For the benefit of our clients and friends investing in European
distressed opportunities, our European Network is sharing some
current developments.
Recent Developments
Italy—As part of a program of economic and financial
reforms recently implemented to ensure Italy's future
sustainability and growth, the Italian Council of Ministers on 24
June 2014 enacted Law Decree No. 91 (the "Law Decree"),
which introduces new measures, including tax provisions, aimed at
facilitating access to financing by Italian companies. The
principal innovations introduced by the Law Decree concern
securitization and lending transactions and the debt markets.
Specifically, the principal changes introduced by the Law Decree
include: (i) allowing securitization vehicles incorporated under
the Italian Securitization Law and Italian insurance companies
(i.e., insurance companies incorporated under Italian law or
authorized branches of an insurance company incorporated under the
law of a non-EU member state) to lend in Italy; (ii) broadening the
list of assets eligible for investments by undertakings for
collective investment (organismi di investimento collettivo del
risparmio); and (iii) broadening the scope of certain favorable tax
rules to include (a) banks established under the laws of an EU
member state, (b) insurance companies established and licensed
under the laws of an EU member state, and (c) unleveraged
undertakings for collective investment incorporated in an EU member
state or a European Economic Area country. A detailed discussion of
the Law Decree is available here.
The UK, the US and Canada—On 8 June 2014, Canadian
units of Nortel Networks Corp. ("Nortel") announced that
they have reached a settlement with Nortel's overseas
subsidiaries regarding claims that the Canadian units siphoned off
hundreds of millions of dollars from subsidiaries throughout
Europe, the Middle East and Africa ("EMEA") before
Nortel's 2009 bankruptcy through illegal transfer pricing
agreements. The settlement comes against the backdrop of
an epic dispute over how to divvy up US$7.3 billion generated by
Nortel's liquidation. It does not directly impact the ongoing,
closely watched cross-border litigation in which the Delaware and
Ontario bankruptcy courts are deciding jointly how to split up the
billions from Nortel's asset sales among its international
affiliates for distribution to creditors.
However, the settlement does establish how much the EMEA
claimants, who are seeking a US$2.7 billion share of the
liquidation proceeds, can hope to receive from the bankruptcy
estate of Nortel's Canadian debtors. The EMEA claimants settled
similar claims against Nortel's US bankruptcy estate in
December 2013. Described as a milestone in the case, that
settlement (briefly described here) was approved by the US
Bankruptcy Court in January 2014.
On 24 July 2014, Nortel's defunct US unit announced that it
has settled a dispute with bondholders over how much interest they
can collect on US$3.93 billion in debt issued in 2006 and 2007. The
agreement was disclosed the day before the judge presiding over the
US unit's bankruptcy was scheduled to hear arguments on whether
any interest should be paid and, if so, at what rate. The
settlement is expected to streamline remaining court battles.
Germany—On 22 May 2014, the German Federal Supreme
Court (Bundesgerichtshof) ruled that an insolvency administrator
was entitled to contest a debtor's prepetition repayment of a
loan because the lender knew that the borrower was facing liquidity
issues. The ruling is the latest in a series of judgments
that allow payments made prepetition by the debtor in the ordinary
course of business to be challenged and recovered by the estate.
Administrators have recently made increasing use of their power to
challenge ordinary-course payments to banks, suppliers or other
business partners of the debtor—in many cases, several years
before the debtor filed for insolvency. Under German insolvency
law, a debtor's ordinary-course payments to creditors can
generally be contested if they are made within three months prior
to the filing of an insolvency petition, provided: (i) the debtor
was unable to pay all of its current obligations; and (ii) the
payee was aware of this illiquidity. Payments are not subject to
challenge on these grounds if the debtor receives consideration of
equal value directly in exchange (i.e., in a cash
transaction).
In its judgment of 22 May 2014 (and in prior judgments), the
Bundesgerichtshof ruled that an insolvency administrator may also
challenge a debtor's ordinary-course payments if such payments
were made with the intent to disadvantage other creditors. The
court's ruling was premised on a provision in German insolvency
law that authorizes avoidance of prepetition payments made within
10 years prior to the filing of an insolvency petition if the
debtor acted with the intent to disadvantage creditors and if the
payee was aware of the debtor's intent. A debtor is generally
deemed to act with the intent to disadvantage other creditors if
the debtor is illiquid at the time the contested payment was made.
