Creditor Banks and Preventive Financial Restructuring Proceeding

Transcription

1 Creditor Banks and Preventive Financial Restructuring Proceeding

2 Creditor Banks and Preventive Financial Restructuring Proceeding 2 Content Incorporation into the International Sphere Basic Points of Regulation Overview of Important Rules Position of Creditor Banks

3 Creditor Banks and Preventive Financial Restructuring Proceeding 3 Abbreviations Preventive proceeding Preventive restructuring proceeding according to ZFPPIPP Regulation Council Regulation (EC) No 1346/2000 of 29 May 2000 on insolvency proceedings Brussels I Council Regulation (EC) No 44/2001 of 22 December 2000 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters Act Financial Operations, Insolvency Proceedings and Compulsory Dissolution Act (ZFPPIPP) Official Gazette of RS no /2007 to /2013 MS Member State

4 Creditor Banks and Preventive Financial Restructuring Proceeding 4 Incorporation into the International Sphere Council Regulation No 1346/2000 Council Regulation (EC) No 1346/2000 of 29 May 2000 on insolvency proceedings Preventive proceeding shall not be recognized as a proceeding under the current Regulation, since it is not a proceeding in case of insolvency. Regulation is currently under revision (on 22 October 2013): Regulation should also cover proceedings, (i) that are only connected with insolvency and (ii) where there is a risk of future insolvency, Definition of collective proceedings" will expand to cases when proceeding covers significant share of creditors It is possible that after the revision of Regulation preventive proceeding will be recognized as a proceeding under the Regulation. If this will be the case, legal effects of preventive proceeding could not be challenged in another member state.

5 Creditor Banks and Preventive Financial Restructuring Proceeding 5 Incorporation into the International Sphere Brussels I Recognition and enforcement of resolution on the confirmation of agreement on financial restructuring in EU (except Denmark) Is decision of the court on the confirmation of agreement judgment according to Brussels I? Brussels I shall also apply to confirmatory judgments. It is important for the recognition of the judgment under the Brussels I that the court, before passing the ruling, examines the grounds of the judgment it should not be just a confirmation of a private agreement. Under the Article 34 of Brussels I a resolution shall not be recognised in another member state in 4 cases, alternatively: if such recognition is manifestly contrary to the public policy of the MS where it was given in default of appearance, if the defendant was not served with the document which instituted the proceedings in sufficient time and in such a way as to enable him to arrange for his defence, unless the defendant failed to commence proceedings to challenge the judgment when it was possible for him to do so; if it is irreconcilable with a judgment given in a dispute between the same parties in the MS in which recognition is sought; if it is irreconcilable with an earlier judgment given in another MS or in a third State involving the same cause of action and between the same parties, provided that the earlier judgment fulfils the conditions necessary for its recognition in the MS addressed.

6 Creditor Banks and Preventive Financial Restructuring Proceeding 6 Incorporation into the International Sphere Comparison with French Accelerated Financial Safeguard Proceedings Accelerated Financial Safeguard Proceedings Intended for companies in financial difficulties, that are not yet insolvent Only for large companies (more than 150 employees, 20 million of turnover) Only financial creditors Administrator appointed by court The court guards the interests of minority creditors (not necessarily equal treatment of creditors) Duration max 2 months Confirmation of agreement with 66% majority of claims Recognized under the Regulation Preventive Proceeding Intended for companies, that are not insolvent, but are threatened by insolvency Only for large and medium companies according to ZGD-1 (more than 50 employees, 8,8 million turnover) Only financial creditors No administrator The court decides whether all creditors are equally treated Duration max 8 months Confirmation of agreement with 75% majority of claims Not recognized under the Regulation

7 Creditor Banks and Preventive Financial Restructuring Proceeding 7 Basic Points of Regulation confidential nature of the proceeding proceeding intended only for well informed creditors debtor and financial creditors have the initiative limited role of courts and simple assessment of decisions fixed and unequivocal time limits simple proceeding initiation/standstill (consent of 30% of the total of all financial claims is sufficient) simple termination of proceeding/standstill (consent of 30% of the total of all financial claims is sufficient) equal treatment of creditors is decided on the merits, other decisions of the court at the beginning or the end of the proceeding are formal in nature no court administrator of the proceeding goal of preventive proceeding is to enable the debtor, with the consent of creditors, the necessary time to negotiate financial restructuring management of the debtor is liable for business operations in the course of proceeding under the Business Judgment Rule ; management of the debtor is not obliged to manage the debtor conservatively with the goal to retain assets of the debtor for repayment of creditors proceeding is linked to the subsequent insolvency proceedings in terms of time frame and substance

