Transcript Slide 1

Third Session:
Insolvency Case-Studies
Chair: Stefania Bariatti
(University of Milan)
Lessons from
Africa
The Story of Africa-Israel Investments
David Hahn
Trade
d
Stock
Lebaye
v
AFI
Investments
AFI
Trade
and
Agencies
100%
AFI
Properties
AFI
Residences
AFI
Industries
AFI Int’l
Holdings
67.85%
74.95%
70.91%
100%
Danya
Cebus
AFI Int’l
Properties
(2002)
73%
100%
AFI
Europe
100%
AFI
Developments
71.7%
AFI Int’l
Investments
(1997)
100%
AI
Holdings
(U.S.A.)
100%
AFI Bonds
• All 13 series were
unsecured bonds
• Indentures included:
– Material adverse changes
acceleration clauses
– cross-default clauses
– cross-acceleration clauses
AFI – 2009 Q2 Financial
Statement
• Auditors refer to a note to the
financial statement, that stated
that –
– Given the global financial crisis, its
effect on the activity of the AFI group,
and its total outstanding debt of
approximately 21.2 billion NIS, the
management has devised a business
plan that includes delay of payment of
bank debt, rearranging its bonds debt,
selling real estate and extracting
dividends from its subsidiaries.
– The company’s solvency and its
continued operations are dependent on
the implementation of this plan.
in millions
Financial statement
30/09/2009
Liquidation Pessimist
Liquidation Optimist
Assets
Israel
AFID
Public holdings total
Private
Total holdings
Trustee's fees and expenses
Tax (provision)
Other debtors
Cash
Total Value for Distribution
3.014
5.246
8.26
128
8.388
0
0
189
356
8.933
1.267
1.277
2.544
538
3.082
(t509t)
334
189
207
3.303
2.011
3.031
5.042
1.007
6.049
(t955t)
(t551t)
189
207
4.939
Liabilities
Bond holders (adjusted)
Banks and other financial debt
Accounts Payable
Guarantees
Total Liabilities for Distribution
Net worth
7.459
428
339
0
8.226
707
7.495
670
239
1.195
9.563
(t6.260t)
7.495
570
239
800
9.067
(t4.128t)
34.50%
54.50%
Bondholders Recovery
Percentage
AFI Investments Ltd.
Projected Cash Flow Statement (before Arrangement)
(in thousands NIS)
Sources
Cash and Short Term Investments
Dividends from subsidiaries
Sale of assets and operations
Repayment of loans by subsidiaries
Total Sources
Uses
Payment of Bonds (principal + interest)
Current Expenses (including current interest payments)
Additional investments in unified corporations (esp. USA)
Recycling loans in USA
Total Uses
Projected Cash at the end of period
end of 2009
2010
June 2011
551,702
356,246
157,681
98,588
121,169
515,929
698,827
242,045
540,949
185,201
1,164,218
1,335,924
968,196
733,103
929,457
72,000
372,530
(o280,108)
1,043,049
1,093,879
923,922
121,169
242,045
44,273
Assumptions:
This statement was made public by the company on 27/8/09.
In light of the crisis, the "Dividends" and "Sales of assets for reasonable prices" must be discounted.
Conclusion:
Without an arrangement the company is expected to become insolvent during 2010.
Sep-Oct 2009
• A committee was elected to
represent all bondholders, of all
series;
• Series A voted, in a separate
meeting, to hold out and to not be
represented with the other series.
– Series I’s due date was Nov. 9th, 2009.
• Negotiations take place between
AFI and the (12 series)
bondholders committee.
Foundations of the
Plan
• The going-concern value of the AFI
group is related to the controlling
position of Mr. Lebayev.
– Enjoys personal connections in
Russia and other Eastern Europe
countries, that enhance the
business development there.
• Realization of property as of the end
of 2009 would generate low
recovery for the creditors, given the
economic downturn in those real
estate markets.
– Prior to 2009 Q2, AFI realized
assets and paid off approx. 3.3
billion NIS.
Lebayev’s Position under
the Plan
• The Plan contemplated the
ongoing managing of AFI by the
management team of controlling
shareholder, Mr. Lebayev.
