For the benefit of our clients and friends investing in European
distressed opportunities, our European Network is sharing some
current developments
Recent Developments
France—Beginning 1 November 2014, certain small and
mid-size French companies are obligated under Law No. 2014-856
(Loi sur l'Economie Sociale et
Solidaire) of 31 July 2014 to give their
employees at least two months' prior notice of any anticipated
change of control or sale of the employer's business.
The purpose of Law No. 2014-856, entitled "law regarding the
social and solidarity economy," is to give employees an
opportunity to make a competing offer for the company's shares
or business. The new measure applies to all companies with fewer
than 50 employees and certain companies with between 50 and 249
employees, depending on certain turnover and balance sheet tests,
but it does not apply to companies subject to conciliation
proceedings or formal insolvency proceedings. Any failure to comply
with the new notification requirement can result in invalidation of
the sale transaction.
The Netherlands—In August 2014, the Dutch
legislature circulated a proposed bill that would introduce
UK-style "schemes of arrangement" to Dutch restructuring
law, a radical departure from existing procedures. The
proposed bill follows the introduction of a pre-packaged insolvency
mechanism in 2013. Acknowledging that the nation lacks a flexible
corporate rescue procedure, the Dutch legislature has proposed
legislation that would make schemes of arrangements patterned on UK
law possible for distressed Dutch companies but under rules that
could make such schemes even faster than their English
counterparts. Under existing Dutch law, it is nearly impossible to
alter the capital structure of a company without the unanimous
approval of all debt and equity holders. The draft bill introduces
rules that would bind dissenting creditors to a restructuring
proposal under certain circumstances. In addition, under the
proposed legislation, security rights granted to lenders that
provide emergency financing during the period between introduction
of a proposed scheme and the date the court decides whether to
approve the scheme will no longer be subject to challenge (or
annulment) by any trustee who is thereafter appointed to oversee
the company's winding-up. The public consultation process for
the draft bill commenced in August, and the legislation may be
amended before it is implemented. Implementation is expected to
take place on 1 January 2016.
Italy—On 12 September 2014, the Italian Council of
Ministries enacted Law Decree No. 133 (Sblocca
Italia (the "Law Decree")), which
implements a series of measures designed to promote the Italian
real estate market. In particular, the Law Decree, which
entered into force on 13 September 2014, introduces: (i) several
amendments to the current regime applicable to listed real estate
investment companies; and (ii) deregulation of commercial property
leases.
The amendments to the current regime applicable to listed real
estate investment companies (Società di Investimento
Immobiliari Quotate or "SIIQs"), the Italian
equivalent of real estate investment trusts (REITs), are intended
to encourage investment in these vehicles. The principal provisions
in the Law Decree affecting SIIQs include: (i) revised requirements
to qualify as a SIIQ; (ii) the introduction of less stringent
investment management criteria; and (iii) harmonization of the
tax regime applicable to SIIQs and Italian real estate investment
funds, with the goal of eliminating the disparity between the tax
regime applicable to SIIQs and the regime applicable to Italian
real estate investment funds.
The Law Decree also deregulates commercial property leases with an
annual rent greater than €150,000, which exceeds the threshold
established under Law No. 392 of 27 July 1978. The goal of the
amendment is to make Italian property lease agreements more
attractive by implementing regulations with flexibility similar to
that found in the laws of other EU member states. A detailed
discussion of the Law Decree is available
here.
Global—Argentina on 30 October 2014 defaulted on its
sovereign debt for the second time since July when it failed to
make a coupon payment on US$5.4 billion in par bonds issued under
foreign law, thus increasing the risk of acceleration and economic
collapse. Although Argentina had already defaulted in July
on its discount notes, holders of the now defaulted par bonds are
more likely to accelerate their debt because it is trading at a
steeper discount to original value. If the debt is accelerated,
Argentina could be obligated to pay investors US$30 billion
immediately—US$2 billion more than the South American nation
holds in its national reserves. In the aftermath of the default,
Fitch Ratings downgraded Argentina's par bonds from C to D.
Shortly after the default was announced, Argentine Cabinet Chief
Jorge Capitanich told reporters that, in lieu of accelerating,
bondholders should take legal action against US District Judge
Thomas P. Griesa, who blocked debt payments when he ruled in favour
of holdout bondholders.
On 4 November 2014, Argentina appealed to the US Court of
Appeals for the Second Circuit Judge Griesa's 3 October 2014
order finding the South American nation in contempt of court for
taking steps to evade his prior orders preventing Argentina from
making payments on restructured debt without also paying holdout
bondholders. Argentina filed a notice of appeal of the
contempt ruling, in which Judge Griesa held that Argentina's
moves to strip the Bank of New York Mellon Corp. ("BNY
Mellon") as the trustee for the bonds and Argentina's
plans to pay exchange bondholders locally without any recognition
of the country's obligation to its holdout bondholders are
unlawful and must not be carried out.
On 27 October 2014, Judge Griesa denied a request by a
group of Argentina's creditors to access US$539 million in
funds in the custody of BNY Mellon to satisfy money judgments
against Argentina. Judge Griesa ruled that the creditors
cannot have access to the funds, which were earmarked to make
payments to Argentina's exchange bondholders, because the funds
are located outside the US. Judge Griesa held that the Foreign
Sovereign Immunities Act ("FSIA") does not authorize the
attachment or execution of sovereign property outside of the US.
