participate in the capital increase without investing new capital, and its holdings in Commerzbank are expected to decrease to below 20 percent. 

Jones Day advised Barcelona, Spain-based Softonic International S.L. ("Softonic International"), a Grupo Intercom subsidiary, in connection with the merger of Softonic International with its majority shareholder, Intershare S.L., to create Softonic, a global multiplatform software guide that allows users to explore, download and manage software applications on multiple devices in more than 10 different languages. Through a catalogue of more than 160,000 software titles for desktop and mobile operating systems, Softonic connects more than 140 million monthly users with a diverse portfolio of software and applications distributors. Softonic is a global top-40 internet business and the clear market leader in its segment today. Softonic is valued at €275 million (US$360 million). Global private markets investment manager Partners Group took a 30 percent stake in the merged entity for €82.5 million (US$110 million). Jones Day advised Softonic in connection with the merger and represented both Softonic and its shareholders in connection with the negotiations with Partners Group.

Jones Day is advising Mitsui Chemicals in connection with its €450 million (US$578 million) acquisition of the dental business of Heraeus. The transaction, which is subject to customary closing conditions such as the approvals of the merger authorities, is expected to close by the end of June 2013. Mitsui Chemicals is a Japanese publicly traded chemical company with 13,000 employees worldwide. Heraeus, based in Hanau near Frankfurt am Main, Germany, is a globally active precious metal and technology group that also employs approximately 13,000 employees around the globe.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Juan Ferré
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