• Lebayev would invest 750M NIS as
new value in AFI.
• Lebayev would be diluted by virtue
of the AFI stock issued to the
bondholders, but not beneath a
50% holding.
– This was of concern to the banks
who financed Lebayev and held his
AFI stock as collateral.
– The banks eventually consented.
Valuation for the Plan
• AFI going-concern value for the
purpose of the arrangement: 2
billion NIS (or 36.1268 NIS per
share).
– AFI and the bondholders’ committee
consented to this valuation;
– The bondholders consented to Lebayev
retaining the controlling position at
AFI.
• His personal contacts in Russia and
Eastern Europe were considered a
major component to the
conglomerate’s value.
Series A Objection
• Argued that their imminent
due date sets them apart
from the other series
• To the extent AFI is currently
solvent (cash-flow), it should
pay Series A in full
– If it later wishes to reach an
arrangement with other series –
OK.
• Lebayev cannot retain control
without paying the bonds in
full.
November 2009
• AFI filed with the court for voting on a
proposed arrangement 1 day before
Series A due date.
– Filed under s. 350 of the Companies
Act.
– Arrangement can be approved by a
voting class if approved by a majority
of 75% of votes (in value).
• Requested a general bondholders
meeting, comprised of holders of all
13 series, for the vote.
• Note: the filing accelerated all the
series and thus effectively rendered
AFI insolvent.
The Original Proposed
Plan
• Equal payment to all bondholders, of
all series, calculated on the basis of
adjusted value (par value + interest)
of each series, as of 30.9.09.
• Payment package comprised of:
–
–
–
–
–
Cash
Newly issued short-term bonds
Newly issued long term bonds
Newly issued stock of AFI
Stock of subsidiaries
• All series were offered identical
packages, with identical breakdown of
components.
Litigation – Round I
• Series A cried foul
– Argued that the filing, just 1 day prior
to its due date, was in bad faith, in
order to deny its payment.
– Argued that the proposed
arrangement, which offered all the
series a total of 550 million NIS in
cash, used unjustly the cash available
for Series I in favor of other series
• Series A demanded separate
classification for voting.
– Note: No cram-down provision in
Israel’s law.
• AFI and other series called for equal
treatment and single classification.
December 2009 – Reaching
a Deal
• The court withheld its opinion
and sent all parties to further
negotiations.
• Eventually, the adversary
parties agreed to modify the
proposed plan and appease
Series A, as follows:
– Overall package shall remain
equal; but
– Series I’s cash component will
be inflated, in exchange for
shrinking its bonds component.
in millions
Assets
Israel
AFID
Public holdings total
Private
Total holdings
Other debtors
Cash
Total Assets
Liabilities
Bond holders
(adjusted)
Banks and other
financial debt
Accounts Payable
Tax reserves
Total liabilities
Net worth
Financial statement Valuation for
CPA's valuation
30/09/2009
arrangement
(including fair valuation for
assets and TSB transaction)
3.014
5.246
8.26
128
8.388
189
356
8.933
2.707
4.055
6.762
128
6.89
189
202
7.281
2.766
3.908
6.674
1.634
8.308
189
202
8.511
7.459
3.681
3.681
428
339
0
8.226
707
428
339
35
4.483
2.798
428
339
35
4.483
4.028
Litigation - Round II
• There still remained a minority within
Series A opposing the modified plan.
• The court revealed its cards –
– Ordered a single classification for all
series;
– Noting that absent the modification, the
“substantive equality” between the series
would have been violated and that it would
reject the proposal;
– The increase in Series I’s cash component
secured “substantive equality” and justified
the single classification.
– Rejects the demand of Series I’s minority
for separate classification, because it may
impede the entire arrangement …
Total Before
Total After
Thank you!
