2021 European Restructuring Regulations Post Covid-19
Fri Jun 4, 2021 8:19 pm Financial Restructuring

Germany was the first jurisdiction to act after the pandemic hit, with the introduction of new European restructuring regulations which suspended the obligation under the country’s bankruptcy code for businesses to file for insolvency within three weeks of discovering illiquidity or over-indebtedness. German lawmakers also allowed companies to hold shareholder meetings virtually, loosened the clawback and lender liability regime, and prevented landlords from terminating leases because of non-payment. Spain also suspended filing deadlines for directors whose businesses were insolvent, while France said that in its insolvency proceedings sauvegarde, redressements judiciaire, liquidations should not be treated as urgent and can be put on hold.

Perhaps the most notable 2021 European restructuring regulations developments were the changes in the Netherlands and the U.K. Even before the pandemic, these jurisdictions were being compared and contrasted at legal conferences and in think-pieces on the relative merits of their existing and proposed restructuring regimes. The Covid-19 impact on businesses galvanized lawmakers in both countries to make the much-discussed innovations a reality.

In the Netherlands, a group of lawyers and experts on insolvency law published an open letter on March 20, 2020, urging the Dutch government to implement the WHOA (Wet Homologatie Onderhands Akkoord), also known as the Dutch scheme. The government later qualified the WHOA as an urgent bill.

The Dutch government had started preparing the WHOA legislation at the beginning of 2017, and it was given added impetus by the pandemic. The Dutch scheme cherry-picks some features of the English law scheme of arrangement (under Part 26 of the Companies Act 2006) and U.S. chapter 11 processes. It includes the ability to cram down creditors across classes, an option to implement a temporary moratorium and the ability to release third-party guarantees. However, the Dutch scheme may still struggle to attract debtors and their creditors away from London, given that London remains the financial center for Europe and has a proven track record in restructurings.

In early 2020, the U.K government published a new Corporate Insolvency and Governance Bill under which the existing scheme of arrangement legislation in Part 26 of the Companies Act was amended to include a cross-class cramdown feature (similar to the Dutch legislation), which will run alongside the original tool.

Part 26A allows a plan to become legally binding even if some classes of creditors vote against the restructuring plan, as the court has the discretion to cram down dissenting creditors. There are two conditions which need to be satisfied in order for the court to bind the dissenting creditors:

  • If the plan is sanctioned, none of the members of the dissenting class would be any worse off than they would be in the event of the “relevant alternative”; and
  • The plan has been approved by at least one class of creditors or members which would have a genuine economic interest in the company in the “relevant alternative”.

Read more from our EMEA Core Credit team on the European restructuring regulations as well as issues affecting the leveraged finance and distressed debt markets here

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