Financier Worldwide Bankruptcy & Restructuring Review 2016

BANKRUPTCY & RESTRUCTURING

A N N UA L R E V I E W 2 0 1 6

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Annual Review • July 2016

Bankruptcy & Restructuring

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firm or clients or of any organisations of which the author is a member.

BANKRUPTCY & RESTRUCTURINGJ U LY 2 0 1 6 • A N N U A L R E V I E W

F i n a n c i e r Wo r l d w i d e c a n v a s s e s t h e o p i n i o n s o f l e a d i n g p r o f e s s i o n a l s a r o u n d t h e w o r l d o n t h e l a t e s t t r e n d s i n b a n k r u p t c y & r e s t r u c t u r i n g .


UNITED STATES ..................................................... 08Richard H. Golubow WINTHROP COUCHOT PC

BRAZIL .................................................................. 12Luis Vasco Elias DELOITTE BRAZIL

BRITISH VIRGIN ISLANDS ...................................... 16Russell Crumpler KPMG

UNITED KINGDOM ................................................ 20David Bryan BM&T LLP

FRANCE ................................................................ 24Olivier Marion PWC

PORTUGAL ............................................................ 28Helena Soares de Moura MORAIS LEITÃO, GALVÃO TELES, SOARES DA SILVA & ASSOCIADOS

Contents


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SWITZERLAND ...................................................... 32Peter Dauwalder KPMG

GERMANY ............................................................. 36Peter Wiegand KPMG

AUSTRIA ............................................................... 40Dr Edmund Roehlich PROKSCH & PARTNER RECHTSANWÄLTE OG

DENMARK ............................................................. 44Boris Frederiksen KAMMERADVOKATEN

NORWAY .............................................................. 48Hege Merete Oftedal ADVOKATFIRMAET PWC

AUSTRALIA ........................................................... 52Derrick Vickers PWC

Contents

A N N U A L R E V I E W • B A N K R U P T C Y & R E S T R U C T U R I N G 2 0 1 6

INTRODUCTIONThe bankruptcy and restructuring arena has been a relatively stable environment over the past 12 months, with activity levels across the globe on the low side, broadly-speaking.

In a number of jurisdictions, the UK, Germany, Portugal, Austria, Norway, Denmark and Australia among them, the number of distressed companies filing for insolvency and restructuring has indeed fallen, due, in part, to financing options and the increasing availability of alternative lending. Low interest and inflation rates have also played a part in helping companies experiencing difficulties.

Conversely, some jurisdictions have experienced an uptick in corporate bankruptcies and restructurings. The US, for example, had a particularly busy Q1 2016, with March the busiest filing month since April 2014 and the fourth straight month where filings increased. Brazil also saw a significant number of bankruptcies and requests for judicial recovery due to issues in both domestic and foreign markets.

In terms of under pressure sectors and industries, while oil & gas remains one of the most distressed sectors, trouble is also beginning to spill over into others, including metals and mining, media, construction, durable consumer goods and retailers.

Looking ahead, with challenging macroeconomic environments across the globe set to be the norm for some considerable time to come, the effect on companies that fail to review their business processes or to capitalise should not be underestimated.

And for those entities that cannot respond quickly to any changes in the economic environment – both domestically and globally – the chance of a bankruptcy filing in the near future is a very real possibility, as is being part of a flood of bankruptcies, thus far delayed, unleashed upon an ill-prepared bankruptcy and restructuring landscape.

A N N U A L R E V I E W • B A N K R U P T C Y & R E S T R U C T U R I N G 2 0 1 6

A N N U A L R E V I E W • B A N K R U P T C Y & R E S T R U C T U R I N G

8 • F INANCIER WORLDWIDE • JULY 2016 www.f inancierworldwide.com


GOLUBOW: There has been a recent increase in corporate bankruptcies

filed in the US. Nationwide, total corporate bankruptcies slightly increased

in Q1 2016 as March 2016 was the busiest filing month since April of 2014

and it marked the fourth straight month where we saw an increase in

filings. The Q1 2016 filing figure represents a 23 percent increase over Q4

2015. After declining for several consecutive years following the recession

in 2008, business bankruptcies started flattening out in Q3 2014 and

had been fairly consistent until the recent increases. Small businesses

continue to dominate the bankruptcy count, with nearly 77 percent of

Q1 2016’s corporate bankruptcies filed by companies with $2.5m or less

in gross sales, and nearly 65 percent of Q1 2016’s corporate bankruptcies

filed by companies with less than 10 employees. There were 27 publicly

traded corporate bankruptcies filed in Q1 2016, a slight increase from the

26 publicly traded corporations that filed for bankruptcy in Q1 2015.

GOLUBOW: Crude oil prices have climbed substantially since dropping

to a 13-year low in mid-February 2016. The price surge arrived too

late for a number of oil and gas companies that were not able to hang

on long enough to enjoy the rebound in oil prices and recently filed

for bankruptcy to restructure their debts. A number of high-profile

bankruptcy filings during 2016 so far include Seventy Seven Energy – also

known as Chesapeake Oilfield Operating – Sandridge Energy, Linn Energy

LLC, Midstates Petroleum Co., Ultra Petroleum Corp., Breitburn Energy

Partners LP, Energy XXI Ltd., Goodrich Petroleum Corp., Penn Virginia Corp.

and Chaparral Energy Inc. Mall retailers such as Aeropostale, Vestis Retail

Group, the operator of sporting goods retailers Eastern Mountain Sports,

Bob’s Stores and Sport Chalet, Pacific Sunwear of California, Sports

Authority and Hancock Fabrics, recently sought bankruptcy protection

as casualties of increased competition in brick-and-mortar locations and

consumer shifts to online retailers.

RICHARD H. GOLUBOWWINTHROP COUCHOT PC

UNITED STATES

Q REFLECTING ON THE

LAST 12-18 MONTHS, HOW

WOULD YOU CHARACTERISE

THE US IN TERMS OF THE

FAILING BUSINESSES AND

BANKRUPTCY FILINGS?

Q COULD YOU OUTLINE THE

PRIMARY MACROECONOMIC

TRENDS CURRENTLY

AFFECTING BUSINESSES?

ARE ANY PARTICULAR

SECTORS DEMONSTRATING

STRUCTURAL WEAKNESSES,

RESULTING IN DISTRESS?

A N N U A L R E V I E W • B A N K R U P T C Y & R E S T R U C T U R I N G A N N U A L R E V I E W • B A N K R U P T C Y & R E S T R U C T U R I N GA N N U A L R E V I E W • B A N K R U P T C Y & R E S T R U C T U R I N G

JULY 2016 • F INANCIER WORLDWIDE • 9 8www.f inancierworldwide.com

GOLUBOW: The US Supreme Court issued its first bankruptcy opinion

of the term in the case of Husky International Electronics v. Daniel Lee

Ritz Jr. regarding the meaning of “actual fraud” under the Bankruptcy

Code. The Supreme Court held that the term “actual fraud” encompasses

fraudulent transfer schemes, even when those schemes do not involve a

false representation. While most debtors receive a discharge of prepetition

debts, the Bankruptcy Code specifies that certain pre-petition debts are

non-dischargeable and for which liability still exists including “any debt...

for money... obtained by... false pretenses, a false representation, or actual

fraud”. According to the court, a false representation has never been a

required element of “actual fraud”. Arguably this ruling makes it easier

for creditors to prove that a debtor committed fraud since a showing of

a more general fraud, as opposed to a specific false representation by the

debtor, should suffice to prevent certain debts from being discharged in

bankruptcy.

GOLUBOW: For companies with proven track records, out-of-court

restructurings have been possible. Generally speaking, distressed

companies have been able to take advantage of the continued historically

low interest rate environment to refinance, renegotiate their existing

debt structures and amend covenants and extend maturities. In instances

where traditional banks are fatigued with smaller distressed credit, private

equity, distressed credit investors and specialty finance companies are

willing to service these smaller credit facilities by either stepping in to

acquire debt at an appropriate discount or provide refinancing capital.

Q HAVE THERE BEEN ANY

NOTABLE BANKRUPTCY/

INSOLVENCY CASES IN THE

US, WHICH WILL HAVE AN

IMPACT ON THE PROCESS

GOING FORWARD?