BNY Mellon has held the money in its accounts at Banco Central de
la Republica Argentina since Judge Griesa ordered the bank to do so
on 6 August 2014, stating that BNY Mellon would suffer no liability
as a consequence. BNY Mellon had urged Judge Griesa to deny access
to the funds, contending that Argentina has no interest in the
money being held. In his 27 October 2014 ruling, Judge Griesa wrote
that "even if plaintiffs show that the Republic has an
interest in the funds, which the court does not reach, turnover
would not be authorized by the FSIA."
On 6 November 2014, the English High Court of Justice,
Chancery Division, made two rulings in litigation commenced by a
group of investors holding euro-denominated bonds (the
"Euroholders") issued by Argentina pursuant to its 2005
and 2010 exchange offers. In Euroholders
Knighthead Master Fund LP v. The Bank of New York Mellon
(2014), Claim No. HC-2014-00070, Mr. Justice Newey adjourned until
mid-December 2014 the Euroholders' application for declarations
in respect of their interest in funds held by BNY Mellon and with
regard to the alleged irrelevance of the injunction issued by Judge
Griesa to BNY Mellon's payment obligations, pending notice to
the holdout bondholders involved in the US litigation, and to give
the holdout bondholders an opportunity to intervene in the UK
action. In addition, Mr. Justice Newey declined the
Euroholders' application for an injunction restraining BNY
Mellon from disbursing the funds to parties other than the
Euroholders.
Newsworthy
Andrés
Lorrio has joined Jones Day's Madrid Office as a
partner in the Banking & Finance Practice. Mr. Lorrio
focuses his practice on advising international clients in a wide
range of banking and finance transactions, including structured
finance, projects and capital markets. He is recognized as one of
the leading lawyers in Spain on derivatives. He also advises on
insolvency and distressed/defaulted debt transactions and acts
regularly in financial litigation and dispute resolution
matters.
On 23 October 2014, Jones Day client Texas Keystone Inc.
("Texas Keystone") secured a landmark English High Court
litigation funding decision. Following the English
Commercial Court's December 2013 decision to dismiss all claims
asserted by Excalibur Ventures LLC ("Excalibur") against
Texas Keystone, Gulf Keystone Petroleum Limited, Gulf Keystone
Petroleum International Limited and Gulf Keystone Petroleum (UK)
Limited (the "Defendants"), the High Court reached a
landmark decision as to whether the third-party funders who funded
the litigation should be jointly and severally liable to pay the
Defendants' costs of the action (which amount to more than
£20 million) on an indemnity basis. Jones Day advised Texas
Keystone throughout the legal proceedings.
In a decision that carries major ramifications for the burgeoning
litigation funding industry in the UK and overseas, Lord Justice
Christopher Clarke found against each of Excalibur's funders
and ordered that they were jointly and severally liable to pay the
Defendants' costs of the action on an indemnity basis. This
typically allows for recovery of around 85 percent of incurred
costs rather than the standard 65–70 percent. It was held to
be no defence that the funders themselves took no active part in
the conduct of the litigation. In a new legal development, the
Court also found that providing funds solely to enable a claimant
to meet an order for security for costs rather than to finance its
own case did not absolve a third-party funder from being subject to
an indemnity costs order against it.
Jones Day is representing STERIS Corporation
("STERIS") in connection with its recommended offer to
acquire Synergy Health plc ("Synergy") in a cash and
stock transaction valued at approximately US$1.9 billion.
STERIS is a major provider of infection prevention and other
procedural products and services, focused primarily on health care,
medical devices, pharmaceuticals and research. STERIS has
established New STERIS, which is incorporated in England and Wales,
to undertake the transaction. Following completion of the
combination, New STERIS will become the holding company of Synergy
(by way of a court-approved scheme of arrangement) and STERIS (by
way of a merger governed by Ohio law). New STERIS is expected to
have a combined revenue of approximately US$2.6 billion and employ
approximately 14,000 people throughout its operations in more than
60 countries around the world.
Jones Day represented Kortrijk, Belgium-based Barco NV
("Barco") in connection with the sale of its Defense
& Aerospace division to US-based Esterline Corporation for
€150 million (US$200 million). Barco's Defense
& Aerospace division encompasses activities in defense,
avionics, air traffic control, training and simulation. It has
offices in the US, Asia and Europe and employs 600 employees.
Jones Day is representing the City of Detroit, Michigan,
which on 7 October 2014 obtained confirmation of a chapter 9 plan
of adjustment, effectively ending the largest bankruptcy case ever
filed by a US city. The comprehensive restructuring plan
confirmed by US Bankruptcy Court Judge Steven Rhodes eliminates
more than US$7 billion in debt while rehabilitating crippled city
services. Ruling from the bench, Judge Rhodes concluded that the
plan satisfies the chapter 9 plan confirmation requirements and can
be feasibly implemented by city and state officials. The plan,
which is supported by nearly all of Detroit's financial
stakeholders, pays pensioners more than bondholders, frees up
US$1.7 billion to reinvest in essential services and keeps the
city's rare art collection safe from creditors. Two California
cities, Stockton and San Bernardino, have each spent more than two
years under court protection, whereas Detroit, a city of
approximately 690,000, took only 16 months to complete its
restructuring.
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.