English schemes of arrangement under the Companies Act 2006 (Schemes) have been increasingly used by non-English companies as a powerful tool to restructure their financial indebtedness. Recent prominent examples of German companies that have utilized Schemes to cramdown non-consenting or “holdout” creditors in order to restructure the company’s balance sheet include TeleColumbus, Rodenstock and Primacom.

There are several reasons for this trend:

The court will unravel a transaction where it appears to have been entered into to place assets beyond the reach of creditors.

This was the case in Ambrose sub nom Garwood v Amborse & Ambrose, where the trustee in bankruptcy of Mr Ambrose applied for declaratory relief and an order for the possession and sale of Mr & Mrs Ambrose's property.

We would like to introduce you to a great new feature of the revised German Insolvency Act which makes debt-equity-swaps in Germany (e.g., as part of loan-to-own transactions) a lot more attractive. It eliminates troubles caused by change-of-control provisions in agreements between an insolvent company and third parties.

Introduction: Debt-Equity- Swaps Now Possible Under German Insolvency Act

In Rhinegold Publishing Ltd v Apex Business Development Ltd, Rhinegold and another company owed debts to the defendant in the sums of approximately £22,000 and £31,000 respectively. The defendant presented a winding-up petition against both companies which resulted in settlement being reached. The settlement provided that the companies would pay off the debts owed in full by monthly payments and that no proceedings would be issued in relation to the debts referred to in the original statutory demand if payment was made.

Where there is no evidence of lack of authority in placing orders which have not been paid, the court refused to allow an injunction to restrain a winding-up petition.

In the matter of A company (2012) (the company), a creditor had issued a statutory demand against it in relation to invoices for advertising placed with it by the company's sales and marketing manager (M) that were unpaid. The company argued that those orders had been placed without its authority and M admitted that she had exceeded her authority in so placing them.

 Valuation evidence

The court has reaffirmed that comparable sales evidence is the best evidence when determining the retrospective valuation of a property.

German Parliament passes “Act for the Further Facilitation of the Restructuring of Companies“ (Gesetz zur weiteren Erleichterung der Sanierung von Unternehmen, ESUG)

The case of White v Davenham Trust Ltd, has reaffirmed that a creditor can choose its own method of enforcing a debt which has been guaranteed even where it might hold security for that debt.

The court has a limited discretion not to make a bankruptcy order where the debt is the subject of a statutory demand which has not been paid and is outstanding at the time of the bankruptcy petition hearing.

In circumstances where a debtor lacks mental capacity to deal with a statutory demand and subsequent bankruptcy petition, the court will rescind or annul a bankruptcy order.