CMS Guide to Restructuring Insolvency and Distressed Debt Trading in Europe

We are delighted to present the CMS guide to Restructuring, Insolvency and Distressed Debt Trading. This guide provides a comparative analysis of certain key areas of law and procedure for those involved in or affected by financial distress of a corporation and the trading of distressed debt across Europe.

One of the main challenges when dealing with financially distressed businesses with operations in more than one country is that each country has its own unique insolvency and restructuring laws. There is only one piece of pan-EU legislation: the EC Regulation on Insolvency Proceedings , which came into force in May 2002 (referred to in this guide as the “Regulation”). The Regulation recognises the differing laws across the region and the impracticability of attempting to formulate a common code of insolvency law. The Regulation was passed with the relatively modest ambition of codifying an agreement on significant aspects of cross-border insolvencies so that it is easier for insolvency practitioners to deal with cross-border insolvencies.

There is one other piece of international law designed to assist in the area of cross-border insolvency: the UNCITRAL Model Law on cross-border insolvency, which was adopted by the United Nations Commission on International Trade Law in 1997 and has since been implemented into local legislation by several countries including the UK, Poland, Slovenia, Romania, the US and Japan. In the countries where it has been adopted, the UNCITRAL Model Law deals with the recognition of foreign insolvency proceedings and co-operation between courts and competent authorities involved in cases of cross-border insolvency.

We explain the Regulation and the UNCITRAL Model Law in more detail in the first chapter of this guide. The rest of the guide is dedicated to explaining the law and procedure in each jurisdiction on certain key corporate and insolvency and restructuring issues and the law and regulations that govern the sale and purchase of debt on the secondary market. The areas and issues covered, in relation to 20 different European jurisdictions, include the following:

• duties of directors of companies in financial difficulties;
• extending credit facilities to companies in financial difficulties;
• the taking of additional security and/or guarantees in return for bridge finance or other forms of support from lenders;
• options available to lenders for monitoring the performance of companies in financial difficulties;
• debt for equity swaps;
• legal mechanisms available to the majority of a company’s creditors to compel the dissenting minority to implement a restructuring plan;
• interaction of formal insolvency procedures and consensual restructuring techniques or sale of the insolvent company’s business;
• methods of transfer of non-performing loans and security;
• regulatory issues in respect of distressed debt trading;
• debt buy-backs by the borrower;
• rights of persons who acquire distressed debt to participate and vote in formal insolvency procedures of insolvent companies; and
• impact of data protection and bank secrecy laws on distressed debt trading. If you have any questions arising out of any of the issues contained in this Guide, please do contact us. Belgium: Jean-François Goffin, Carl Leermakers and Arnaud Van Oekel  Luxembourg: Julien Leclère and Vivian Walry