Editorial | CEE
- At the beginning of 2021, it seems
safe to say that while the flood is not yet over, doves have
started flying back carrying freshly plucked leaves from nearby
shores. Businesses all around the world are busy planning for a
postpandemic world. Many will have to be restructured and freshly
financed, some will go bankrupt, but new opportunities will also
arise. We may gain immunity to the virus, but no one will be immune
to the changes. It is reasonable to expect that the future will
bring interesting novelties in law and finance. In this edition of
TTP Finance, I have asked my colleagues from the CEE region to
share their views on some legal developments that will be relevant
in the fallout of the COVID-19 pandemic.
The implementation of the EU Restructuring Directive (Directive (EU) 2019/1023) is underway in Slovenia, Croatia and Hungary and standstill agreements are back to stay in the Romanian restructurings practice. Many expect a wave of restructurings and insolvencies in 2021 (check out our designated Restructuring Directive info corner). The EU has amended the 2016 Benchmark Regulation to bolster legal certainty in relation to "tough legacy contracts" that lack "suitable" fall-back provisions. Convertible bonds in Austria might offer future upside potential for investors in case the issuer's share price was hit by a COVID-caused sell-off in 2020. New banking laws transposing EU legislation on bank resolution in Montenegro have brought new challenges and Serbia has ambitiously introduced legislation on investment funds hoping to broaden the sources of funding to local businesses.
I hope that these brief reports will be of interest to you and will encourage you to get in touch with us for more details on any of these topics.
Petar Kojdic
Lending | EU
- The EU's
amendments (Regulation (EU) 2021/168) to the 2016
Benchmark Regulation (BMR) (Regulation (EU) 2016/1011) came into effect on
13 February 2021. To reduce risks from "tough legacy
contracts", the European Commission (and in certain instances
also national authorities) can designate statutory fall-back
benchmarks and spread adjustments and conforming changes to
contracts. For pre-BMR contracts that lack "suitable"
fall-back provisions (as defined in the Amended BMR), the
amendments are designed to establish legal certainty, and thus to
safeguard financial markets stability. The Amended BMR has
extraterritorial effect. This is because the powers granted to the
Commission not only apply to contracts / financial instruments
subject to the law of an EU Member State, but also to contracts
between EU parties subject to the law of a third country where that
law does not provide for the orderly wind-down of a relevant
benchmark. Moreover, the amendments extend the transitional period
for third-country benchmarks, exempt certain third-country spot FX
benchmarks and amend the EMIR.
Martin Ebner
Capital Markets | Austria
- Convertible bonds
may be interesting instruments in the current capital market
environment and in the aftermath of the COVID-19 pandemic, both for
issuers and for investors. Due to their equity-link component,
convertible bonds offer future upside potential for investors in
case the issuer's share price was hit by a COVID-caused
sell-off in 2020 and has not yet reached pre-crisis levels. On the
other hand, issuers profit from the attractiveness of the finance
instrument and a certain flexibility: if converted, claims for
delivery of issuer shares can be settled by means of a capital
increase (from contingent capital or, sometimes, also from
authorised capital) or by delivery of treasury shares. Also, cash
alternative options are seen in the terms and conditions of
convertible bonds.
Christoph Moser
Restructuring | Romania
- Standstill agreements are
back to stay in Romanian restructurings practice. They can
be useful tools, particularly in multi-lender complex situations
where more time is needed to share information, to cement trust and
to consider the feasibility of debt restructuring scenarios.
Conversely, standstill agreements can also increase the legal and
operational risk profiles of an already complicated situation, be
it because of strict limitations imposed under Romanian insolvency
regulations on contractual mechanisms or other regulatory
limitations (including antitrust concerns). Nevertheless, with the
right combination of good faith transparency and cooperation, legal
skills and practical experience in debt restructurings, an
"acceptable" standstill agreement can be achieved quickly
and may constitute a strong platform for a successful debt
restructuring.
Matei Florea
Restructuring | Hungary
- Hungary will soon adopt the
Restructuring Directive, providing debtors with a
preinsolvency tool to rescue their viable but struggling
enterprises. Until now, in Hungary these enterprises had only one
legal tool - insolvency proceedings - to settle their debts with
creditors, but insolvency proceedings are unpopular due to their
inflexibility and riskiness compared to restructuring proceedings.
We therefore expect that restructuring proceedings will strengthen
enterprises (also recovering from the ongoing coronavirus pandemic)
and the position of their creditors in the Hungarian market, which
will have a positive impact on the economy in the long run.
Gergely Szalóki - Virág Palguta
Restructuring | Slovenia
- Restructuring Directive
implementation is underway in Slovenia, with the draft
legislation comprising add-ons to the existing preventive
restructuring process (enacted in Slovenia as early as 2013). Most
notably, corporate debtors facing the likelihood of insolvency will
obtain recourse to a court-sponsored restructuring toolbox with
features currently only available against a formal declaration of
insolvency. Other notable features of the legislative proposal
include the (long-awaited) cross-class cram-down, ipso facto clause
restrictions and a revised set of management obligations in the
vicinity of insolvency. Practitioners and market players will
welcome the fact that - rather than introducing brand new features
(increasing uncertainty) - the proposal largely builds on the
existing toolbox.
Vid Kobe
Marketplace | Croatia
- Amendments to the Insolvency
Act announced. According to the annual plan of legislative
activities published by the Government, changes to the Insolvency
Act have been announced for March 2021. However, it is more likely
that a legislative process will commence in the second half of 2021
at best. The changes should not only involve full transposition of
the Restructuring Directive into Croatian law, but potentially also
create an adequate close-out netting regime between corporates. So
far, close-out netting applied only to agreements involving banks
and financial institutions.
Ozren Kobsa
Marketplace | Montenegro
- New banking laws transposing
EU legislation to Montenegro are not without issues. The
Credit Institutions Act and Credit Institutions Recovery Act were
adopted in 2019 with their application (initially planned for 2021)
has now been postponed until 2022. But some provisions of the BRRD,
which was the basis of the Credit Institutions Act, were not
precisely implemented, leading to considerable differences between
the Montenegrin and EU framework for resolution of credit
institutions. In addition, both laws contain inaccuracies of
different kinds, including incorrect references to articles, which
required the enactment of two amendments to correct the mistakes.
Full harmonisation with the EU acquis will require additional
(substantial) amendments and a more diligent approach.
Petar Vucinic
Corporate Finance | Serbia
- Serbia enacted legislation on
UCITS and AIFs. Serbia's first Investment Funds Act
was passed in 2006, and its first funds set up just before the 2008
financial crisis. After the global turmoil, the Serbian IFs market
never really picked up. At the end of 2019, Serbia got its new
UCITS and AIF Acts, transposing the 2009/65/EC and 2011/61/EU Directives. Now, however,
Serbia's UCITS and AIFs potential is poised to be affected by
the global COVID-19 pandemic. As things stand, not a single AIF has
been set up since the enactment of the new law. Still, both the SEC
and market participants expect an upturn in fundraising activity in
2021 and hope to see the first Serbian AIFs set up soon.
Jelena Arsic
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