8 Creditor Banks and Preventive Financial Restructuring Proceeding 8 Overview of Important Rules Preliminary Proceeding Preventive proceeding, according to Amendment F, is not excluding out-ofcourt agreement on financial restructuring, for which the total (100%) consent of creditors and the debtor is necessary Proceeding is initiated by the request of the debtor to commence the proceeding (preliminary proceeding), creditors cannot propose commencement of the proceeding Attachments to the petition shall be: a basic list of all financial claims against the debtor (according to the end of the latest quarter before lodging the request) an auditor s report on reviewing the basic list notarized statements by creditors with at least 30% (75%) of total amount of financial claims Procedural obstacles for commencement of the proceeding: 2 years from the previous proceeding (except with 75% consent) ongoing compulsory settlement proceedings 2 years from the day when the debtor settled all liabilities arising from a previous compulsory settlement (except with 75% consent) ongoing bankruptcy proceedings Consequences of the initiation of the proceeding: compulsory settlement proceedings may not be proposed

9 Creditor Banks and Preventive Financial Restructuring Proceeding 9 Overview of Important Rules Preliminary Proceeding bankruptcy proceedings may not be initiated Financial creditor may notify the participation in the proceeding until resolution on the initiation of proceeding has been issued and may appeal, inter alia, that: the debtor is already insolvent or the debtor is not threatened by insolvency (1 year period) or the basic list of claims does not contain all financial claims against the debtor In such case the court shall be obliged to assess the disputed facts. Difficult for the court to rule on. Question arises whether appeal makes sense, when the termination of the proceeding can be achieved faster if it is requested by creditors with at least 30% of the sum of all financial claims. Preliminary proceeding does not have an impact on claims or recovery of claims, however, it constitutes an obstacle for initiation of compulsory settlement and bankruptcy proceeding.

10 Creditor Banks and Preventive Financial Restructuring Proceeding 10 Overview of Important Rules Main Proceeding The court shall decide on the request to commence proceeding with a resolution, and if there is no appeal, assesses only formal requirements of the Act Main proceeding is initiated on the beginning of the day when the court s resolution on the initiation of proceeding is published on AJPES Legal consequences of the initiation of the proceeding (only for financial claims): Bar on initiation of enforcement or security proceedings Enforcement and security proceedings shall be terminated upon the request of the debtor The limitation period for claims included in the basic list is suspended The debtor is not in default for payment of the principal amounts Discharge of the proceeding Validity of the agreement is conditional on: signing the agreement on financial restructuring of: the debtor financial creditors with at least 75% of the sum of all ordinary claims included in the basic list financial creditors with at least 75% of the sum of all secured claims included in the basic list (if agreement affects secured claims)

11 Creditor Banks and Preventive Financial Restructuring Proceeding 11 Overview of Important Rules Main Proceeding The fulfilment of additional conditions (if stipulated by agreement): consent of all secured creditors for restructuring different from reduction of interest rates and deferral of maturity consent of commercial creditors change of share capital (The Act is not introducing APR rule for change of share capital) In debt review of agreement by auditor (basis for court s decision) if the agreement: stipulates equal share of reduction and equal deferral of maturity for ordinary financial creditors stipulates equal deferral of maturity (not more than 5 years after finality) and equally changed interest rate for secured financial creditors reaches 75% threshold fulfils additional conditions Agreement is signed and notarized by all consenting parties and one original copy of agreement is deposited by the debtor with the notary. Notary shall hand over a notarized copy of the agreement to each signatory and to creditor whose claim is included in the basic list of claims, even if such creditor is not a signatory to this agreement. Basic list of claims shall be attached to agreement.

12 Creditor Banks and Preventive Financial Restructuring Proceeding 12 Overview of Important Rules Confirmation of the Agreement by the Court The court confirms the agreement with a resolution: if the request for the confirmation is filed within 5 or 3 months (prolongation for 3 or 2 months with 30%) Attached documents: an engrossed notarized copy of the original of the agreement minutes on the deposition auditor s report Legal effects of the agreement: after finality of court s resolution on financial claims of creditors who agreed to agreement other obligations shall also have an effect on these creditors, if so agreed on financial claims of ordinary creditors who did not agree (reduction of interest rates and maturity) on financial claims of secured creditors who did not agree (reduction of interest rates and maturity) the rights of creditors as specified in the agreement shall have effect in favour of creditors who did not agree to agreement at D/E change of control clause and article 498 ZGD-1 (5 years after finality) do not apply

13 Creditor Banks and Preventive Financial Restructuring Proceeding 13 Overview of Important Rules subordinated claims terminate enforceable instruments that are above the level of claims agreed in agreement terminate enforcement proceedings continue in limited way subsequent court decisions - only up to the level of claims in agreement Confirmation of the Agreement by the Court

