Fri 01/20/2023 12:12 PM
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Relevant Documents:
Judgment (Original French)
Judgment (English Machine Translation)

Nanterre Commercial Court (Tribunal de Commerce de Nanterre) today robustly rejected a direct challenge to the opening of Orpea’s second conciliation procedure on Oct. 26 by a group of mostly Schuldschein lenders and the minority shareholder pair behind Concert’O.

The parties asked the court to suspend the second conciliation procedure and appoint an independent expert with a broad remit to embark on a fact-finding mission to gather evidence of fraud on the part of Orpea to assist with future litigation against the group.

The lenders object to the opening of the second conciliation four months after the approval of the first procedure which was intended to solve the group’s financial difficulties. In particular, they are opposed to the effective priming of unsecured lenders by Orpea’s core French bank lenders, known as the G6 Creditors.

Under the approved conciliation protocol in June, the G6 Creditors were granted extensive security in exchange for a €1.5 billion term loan A and a €229.4 million term loan B. A further €1.5 billion term loan C was to be syndicated with other third-party banks at Orpea’s discretion. However, G6 lenders participating in the TLC would benefit from higher ranking security than non-G6 participants. The unsecured lenders were excluded from these discussions under the first conciliation and several of the lenders were not asked to participate in the TLC syndication at all.

Convertible bondholder Whitebox, argued that: “Orpea deliberately chose to negotiate with its bank creditors of the G6 Group and to exclude all its other creditors from the conciliation by granting exorbitant guarantees.”

A conciliation can only be opened a minimum of three months after a previous procedure. However, while Orpea’s first conciliation was intended to provide a two-year liquidity runway to allow the group to effect a now aborted program of real estate assets disposals, the company opened a second procedure four months after the first one had been approved.

The unsecured lenders are aggrieved because the G6 secured creditors will not be affected by the outcome of the second conciliation in which the group is proposing to equitize €3.8 billion of unsecured debt and dilute existing shareholders via a €1.3 billion rights issue.

As such, Whitebox said this “two-step strategy” sought to establish “a class of privileged creditors upstream of the discussions on the real restructuring.” This, they said, had created an “imbalance” since the “equality of creditors has been broken.”

The public prosecutor did express some concern about how the two conciliation procedures had been handled. “Two such close conciliations are extremely rare. The designation of the same person [Hélène Bourbouloux], appointed successively as agent for the execution of the protocol and then as conciliator, with concomitant missions, raises questions."

The prosecutor added: “The feeling that emerges is that this second desired agreement came as a result of difficulties which would prevent the first [...] We cannot continue with so many disputes in a conciliation procedure.”

The lenders in the dispute have the following debt:
  • Mediobanca holds €50 million of Schuldschein loans;
  • Entities associated with Whitebox hold €40.7 million of unsecured convertible bonds;
  • Bank of Taiwan holds €20 million of Schuldschein debt;
  • First Commercial Bank holds €30 million of Schuldschein debt;
  • Hua Nan Commercial Bank Ltd with €20 million of Schuldschein;
  • Chang Hwa Commercial Bank with €20 million of Schuldschein;
  • United Taiwan Bank with with €30 million of Schuldschein; and
  • State Bank of India holds €28 million of Schuldschein.
The conciliator, Hélène Bourbouloux of SELARL FHB maintains that the damage alleged by the lenders is “purely hypothetical” since conciliation is a consensual tool and cannot be imposed without their agreement.

The conciliator noted that the public prosecutor, who has the right to appeal the first conciliation judgment, did not do so. Moreover, while the public prosecutor expressed reservations about preserving the interests of creditors who were not signatories to the agreement during that hearing, he did not exercise his right to call the unsecured lenders to court. She also raised the fact that Mediobanca’s third-party objection to the first conciliation had already been dismissed by the court, as reported.

Request for Expert Investigator

The lender group is not satisfied by the reasons given by Orpea for opening the second conciliation so soon after the first, namely: inflation, rising interest rates and energy costs, and general distress in the real estate market. The lenders contend that these factors were foreseeable and do not provide an adequate reason for abandoning the asset disposal plan.

The parties infer that the opening of the second conciliation was therefore a “deliberate strategy” to impose the current plan on shareholders and unsecured creditors. It is for this reason that the parties sought an expert to collect evidence about what the company knew around the time of the second conciliation was opened. The aim was to preserve facts pertinent to future litigation for fraud against the company and its officers.

Court Sides With Orpea

The court found that the parties “do not have a legitimate reason” for requesting the investigating expert since the suspicions of fraud alleged by the applicants are not reasonably supported by the public statements made by Orpea. Furthermore, the court found the request to be not proportionate to the objective pursued. The court noted that if appointed:

“The Expert would be given a power of general investigation a posteriori: (i) to search for information that justified the approval of the protocol and the opening of the second conciliation; and (ii) this would mean the Expert setting himself up as a control body of the jurisdictional powers of the President of the Commercial Court of Nanterre.”

Moreover, the court took the view that the nature and undefined scope of the investigative measures requested by the lenders would transgress the principle of confidentiality that binds participants called to a conciliation procedure.

The Schuldschein lenders were represented by Grandjean Avocats, except for the State Bank of who were advised by Jurislitis. The Concert’O parties were represented by Hogan Lovells. Whitebox was represented by Lantourne & Associés, Orpea was represented by White & Case.
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