Recent Developments
The UK—On 26 July 2012, the UK Pensions Regulator issued a statement on financial support directions ("FSDs") with the intention of providing further guidance regarding the circumstances in which it will issue an FSD after a company has been placed into administration.
Following the October 2011 rulings in Lehman Brothers
and Nortel Networks (Bloom v. The Pensions
Regulator [2011] EWCA CIB 1124), an FSD issued before a
company goes into administration will rank as a general unsecured
debt, whereas an FSD issued post-administration will rank as an
expense of the administration. An FSD issued after administration
will therefore be discharged from floating (not fixed) charge
realizations and will rank above payment of the administrator's
own remuneration. The priority of FSDs over floating charge holders
could have a material impact on the return to secured creditors,
particularly where there are few or no fixed charged assets.
The current ranking of FSDs issued after administration is of great
concern to insolvency practitioners and lenders. In response to
these concerns, the Pensions Regulator has stated that it has
no intention of deliberately delaying the issue of an FSD
until a company goes into administration and to therefore take
advantage of post-insolvency priority ranking. Further, the
Pensions Regulator has stated that in most circumstances it will
not object to an application issued by an administrator to reorder
the statutory order of priorities so that the payment of the
administrator's own reasonable remuneration will rank ahead of
an FSD. The Regulator also advised that in the forthcoming appeal
to the UK Supreme Court on this issue (scheduled to be heard on 14
May 2013), it will argue that an FSD issued after administration is
a provable debt which will rank as a general unsecured debt as an
alternative to an administration expense. Whilst the statement is
welcomed, it is unlikely to provide the certainty stakeholders are
seeking and which they hope the Supreme Court will deliver in
respect of the Lehman Brothers and Nortel
Networks appeal.
France—On 25 July 2012, the French Government
unveiled a program to support France's automobile
industry. The purpose of the program is to boost
employment in the industry and support purchases of greener,
less-polluting cars. Pursuant to the program, existing subsidies
for the acquisition of electric vehicles will be increased to a
maximum of €7,000 and existing subsidies for the
acquisition of hybrid vehicles will be doubled to a maximum of
€4,000. The rebates will be financed by an increased tax
on polluting vehicles. The French Government will also redeploy
several hundred million euros to manufacturers that invest in green
technology. The program was prompted by PSA Peugeot
Citroën's plan to lay off 8,000 employees in France. The
French automobile-manufacturing industry currently employs 800,000
persons, 30 percent fewer than a decade ago. The French
Government's move also reflects the importance of the
automotive sector in the EU economy. According to the European
Commission, the EU is the world's largest producer of motor
vehicles, with 18 million vehicles manufactured annually. The EU
automobile industry accounts for approximately 12 million jobs. The
industry is the EU's largest private investor in R&D
(€20 billion per year) and accounts for 20 percent of the
EU's steel production and 36 percent of the aluminum
production.
France—The second interim Finance law for 2012
introduces material changes to the tax treatment of financial
support granted to distressed subsidiaries. Historically,
parent companies providing financial support to distressed
subsidiaries could use various tools. In the case of debt
forgiveness, the parent company was able to recognize a
tax-deductible loss up to the amount of the negative equity of the
subsidiary (the excess of the forgiven debt over the negative
equity, if any, treated as additional basis in the subsidiary's
shares), while the subsidiary recognized taxable income.
Alternatively, the parent company could inject additional equity
into the subsidiary. At the parent level, such an injection was
treated in full as additional basis in the subsidiary's shares
and was therefore nondeductible, whereas the equity injection was
not taxable at the level of the subsidiary.
Under the new law, subsidies and debt waivers are no longer tax
deductible except if they are granted within the scope of a
conciliation agreement approved by the French bankruptcy court or
in the course of safeguard, reorganization or liquidation
proceedings pursuant to French bankruptcy laws. In case one of
these exceptions applies, the parent company is still entitled to
deduct the debt waiver up to the amount of the negative equity of
the distressed subsidiary. Where the legislation initially proposed
by the French Government also provided that equity injections by a
parent company would be taxable at the level of the distressed
subsidiary to the extent they did not exceed the subsidiary's
negative equity, this proposed provision was omitted from the final
legislation, and equity injections remain tax neutral at the level
of the distressed subsidiary. However, to avoid abusive schemes,
the new law provides that the parent company may not realize a
tax-deductible loss if it sells the subsidiary's newly issued
shares.
Newsworthy
Jones Day acted as tax counsel to Blackstone Group LP
("Blackstone") in connection with the acquisition of
substantially all of the logistics assets of French real estate
investment trust Gecina SA ("Gecina") for €203
million. The portfolio includes 28 assets, all located in
France, and represents nearly all of Gecina's remaining
logistics holdings. Gecina, which has seen its rental income fall
5.6 percent since last June, is close to its goal of selling
€1.2 billion in assets this year to focus on its office
portfolio, France's largest. Blackstone is a US-based
alternative asset management and financial services company that
specializes in private equity, real estate and credit and
marketable alternative investment strategies, as well as financial
advisory services. Most of Blackstone's real estate holdings
are malls, hotels and housing, but the firm has been building a
logistics platform, spending more than $3.1 billion over the past
six months to add industrial warehouse space.
Jones Day is advising Paris-based Veolia Environnement SA
("Veolia") in connection with the sale of its North
American solid waste business, Veolia Environmental Services Solid
Waste, Inc. to Star Atlantic Waste Holdings, LP, a US
infrastructure private equity fund. Veolia's US solid
waste operations include 29 landfills, 72 collection operations, 17
recycling facilities and 43 transfer stations, most east of the
Mississippi River. The transaction, valued at $1.909 billion, is
Veolia's second largest divestiture.
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