14 Creditor Banks and Preventive Financial Restructuring Proceeding 14 Overview of Important Rules Termination of proceeding if a reason for termination of the proceeding emerges the court shall not terminate the proceeding but shall firstly merely issue a resolution on the finding that a reason for termination of the proceeding has emerged resolution shall be published (AJPES) the debtor and creditors (20% of financial claims) have a right to lodge a petition for the initiation of the compulsory settlement proceeding within 1 month after resolution has been published (insolvency test, no automatic insolvency) Confirmation of the Agreement by the Court In case of subsequent bankruptcy priority repayment of financial claims emerged during preventive proceeding before priority claims in in 2. (wages for the last 3 months, indemnity for occupational injury etc.) actions of the debtor, carried out due to the fulfilment of obligations under agreement, shall not be challenged In case of subsequent compulsory settlement priority repayment of financial claims emerged during preventive proceeding compulsory settlement does not effect such claims

15 Creditor Banks and Preventive Financial Restructuring Proceeding 15 Required consent ordinary Required consent secured Repayment agreement Consent of creditors for stand still" Duration of negotiations Contesting actions in bankruptcy after agreement Has the new financing senior position in bankruptcy/cs? Does rule in art. 498 ZGD 3-1 apply for D/E? Out-of-court Restructuring Preventive Restructuring 100% 75% 6/10 100% 75% 75% Free Equal treatment of all creditors Compulsory Settlement (CS) Equal treatment of all creditors 100% 30% Consent is not required Unlimited Limited (5+3, 3+2) Limited Yes No No No Yes Yes Yes No No

16 Creditor Banks and Preventive Financial Restructuring Proceeding 16 Does Change of control clause remain valid? Absolute priority rule Management of debtor s business Compulsory change in management Reduction of surety s obligation Out-of-court Restructuring Preventive Restructuring Yes No No No No Yes Business Judgment Rule, risky transactions are allowed Business Judgment Rule risky transactions are allowed No No Yes Yes (accessory of surety art OZ) Yes (accessory of surety art OZ) Compulsory Settlement (CS) Restrictive governance, preservation of value for creditors, only regular business operations No (exception from accessory art OZ)

17 Creditor Banks and Preventive Financial Restructuring Proceeding 17 Possible compulsory effect ( cram down ) on secured claims Division of secured claims Out-of-court Restructuring No Preventive Restructuring Yes (maturity for max 5 years) No No Yes Compulsory Settlement (CS) Yes (no limitation for maturity)

18 Creditor Banks and Preventive Financial Restructuring Proceeding 18 Position of Creditor Banks Possible view of financial creditors on preventive proceeding: it is appropriate proceeding, when majority consent among financial creditors on a manner of restructuring of the debtor is reached minority interests may be subordinated with this proceeding information on the debtor may be obtained (of assets, liabilities, business operations and growth in business operations of the debtor) for subsequent creditors petition for compulsory settlement (limited only on financial creditors or on all creditors), it is important that banks (i) get to know business operations of the debtor (due diligence) early enough and (ii) that they are prepared to take over the managing of the debtor from the beginning of the proceeding, logically all the time during the proceeding (iii) prepare scenario of compulsory settlement it is appropriate that the banks have an expert, that is familiar with the industry and is capable to take over managing of the debtor, present from the beginning decision making of the banks should be hastened, since the time limits are unequivocally stated (proceeding is repeated only with 75% consent) simple (statutory) stand still, that is connected with compulsory settlement, that may be filled within one month after resolution of the court

19 Creditor Banks and Preventive Financial Restructuring Proceeding 19 Position of Creditor Banks Negotiations should be conducted in a way that the debtor (and owners) is aware from the beginning that he must be cooperative during time of negotiations and that banks are the one that actually run the negotiations; in compulsory settlement the debtor is looking into derived absolute priority rule and (likely) change of debtors management. 30% consent for initiation may be subject to certain commitments of the debtor during the negotiations, e.g..: limit of investments, sale, restriction of business operations, forming data base (for business operations Business Judgment Rule applies). Equal repayment rule in preventive proceeding may be, in certain circumstances, changed with special agreement among financial creditors (before or after finalized preventive restructuring proceeding). Perhaps financial creditors should come to a principal agreement that that failed preventive restructuring proceeding would lead to immediate continuation of insolvency proceedings, which would be a clear message for debtors. Such agreement would form a distinct D-day that is so often missing. Absolute priority rule may be agreed on in preventive proceeding and consequently (perhaps partial) expropriation of owners (additional condition of change in share capital as part of preventive restructuring). The debtor must know what follows in compulsory settlement.

20 Creditor Banks and Preventive Financial Restructuring Proceeding 20 Position of Creditor Banks debtor has as much room in negotiations as the banks leave him

21 21 Srečo Jadek, Partner Law office JADEK & PENSA d.n.o.-o.p. Tavčarjeva ulica Ljubljana Slovenia Tel: Fax: