Insolvency Blog - Corporate Restructuring

"Pre-packs are not the problem; the problem is the insolvency." So said Lord Drayson, The Minister of State, Department for Business, Innovation and Skills, in a House of Lords debate on Thursday 11 March 2010. He was responding to a question, prompted by the Wind Hellas case and concern about insolvency tourism, asking what action the Government will take: "to prevent foreign companies using "pre-pack" insolvency laws to avoid debts."  Lord Drayson also said: "Independent studies by the World Bank have shown that the United Kingdom's insolvency framework is highly regarded - above above that of...

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At some time during the development of a company the directors and shareholders are likely to see advantages in diversifying the ownership of business activities. There are many reasons why a reorganisation of a company's activities is desirable. More often than not the desire is either to protect one or more business activities or to divide business assets so that shareholders may go off in different directions. The presence of potential tax liabilities can often be a deterrent. With careful planning, however, the commercial advantages of a reorganisation of business activities or shareholdings can be realised without triggering a significant ...

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Yesterday's judgement in the Powerhouse company voluntary arrangement (CVA) dispute has been hailed as a victory for landlords, but in reality will lead to landlords seeking greater security from tenants. Reported in The Times and Citywire, the High Court decision (Etherton J) in fact held that parent company guarantees can effectively be avoided through a CVA, provided the value of the guarantee is recognised in the proposal. In other words, guaranteed creditors must get a better deal than ordinary unsecured creditors. Whilst the landlords' advisers, Addleshaw Goddard and Lovells, are keen to emphasise the judge's ruling against "guarantee...

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Schefenacker reports that its bondholders have agreed today, at a company voluntary arrangement meeting, to take: EUR 7.5 million cash; 5% of the equity; and warrants that could raise the equity to 15%. The shareholder, Dr Alfred Schefenacker, retains 25% of the equity but has contributed: EUR 20 million of new money; his personal equity in the Engelmann subsidiary; and the cancellation of EUR 100 million of shareholder loans. Senior creditors now hold 70% of the equity. The success of the migration now depends on the operational restructuring that Stephen Taylor has been managing during the last few months of stakeholder negotiations - he claims "a solid...

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Schefenacker PLC's creditors' meeting, which was due to have been held on Friday 30 March to cram down €200million of bondholder claims to a 5% equity stake through a Company Voluntary Arrangement, has been adjourned to 4 May, according to the company and as reported by Plastics Industry News. Modifications offering bondholders 15% of the equity and a total of €7.5m in cash will be put to the vote when the meeting reconvenes. Speculation (see earlier post) that the original proposals, published on 9 February, did not offer enough for bondholders proved correct. Full details of the modifications - particularly how far...

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Debtors migrate but creditors forum shop. Robert Hickmott and Alex Ballman write in Legal Week about how the trio of German cases: Deutsche Nickel Hans Brochier Schefenacker illustrate the post-Eurofood attitude to COMI (centre of main interests) under the European Insolvency Regulation. It has been established through cases like Staubitz-Schreiber that debtors can move their COMI, and this facility was used in the Collins & Aikman restructuring and insolvencies. But forum shopping, where creditors race to their court of choice, is what the European Insolvency Regulation sought to avoid. With COMI now established as elsewhere than the place of a...

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Bondholders may not find 5% of the equity an appealing prospect, but the level of pain to be borne by Schefenacker's existing shareholders is yet to emerge. The company has announced replacement of €250m 1st and 2nd lien debt and €200m of subordinated bonds with new debt of €305m: €25m senior revolving credit €170m senior term loan €110m mezzanine Some of the €55m "new money" is said to come from a mezzanine investment from the group's owner, Dr Alfred Schefenacker, who is also transferring minority interests in Schefenacker Engelmann Spiegel GmbH to...

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Bloomberg.com reports progress in the restructuring. ...

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A version of this article first appeared in Financier Worldwide Global Restructuring & Insolvency Review 2003 The 21st century has seen the firm establishment of a rescue culture in the UK, exemplified by the growing influence of the Society of Turnaround Professionals and the now familiar corporate insolvency provisions of the Enterprise Act 2002. The legislative developments have served to lower entry barriers to insolvency proceedings in terms of cost and perception, the latter through reducing the "stigma of bankruptcy". In particular, the statutory objectives of administration, which is firmly established as the jurisdiction...

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We looked at The Purple Book, the Pensions Regulator's ("TPR") and the Pension Protection Fund's ("PPF") view of pensions and insolvency risk, in an earlier post. Further analysis reveals a strikingly high risk of insolvency for the sponsors of a number of schemes. Of the defined benefit schemes examined by TPR and the PPF at 31 March 2006, the 82 schemes (1.4%) whose sponsors are most likely to become insolvent within 12 months have an average insolvency probability of 35.7%. 24 of those companies can be expected to have failed already and 5 more are expected to fail in the next two months. 75 of those 82 schemes are underfunded...

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