Reorganizing Czech
Businesses: A
Bankruptcy Law Reform
under a Recession
Stress-Test
Tomáš Richter
Clifford Chance LLP Prague /
Charles University Prague
Overview
• Reorganization under the Czech
Insolvency Act
• A glimpse of statistics on
proceedings in general
• Introduction of the dataset on
reorganizations
• Tentative findings from the dataset
• Conclusions
Czech Reorganization
• Act 182/2006, in force since
1 Jan 2008
• Available to businesses subject to a
size test – “100 mil sales / 100 staff”
• Ways of correcting outcomes of the
size test – creditors’ decision-making
• Conduct of the proceedings
• Locus of power - DIP/trustee/
creditors/court
• Timeline – from filing to confirmation of a
plan, statutory deadlines and extensions
General overview of statistics
Year
Annual
change in
GDP
New petitions for insolvency of
businesses
General (for
liquidation /
insolvency)
For
reorganization /
composition
Court decisions on the
petitions 1
Liquidation
orders
Reorganization /
composition
orders
2009
- 4.3
5743
39
2004
14
2008
+ 3.2
3603
14
868
6
2007
+ 6.0
4992
23
1104
11
2006
+ 6.8
4203
24
1238
7
All data comes from the Czech Ministry of Justice save for the GDP figures, which come from the
Czech Statistical Office
 Estimate; all insolvency petitions MINUS petitions for consumer discharge
 Businesses PLUS consumers
1 Richter, T., Insolvenční zákon v roce dva: první statistické údaje a pokus o jejich prozatímní interpretaci, Jurisprudence 6/2009
First 2 years of
reorganization - dataset
• Cut-off date: 30 June 2010
• 20 debtors (vs. 48 from 1991 to
2007)
• 19 above the size test (S.
316(4)InsA)
• 18 debtor petitions
• 17 Czech, 3 Slovak
• 9 x private co., 8 x joint-stock co.,1
ltd. partnership,1 SE, 1 sole
proprietor
First 2 years of
reorganization - dataset
• 14 x creditor decision on type
of proceedings
• 2 x moratorium (0 before proceedings)
• 3 x restriction on DIP powers
• 4 x conversions into liquidation
(1 x following plan confirmation,
3 x before)
• 1 x plan performed
Tentative findings
INSOLVENCY
PETITION
INSOLVENCY
ORDER
REORGANIZATIO
N ORDER
PLAN
SUBMISSION
COURT PLAN
CONFIRMATIO
N
PETITION FOR
REORG.
 5.5 weeks
 10.6 weeks
 22.7 weeks
 10.7 weeks
( Me 3 weeks)
(Me 11 weeks)
(Me 24 weeks)
(Me 8 weeks)
 11 months
(Me 11,1 m)
Conclusions
• Number of reorganizations relative to
• Total number of proceedings
• Total number of compositions
under previous law
• Market practice seems comptatible
with statutory time-lines
• Outlook
• Market conditions
• Legal conditions
Reorganizing Czech
Businesses: A
Bankruptcy Law Reform
under a Recession
Stress-Test
www.cliffordchance.com
© Clifford Chance LLP Sdružení Advokátů 2010
Clifford Chance, Jungmannova Plaza, Jungmannova 24, 110 00 Prague 1,
Czech Republic
PRG724399
Fourth Session:
Younger Scholars Forum
Chair: Myriam Mailly
(University of Kent)
Emmanuelle Inacio
(Université du Littoral
Côte d’Opale)
Exercising Creditors'
Rights in Light of the
Changeable Applicable
Law in Cross Border
Insolvency Proceedings
Signe Viimsalu
Structure of the Presentation:
1.Consequences of the Opening
of Insolvency Proceedings
2.Creditors’ Choices to Make
3.Exercise of Creditors’ Rights
4.Conclusion
Changing Position of the Creditors:
Day 1:
Opening of
main
proceedings
3 months
later:
Opening of
secondary
proceedings
Lex fori
concursus
universalis
Lex fori
concursus
secundarii
Consequences
and choices A
Consequences
and choices B
Exceptions
with regard to
certain rights in
respect of
certain assets –
Art 5, 6, 7
General Conflict
of Law Rule
(lex fori concursus)
– Art 4 and Art 28
Exceptions with
regard to certain
legal
relationships –
Art 8, 9, 10, 11,
14, 15
Exception
with regard to
detrimental
acts - Article
13
Exception with
regard to certain
rights
concerning
patents and
trade marks Article 12
Uniform Substantive Rules in
EIR –
Publication and Registration
(Art 21-22), Honouring an
Obligation to the Debtor (Art
24), Exercising of Creditors’
Rights (Art 32), Provision of
Information for Creditors and
Lodgement of their Claims (Art
39-42)
Opening of II proceedings
3 months later:
Main
proceeding:
1. Claims
have been
defended
Opening of
secondary
proceeding:
1. Submission of
claims
2. Assets on
sale upon
approval of
creditors’
commitee
2. Structure
of assets, incl
claims to be