UNITED STATES • RICHARD H. GOLUBOW • WINTHROP COUCHOT PC

Q TO WHAT EXTENT ARE

BANKS SUPPORTING

DISTRESSED COMPANIES?

HOW EASY IS IT TO

RENEGOTIATE EXISTING

DEBT IN THE CURRENT

MARKET? IS THERE FUNDING

AVAILABLE TO FINANCE

RESTRUCTURINGS?


Q WHAT TRENDS ARE YOU

SEEING IN THE MARKET’S

APPETITE TO PURCHASE

TROUBLED ASSETS? HOW

WOULD YOU DESCRIBE

RECENT DISTRESSED M&A

ACTIVITY?



GOLUBOW: Generally, distressed M&A activity remains sluggish for a

variety of reasons, including continued historically low interest rates, an

abundance of liquidity sources, a lack of restructuring activity, a lack of near-

term maturities, and the willingness of lenders to ‘amend and extend’ credit

facilities. The natural consequence of these factors has resulted in a highly

competitive distressed M&A market with a significant amount of money

chasing a very small number of opportunities, leading to a substantial

increase in the prices paid for distressed assets. These market conditions

have distressed investors consistently reporting a dearth of acquisition

opportunities at valuation levels with projected financial returns that

are not commensurate with the associated high risk. Furthermore, while

business is booming for some restructuring professionals in the natural

resource sector, the global rout on commodity prices has brought M&A

activity in the natural resources sector to a standstill, ostensibly due to

volatile markets and investors’ inability to project an appropriate rate of

return or exit strategy while commodity prices remain so low.

GOLUBOW: D&Os face increasing scrutiny with respect to their

independence and exercise of business judgment in decision-making

with respect to all transactions made when a company nears insolvency

or seeks bankruptcy protection. The timely formation of independent

or special committees is a powerful technique to address such claims

and allegations responsibly and efficiently. The use of this strategy also

enables the company to evaluate proposed transactions involving arguably

interested or affiliated parties while preserving, in most cases, business

judgment reviews of director decision making. That said, D&O personal

risk increases substantially when a company seeks bankruptcy protection

because insurance policy limits may be insufficient, the policy may not

cover the alleged acts and the company may lack the ability or financial

wherewithal to comply with contractual or statutory indemnification

requirements.


Q COULD YOU OUTLINE

SOME OF THE PERSONAL

RISKS THAT MAY FACE D&OS

OF A COMPANY IN THE US

THAT NEARS INSOLVENCY OR

ENTERS BANKRUPTCY?


JULY 2016 • F INANCIER WORLDWIDE • 11www.f inancierworldwide.com

GOLUBOW: While oil & gas remains as one of the most distressed sectors,

trouble is spilling over to other sectors including metals and mining, media,

construction, durable consumer goods and retailers. Future restructuring

and bankruptcy activity depends upon a combination of credit availability,

interest rates and secured creditors’ willingness to modify existing loans.

Despite stagnant US macroeconomic growth, strong credit markets, low

interest rates, and secured creditors’ willingness to amend and extend

loans for healthy and viable businesses with proven track records should

lead to more refinancings, out-of-court restructurings, distressed M&A

activity and fewer bankruptcy filings. If credit markets tighten or seize-

up, and companies cannot refinance their maturing debt obligations, the

flood of bankruptcies that have so far been delayed will be unleashed.

Richard H. Golubow

Shareholder

Winthrop Couchot PC

+1 (949) 720 4135

[email protected]

Richard H. Golubow is a founding member and the managing shareholder of Winthrop Couchot PC. Mr Golubow devotes his practice to and has extensive experience in the areas of financial restructuring, insolvency law, complex bankruptcy and business reorganisations, liquidations and litigation, out-of-court workouts, distressed asset sales, Uniform Commercial Code foreclosure sales, assignments for the benefit of creditors and receiverships. Mr Golubow’s clients include debtors, creditors, creditor committees, trustees, assignees and asset purchasers. He has been honoured as the recipient of bankruptcy or financial restructuring attorney of the year awards by several rating services and leading international financial publications.

www.winthropcouchot.com

Q HOW DO YOU EXPECT

RESTRUCTURING AND

BANKRUPTCY ACTIVITY IN

THE US TO UNFOLD FOR THE

REMAINDER OF THIS YEAR,

AND BEYOND?


