Introduction
Inspired by the American “prepackaged restructuring plan,” the French authorities have yet again decided to reform French insolvency law, with the creation of an “accelerated financial safeguard procedure” (procédure de Sauvegarde Financière Accélérée). This procedure is available to debtors who start conciliation proceedings after 1 March 2011.
In a decision that represents a triumph for bondholders, and should provide comfort to market participants, the Supreme Court of France (the “Supreme Court”) has recognized the trust structure and the parallel debt mechanism as part of security packages put in place for secured international financings granted to a French company.
On October 11, 2010, the French Parliament adopted a significant amendment to the 2005 French Safeguard Procedure (procedure de sauvegarde), itself heavily inspired by the US Chapter 11 mechanisms. The new legislation introduces into French law summary safeguard proceedings -named "Accelerated Financial Safeguard" (sauvegarde financière accélérée). It grants legal basis to so-called "prepack" restructurings, i.e., out of court arrangements agreed to by a majority of creditors before the debtor files for a Court-driven restructuring.
A new form of bankruptcy procedure, Accelerated Financial Safeguard (sauvegarde financière accélérée, “AFS”) was adopted by the French Parliament on October 22, 2010.
Although safeguard proceedings have been used successfully as a negotiation tool in a number of high-profile cases (such as the Eurotunnel case), they have represented just 1 per cent of all insolvency proceedings in France since the Business Safeguard Act 2005 introduced the safeguard procedure in January 2006. The main reason for this lack of success is the continuing stigma that is attached to insolvency proceedings in France.
The recent restructuring of Autodis, a French car parts company, is a perfect illustration of the positive consequences of the reform of the French bankruptcy code in effect since February 15, 2009. The combined use of the French conciliation procedure for the operating company and the French safeguard procedures for the holding companies were agreed upon between the debtor and its creditors pursuant to the first pre-pack agreement executed in France.
Background
Just what is an account receivable has been the subject of much debate, because it determines what assets are used to satisfy preferential claims, i.e. who gets paid first in a receivership or liquidation. In 2008, the High Court judgment in Commissioner of Inland Revenue v Northshore Taverns (in liq) confined “accounts receivable” to “book debts”. Although since criticised, that judgment was the only judicial authority on the point.
Puerto Rico is in the midst of a financial crisis. Over the past few years, its public debt skyrocketed while its government revenue sharply declined. In order to address its economic problems and to avoid mass public-worker layoffs and cuts in public services, the unincorporated U.S. territory issued billions of dollars in face value of municipal bonds. These bonds were readily saleable to investors in the United States due to their tax-exempt status and comparatively high yields.
Puerto Rico is possibly the most financially distressed political entity in North America. The most widely available statistic is that the island has $73 billion in debt. However, if one considers unfunded pension liabilities some estimates place Puerto Rico’s debt at $167.46 billion.