determined
3. Litigation
(claims;
debtor’s
liability)
pending
3. Powers of
liquidator in
litigation
Aspects to consider whether to participate in
insolvency proceedings or not:
1.Information available and predictability
of proceedings
2.Claims versus assets/estate
3.Powers of liquidators versus creditors
4.Different substantial and procedural rules
for resolving disputes
5.Expenses
6.Debtor’s liability
7.Preferencial claims and distribution rules
Possibilities to influence proceedings through:
1.creditors’ general meetings
2.creditors’ commitee meetings
3.petititions to liquidators, supervisory
judge or other authorized bodies
Conclusion
•
If the legal consequences stipulated in the
lex fori concursus universalis differ from
legal consequences provided by the lex fori
concursus secundarii, problems in
administrating insolvency proceedings
usually occur.
•
Creditors may not be in an equal position
with regard to access and participation in
the proceedings.
Conclusion continues...
•
To be a successful creditor in participation of
cross border insolvency proceedings, one
should be able to predict and influence the
progress of the proceedings within the
changeable applicable law.
•
The Regulation should prevent legal
uncertainty, which can be translated into
additional costs for creditors. It should
support equal treatment of creditors’ rights
and efficient, effective administration of
insolvency proceedings.
Insolvency
of Russian
corporate groups
Olga Lvova
The Lomonosov Moscow State University
Legal framework
• Corporate groups (so called “holdings”)
are quite widespread forms of large
scale business in Russia
• The term “holding” is not used in the
corporate and insolvency law
Legal framework
• Only few attention is paid to the
problems of holdings – some parts of
joint-stock law, tax and accounting law,
antimonopoly law to a certain extent
cover the holding-type relationships
• There is no difference between “holding
(corporate group) insolvency” and
“insolvency of the simple legal entity”
• The following scheme of companies’
bankruptcy has become widespread:
major obligations of a single holding
are “thrown down” to the one enterprise
of the group which enters the bankruptcy
procedure to be liquidated as a result
• Such liquidations usually attract few
attention or corresponds to a part of
M&A processes
The main problems:
• If all assets have been already stripped out
•
•
from such firm the creditors will never get
their money back
It is very difficult to prove the fact that the
debtor the balance sheet of which contains
only debts depends on the parent company
with healthy balance
If it is even possible to find a real owner
the creditors will hardly get something back
because of the lack of appropriate legal
provisions
• In Russian practice the bankruptcy
procedure can be used for M&A of
middle-sized companies which is not
possible by usual purchase because
of the antimonopoly legal provisions
• “Affiliated financing” is one of its
advantages of the corporate group but it
decreases transparency substantially.
Even companies’ directors can evaluate
its real volume only approximately
New Law draft
• The draft of the Federal Law “On
financial rehabilitation and insolvency
(bankruptcy)” is prepared by the
Ministry of Economy in 2009 and
introduces legal provisions for holdings
• It was not accepted by the Government
initially, has been amended some times
to the date and still is not passed
1. The definition of “enterprise group”:
some debtors (legal entities), one or several
of which are under control of the member of
this enterprise group and connected by the
single management, production or
technological processes
2. Consolidation of claims and actions in the court
3. All procedures can be enforced to the whole
group
4. Creditors can request bankruptcy of all members
of the group if its activity was conducted in an
unfair way
5. Creditors may ask satisfaction of their claims by
the parent company
Conclusions
• In general, in spite of the recent
suggestions oriented at modernization
of Russian legislation several problems
still require solution
• Our practice of law enforcement needs
significant amendments for providing
an increase of transparency and making
possible the detection of real holdings
owners