“ While oil & gas remains as one of the most distressed sectors, trouble is spilling over to other sectors.”




BRAZIL

Q REFLECTING ON THE



BRAZIL IN TERMS OF THE


BANKRUPTCY FILINGS?

LUIS VASCO ELIASDELOITTE BRAZIL

ELIAS: Looking at the past 18 months, we have seen a significant

number of bankruptcies and requests for judicial recovery due to issues

in both domestic and foreign markets. Internally, macroeconomic

fundamentals used by the government in this period contributed to the

weakening economy. Externally, low commodity prices hurt the export

sector. This challenging economic environment affected companies

that failed to review their business processes or to capitalise. In short,

they were unable to respond quickly to these changes in the economic

environment.

ELIAS: Overall, the most affected major segments of the Brazilian

economy were those sectors linked to commodities. The largest

Brazilian companies that are responsible for moving much of the

production and export chain are based on mineral commodities, such

as iron ore, steel and oil. With the drop in Chinese consumption in

the world market and the price drop of mineral commodities, large

Brazilian companies belonging to this chain of production had to make

sharp cuts to spending, which impacted the entire chain of partners

and suppliers. Cash flow forecasts and investment projects were heavily

impacted. This first factor, which began to affect Brazilian domestic

liquidity, which added political restructuring issues and problems

around the transparency and ethics of large companies, contributed

to rapidly falling liquidity, concluding with the end of the credit-based

consumption cycle. Segments such as automotive, construction, retail

and tourism were strongly impacted by the credit crunch and distrust in



TRENDS CURRENTLY


ARE ANY PARTICULAR






BRAZIL • LUIS VASCO ELIAS • DELOITTE BRAZIL

maintaining jobs. This combination of factors has impacted all sectors

of the Brazilian economy. Those companies able to respond quickly

through strategies such as selling assets to raise cash, renegotiating

liabilities or undertaking mergers or acquisitions, are able to maintain

their operations.

ELIAS: Banks are willing to provide credit for companies in distress,

if they present solid business plans, based on a technical foundation

for their restructuring, and underpinned by competent corporate

governance to maintain transparency. There is a structural problem in

relation to funding due to a CVM rule which provides that funding for

companies above a certain level of risk must be 100 percent provisioned

by the lender, restricting the supply of credit to companies in deeper

distressed situations.


BANKS SUPPORTING


HOW EASY IS IT TO


DEBT IN THE CURRENT



RESTRUCTURINGS?






WOULD YOU DESCRIBE


ACTIVITY?




Q COULD YOU OUTLINE SOME

OF THE PERSONAL RISKS

THAT MAY FACE D&OS OF A

COMPANY IN BRAZIL THAT

NEARS INSOLVENCY OR

ENTERS BANKRUPTCY?

ELIAS: Historically, the Brazilian market has more interested buyers

than sellers. We saw a large corporate non-performing loan sold last

year by a large Brazilian bank. Due to the lack of financing for distressed

companies, we have seen an increase in distressed M&A activity.

ELIAS: In cases of judicial recovery, if it has been determined as

fraudulent management by the directors of the company, they can be

removed from the company’s management and required to respond to

criminal and civil proceedings. In bankruptcy cases, they are removed

and the administration is assumed by an administrator appointed by

the court.




Q HOW DO YOU EXPECT

RESTRUCTURING AND


BRAZIL TO UNFOLD FOR THE


AND BEYOND?

ELIAS: Activity has not reached the most critical moment yet; the

forecast is that we will face at least two more years of challenges.

Luis Vasco Elias

Partner

Deloitte Brazil

+55 (11) 5186 1715

[email protected]

Luis Vasco Elias is partner in the corporate finance area and leader of judicial recovery and corporate reorganisation for Deloitte Brazil. As lead-partner of the Reorganization Services practice in Brazil, he actively participates in financial restructurings, performance improvement and related multifunctional initiatives. Mr Elias also acts as a judicial trustee for a number of relevant cases within the New Brazilian Corporate Bankruptcy law. He has an entrepreneurial background.

www.deloitte.com.br

“ Activity has not reached the most critical moment yet; the forecast is that we will face at least two more years of challenges.”




