Vol 3 (2006) - Issue 2

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Competition Law Issues in Insolvency and Restructuring

Introduction
In an increasing number of cases, business rescue and turnaround professionals are having to consider competition/antitrust issues when conducting rescues, workouts and restructurings. Such issues have potential to arise in any restructuring, especially those involving a debt-equity swap or where a business of the troubled company is sold to a competitor. Part 1 of this article reviews some typical situations in which competition provisions become important to rescue professionals, before examining merger control and the ‘failing firm defence’ in Part 2.
Part 1 – Situations in which competition issues may arise in insolvency and restructuring
Debt-equity swaps
Financial restructuring plans often involve a debt-equity
swap, whereby banks and other creditors exchange their debt or part of their debt for equity in the restructured company. Where a bank or other major creditor acquires (and is likely to hold for a significant period) a substantial equity stake resulting in a change of control (as defined in the relevant legislation) in the company, this can trigger merger control issues, either under the EC Merger Regulation, or, more likely in most cases, under local merger control rules. Merger control provisions,and possible exceptions in the case of troubled companies, are examined in more detail in the second part of this article.
Where the troubled company is financed mostly by publicly traded bond debt held by numerous bondholders,merger control can be less of an issue. However, where a large stake is held by one bondholder the same considerations should apply.
Sale of business out of an insolvency proceeding Often where a troubled company’s business is marketed as a going concern, the key bidders may be players in the same industry. Such transactions are often of interest to competition authorities such as the UK’s Competition Commission and the European Commission.