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

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:

On 26 January 2011 the European Commission declared the so-called Restructuring Clause (Sanierungsklausel) (Sec. 8c (1a) of the German Corporate Income Tax Act (CTA)) as inconsistent with EU funding guidelines. The decision of the European Commission is criticized by national experts and stresses the German economy with a hardly tolerable uncertainty as regards tax issues in restructurings.  

Legislation seeks to balance debtor and creditor needs and help businesses and investors operate with confidence in the Middle East.

On 11 June 2019, the Dubai International Financial Centre (DIFC) introduced a new insolvency law (DIFC Insolvency Law No. 1 of 2019 and associated DIFC Insolvency Regulations 2019), which became effective on 13 June. 

Companies with certain specific connections to Hong Kong are increasingly likely to fall under Hong Kong jurisdiction and Hong Kong’s Companies Ordinance. Both creditors and debtors will benefit from the clarity provided by the recent judgment in the case Re Pioneer Iron and Steel Group. Hong Kong’s Companies Ordinance expressly provides for the possibility of petitioning to liquidate, or wind-up, companies incorporated outside of Hong Kong.

With a new Insolvency and Bankruptcy Code that has become effective on 1 December 2016, India seeks to expedite the process for creditors seeking payment or foreclosure through the courts.

Summary

Latham & Watkins operates worldwide as a limited liability partnership organized under the laws of the State of Delaware (USA) with affiliated limited liability partnerships conducting the practice in France, Hong Kong, Italy, Singapore, and the United Kingdom and as an affiliated partnership conducting the practice in Japan. Latham & Watkins operates in South Korea as a Foreign Legal Consultant Office. Latham & Watkins works in cooperation with the Law Office of Salman M. Al-Sudairi in the Kingdom of Saudi Arabia.

Latham & Watkins operates worldwide as a limited liability partnership organized under the laws of the State of Delaware (USA) with affiliated limited liability partnerships conducting the practice in France, Italy, Singapore, and the United Kingdom and as affiliated partnerships conducting the practice in Hong Kong and Japan. Latham & Watkins operates in South Korea as a Foreign Legal Consultant Office. Latham & Watkins works in cooperation with the Law Office of Salman M. Al-Sudairi in the Kingdom of Saudi Arabia.

Via libera definitivo del Consiglio dei Ministri al decreto legislativo attuativo della riforma organica del diritto della crisi d’impresa e dell’insolvenza.