RUSSELL CRUMPLERKPMG

BRITISH VIRGIN ISLANDS

Q REFLECTING ON THE



THE BVI IN TERMS OF THE


BANKRUPTCY FILINGS?

CRUMPLER: The British Virgin Islands (BVI) are somewhat unique. With

over 500,000 active companies, which are generally established to provide

efficiencies within corporate structures, holding entities for specific assets

and gateway entities for inward investment into other jurisdictions.

Historically, Asia has been a particular focus. The number of applications

for insolvency is very dependent upon macroeconomic factors elsewhere.

With significant pressure on oil & gas prices, together with a marked

slowdown in Chinese growth, we expected a significant rise in the number

of BVI insolvency filings. However, the number of filings in 2015 was

relatively steady. Focusing on the BVI itself, one of its many strengths

is a respected and internationally recognised Commercial Court with

an effective insolvency regime providing stakeholders with established

statutory mechanisms upon which to seek enforcement of their rights.

Our Commercial Court remains very active, with additional temporary

judges sitting as required to ensure timely and effective service.

CRUMPLER: At the time of writing, the prospect of a possible Brexit looms.

There is considerable concern about how an exit will affect the BVI, with the

likely consequences being felt by local as well as internationally focused

BVI businesses. Looking elsewhere, up to 40 percent of BVI companies are

used for inward investment in the Far East and China in particular. China’s

growth is expected to fall to a relatively small 6.9 percent in 2016, and in

doing so, expose a host of structural weaknesses within its own economy.

This is beginning to manifest itself within the BVI, where companies

that are used to invest into China are being threatened with, or placed

into, insolvency proceedings for non-payment of debts and for reneging

on contractual terms. Historically low oil & gas prices are also causing

distress. BVI companies are also often used by the oil & gas industry, as a

result we are beginning to see increased litigation and general insolvency

issues relating to the non-payment of debts, underperformance and for



TRENDS CURRENTLY


ARE ANY PARTICULAR






BRITISH VIRGIN ISLANDSBRITISH VIRGIN ISLANDS • RUSSELL CRUMPLER • KPMG


NOTABLE BANKRUPTCY/


BVI, WHICH WILL HAVE AN


GOING FORWARD?

reneging on contractual terms. These factors are already translating into

an increase in sector related insolvency filings and this trend is expected

to accelerate in the coming months.

CRUMPLER: Notable recent insolvency cases include Victory Life Pension

& Assurance Company Limited, which saw the BVI regulator taking

enforcement action against a BVI company whose primary business was

conducted in Scandinavia. Peak Hotels & Resorts Limited saw liquidators

appointed in order to deal with, among other things, complex litigation

in the UK over the ownership of the Aman Hotels Group. There are also

currently a number of petitions to appoint liquidators being brought

by another BVI company that is, itself, in an insolvency process which

certainly demonstrates the complexity of our insolvency marketplace.

While these appointments will be unlikely to change the overall insolvency

regime, they all tend to have a focus on jurisdictions outside of the BVI

and, therefore, the appointed liquidators face issues around recognition

of their roles in those jurisdictions. Similarly, the relatively recent Privy

Council decision in Krys v. Shell Pensioenfonds [2014] whereby it was

determined that a creditor who has submitted a proof of debt in the BVI

has submitted to the jurisdiction of the BVI, is having some interesting

ramifications.

CRUMPLER: While financing is generally provided to BVI companies from

elsewhere, we are increasingly seeing petitions to liquidate a BVI company

being filed when banks lose patience with distressed companies – even

in places like China where enforcement has traditionally been held off for

as long as possible. Restructurings are not uncommon with BVI entities

at the heart of such steps. However, financiers increasingly need to see

robust and realistic outcomes for a restructuring plan before signing off


BANKS SUPPORTING


HOW EASY IS IT TO


DEBT IN THE CURRENT




Q COULD YOU OUTLINE



OF A COMPANY IN THE BVI


ENTERS BANKRUPTCY?

on them. We also anticipate that the use of statutory restructuring tools

such as schemes of arrangement will continue to increase.

