Vol 10 (2013) - Issue 2

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Review of the European Insolvency and Restructuring Regime

Much has been discussed in recent months regarding the changes to restructuring laws across Europe. In the past two years, these laws have been altered to varying degrees in each of the key jurisdictions as European states seek to replicate the best elements of restructuring law across the globe. At the same time however, there has been an increased usage of UK Schemes of Arrangement throughout Europe which is proving to be a useful mechanism by which to effect a financial restructure in Germany (Primacom, where a scheme was used to cram down senior debt, Rodenstock, GRAND, etc) and Spain (Cortefiel – where it was used for the first time to amend and extend the facility documents and La Seda de Barcelona) and several other jurisdictions in Europe and beyond.
The wider outlook for restructuring in 2013 remains uncertain and a number of themes continue to be discussed at length. The Eurozone appears to be in perpetual crisis and the extension of support mechanisms is arguably prolonging anaemic growth and permitting the survival of 'zombie' companies.
At the same time, bank capitalisation remains a problem – international banks have increasingly retrenched to their home markets and are constrained from further lending. Bad banks have been set up across Europe, most recently in Spain, to deal with troublesome assets that will need to be exited in a defined period, and the much lauded refinancing wall will need to be dealt with over the next 5 years.
However, against this rather negative backdrop, insolvency rates have been low. In part this is explained by the preference for refinancing, term extensions and low nominal interest rates, but it also reflects the fact that international restructuring is not harmonised and significant challenges need to be overcome. Given the retrenchment of banks generally and the difficult position of many of the banks’ national economies, restructurings are increasingly being led by alternative providers of funds.
It is in this context that the key changes to the insolvency and restructuring regimes in Europe are examined in this article.

Background
Creditors often seek reassurance that, following an event of default on a loan, European insolvency regimes provide a level of certainty in the event a consensual restructuring cannot be achieved. Too often, it has been difficult to give this certainty. It is not surprising that the popularity of UK schemes remains high given familiarity with the process, the experience of the judiciary system and the ability to cram down dissenting secured creditors. This view is reflected in discussions with creditors, where key questions asked of the continental European regimes include:
– Can creditors control the process?
– Does the equity have any hold out rights?
– Can the secured creditors be detrimentally impacted without consent?
– Can a liquidation be avoided using a formal rescue process?