6th European Restructuring Conference of the law firm Noerr

09.05.2014

The participation of international investors in the rescue of German companies in crisis and insolvency has increased further. Participants at today’s European Restructuring Day of the law firm Noerr regard this as a success of the German Insolvency Code amendment of two years ago and discussed at the conference the role of distressed investors and debt funds in the restructuring processes. On the other hand, investors criticised the lack of compulsory settlement with individual creditor groups which is possible in other European jurisdictions. The draft legislation of the Federal Council to admit English as the language in court in suitable cases was also welcomed. Especially in insolvency proceedings with many foreign creditors this would be welcomed.

“The presence of new players shows the great interest in the German restructuring market”, said Noerr partner Dr. Thomas Hoffmann who chaired the event. Hoffmann described the restructuring of the A.T.U Group, which was also the centre of a case study, as a successful example for the participation of debt funds. Christian Sailer, CFO, and Dr. Christoph von Wilcken von Schultze & Braun, reported to the participants at first-hand about their experiences. A high-profile panel chaired by Noerr partner Dr. Thomas Schulz discussed the role of distressed investors in European context.

“The self-imposed objective of promotion to the first division of European insolvency proceedings attractive for investors by the Insolvency Amendment Act ESUG has not been fully achieved by the legislator yet”, said Hoffmann. Even if the current ESUG study by Noerr and Roland Berger Strategy Consultants found only recently a high degree of acceptance among practitioners, the experienced restructuring experts still observe a certain reserve in the case of international investors. This is linked inter alia with the absence of possibilities of conducting the court proceedings in English and also to the fact that the court proceedings always cover all creditors equally and not only apply to individual creditor groups in isolation, this is possible for example under English law. This has the result that major syndicated loan agreements are made subject even subsequently to English law in order to achieve jurisdiction of English courts.

The latter considerably facilitates the restructuring process in groups, emphasised  Martin Kleinschmitt, management board member of Noerr Consulting AG, at the opening of the European Restructuring Day on Thursday: “Under the present legal situation, a subsidiary can only be released from liability if every third secured financial creditor has agreed.” This prolongs the duration and increases the complexity of the proceedings unnecessarily. In this connection, he also pointed out that the Bond Act (Schuldverschreibungsgesetz) already permits the surrender of third party security by a qualified majority in the case of bonds outside insolvency proceedings and also that the Scheme of Arrangement under English law, which is seen as a competitor, enables this.

The Noerr restructuring experts expressly supported the current draft of the Federal Council of 30 April which has the objective of permitting English as the court language in appropriate cases. “This should not be limited only to disputed proceedings but precisely in insolvency proceedings with many foreign creditors – major proceedings Lehman Brothers Bankhaus AG, Arcandor AG and IVG AG were mentioned – should be available as an option. Only in this manner in the case of international creditors can the confidence which is indispensable in restructuring proceedings be ensured in a court protection of their interests”, emphasised Hoffmann. The Federal Council already approved a draft act in the last legislature period and it was discussed in the Federal Parliament but was forfeited on the expiry of the legislature period.

The programme of the restructuring day also placed case studies in the centre of the discussions, including on the Nürburgring and Global PVQ (formerly Q-Cells) and the situation in the shipping industry. In his key note address, the insolvency and corporate law expert and member of the Legal and European Committee of the German Federal Parliament, Prof. Dr. Heribert Hirte, placed the reform of German insolvency law in the overall European context, in particular in relation to the various starting positions for the restructuring of groups. He referred to the current discussion of the question whether the right of challenge in insolvency should even now be included in the amendment process.