A payee is deemed to be aware of this intent if the payee was aware
of the debtor's illiquidity at the time of the payment. A
payee's knowledge is presumed where the debtor and the payee
have agreed on a deferral of payments or where the debtor is in
default on its obligations to the payee.
The Association of German Industry ("BDI") and the
Association of German Trade ("ZDH") published a joint
paper at the end of 2013 raising concerns against the recent
rulings of the Bundesgerichtshof. The BDI and the ZDH have also
called for the legislature to amend the law to restrict challenges
to ordinary-course payments. The German Minister of Justice has
indicated that this issue is under review, but the Ministry has not
yet made any specific proposals to amend the law.
Global—Developments in the Argentine debt saga have
intensified. Argentina is trying to avoid a default that
could occur on 30 July 2014, the end of a grace period on a payment
that was technically missed on 30 June 2014.
On 29 June 2014, investment firms that hold restructured
euro-denominated bonds issued by the Republic of Argentina filed a
petition in the US District Court for the Southern District of New
York seeking a ruling that foreign banks which process interest
payments on such bonds are outside the jurisdiction of US courts.
The investment firms contend that the euro-denominated bonds are
governed by the laws of England and Wales and asked the court to
clarify that prior injunctions restricting payment on
Argentina's restructured debt do not apply to foreign banks
processing such bonds.
On 7 July 2014, a team of negotiators from the Republic of
Argentina met with court-appointed mediator Daniel Pollack to
discuss the nation's standoff with holdout bondholders and
establish the groundwork for future meetings.
On the same day, Argentina's Ministry of Economy and Public
Finance issued a statement claiming that US District Court Judge
Thomas P. Griesa did not have the authority to block the payment of
more than US$500 million to exchange bondholders, and that the Bank
of New York Mellon Corp. ("BNY Mellon") would be
violating its obligations as trustee if it returned the money. On
27 June 2014, Judge Griesa stated that Argentina's payments to
exchange bondholders were "disruptive" and ruled that
anyone who attempts to do so will be held in contempt. According to
Argentina, Judge Griesa exceeded his jurisdiction because the
relevant bonds were issued under UK law and denominated in euros,
and the holders have an absolute and unconditional right to the
payments deposited with BNY Mellon.
On 21 July 2014, Argentina filed pleadings in support of BNY
Mellon's petition in the US Court of Appeals for the Second
Circuit for an order lifting Judge Griesa's ban on the
nation's payments to exchange bondholders. Argentina also
called for Judge Griesa to deny a request by holdout bondholders
for a declaration that an earlier injunction applies to bonds
governed by Argentine law.
At a hearing held on 22 July 2014, Judge Griesa pleaded with both
sides to reach a settlement of the dispute before the expiration of
the grace period. A default by Argentina, Judge Griesa stated,
would be "the worst thing" because "[n]ot vultures,
but real people will be hurt."
Newsworthy
Jones Day is acting as tax counsel to GTECH in connection
with its acquisition of International Game Technology
("IGT") for US$6.4 billion, comprising US$4.7 billion in
cash and stock and the assumption of US$1.7 billion in net
debt. The transaction will create the world's leading
end-to-end gaming company, uniquely positioned to capitalize on
opportunities in global gaming market segments. Under the terms of
the transaction, IGT and GTECH will combine under a newly formed
holding company organized in the United Kingdom.
Jones Day advised Hansteen Holdings PLC
("Hansteen") in connection with the acquisition of a
€176 million (US$239.8 million) credit facility secured by a
portfolio of light industrial parks in the Netherlands owned by
Lancelot Land BV ("Lancelot"). The loan was
acquired at a discount to par in two separate trades with Italian
financial services company UniCredit Group ("UniCredit")
and Dutch financial services company ING Group ("ING").
Following a restructuring of the loan and the associated swaps with
JPMorgan Chase and UniCredit, the counterparties, Hansteen agreed
with Lancelot to acquire the assets for approximately €106
million (US$44.3 million) utilizing a new €60 million (US$81.7
million) loan facility arranged by ING.
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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.