CRUMPLER: The market for purchasing distressed positions in funds,

insolvency estates and other investments continues to grow, with increasing

numbers of participants targeting assets ranging from large bond issues to

smaller distressed assets held by relatively low value insolvent investment

funds. In recent years we have sold assets from within liquidation estates

that range from sub $50,000 holdings in underlying distressed investments

to $300m-plus deals that see the disposal of entire operating structures

effectively on a going concern basis. Our courts are also dealing with

disputes specific to the purchase of large positions in distressed companies.

The Commercial Court appointed provisional liquidators over OAS Finance

Limited on the petition of a major creditor who we believe had relatively

recently purchased the debt on a distressed basis. The appointment placed

the provisional liquidators in direct dispute with judicial appointees over

OAS parent entities in Brazil.

CRUMPLER: The main risks facing directors and officers of companies that

are insolvent or facing extreme distress range from potential exposure to

antecedent transactions claims during a subsequent insolvency to wrongful

trading actions. These sorts of recovery actions are very similar to those

available to an insolvency appointee in the UK. Essentially, if a director

dissipates assets of a company at a time when that director knew, or given

their professional expertise ought to have known, that the company is, or

likely to be, insolvent, then that director is potentially liable for the loss

caused. Any director in such a situation is well advised to take advice from

an insolvency professional before committing to a course of action.





WOULD YOU DESCRIBE


ACTIVITY?



RESTRUCTURINGS?

BRITISH VIRGIN ISLANDS • RUSSELL CRUMPLER • KPMG



Q HOW DO YOU EXPECT

RESTRUCTURING AND


THE BVI TO UNFOLD FOR THE


AND BEYOND?

CRUMPLER: In the next 12 months we expect to see an increase in

insolvency appointments with a focus on companies exposed to either

China or the oil & gas industry. To the degree that there is any fallout from

a potential Brexit, or indeed the US election cycle, then the repercussions

will likely take a little more time to manifest. While instances of BVI

companies being used to perpetrate a fraud are low, we would expect

there to be a few significant liquidation appointments relating to efforts of

creditors to recover funds that have been inappropriately put beyond their

reach. Finally, we also expect to see more enforcement actions from the BVI

regulators; some as a direct consequence of the so called Panama Papers,

some because of the increased scrutiny that was already being brought to

bear following the recent amendments to the BVI AML legislation.

Russell Crumpler

Head of Advisory

KPMG (BVI) Limited

+1 (284) 494 1134

[email protected]

Russell Crumpler has over 15 years’ experience working with KPMG’s restructuring practices in the BVI, the UK and the Cayman Islands and leads a highly qualified team whose primary focus is formal insolvency engagements and restructuring. Mr Crumpler has acted in a variety of high profile multijurisdictional engagements that have involved litigation, recognition issues, asset tracing and other complex matters. Mr Crumpler has substantial practical experience managing the restructurings, insolvencies and sales of active trading companies, funds and complicated corporate structures across a large number of sectors including financial services, commodities, hospitality, insurance and real estate.

www.kpmg.com/vg

BRITISH VIRGIN ISLANDS • RUSSELL CRUMPLER • KPMG

“ The market for purchasing distressed positions in funds, insolvency estates and other investments continues to grow.”




UNITED KINGDOM

Q REFLECTING ON THE



THE UK IN TERMS OF THE


BANKRUPTCY FILINGS?

DAVID BRYANBM&T LLP

BRYAN: Statistics published for Q1 2016 show creditors voluntary

arrangements (CVAs) at their lowest level since Q1 1998 and

administrations at their lowest level since Q4 2003. There has been a

small rise in some other forms of insolvency. With low inflation, interest

rates remaining very low and reasonable economic growth, there’s no

reason to think that is likely to change any time soon. In addition to

low interest rates, there is plentiful financing and an increasing amount

available from alternative lenders. Most businesses have adjusted to

this new normality and for those that do get distressed, consensual

restructuring remains the first choice solution before formal insolvency

processes are considered. It remains a quiet market for formal insolvency

work.

BRYAN: Although GDP growth has been reasonably healthy at 2.9

percent in 2014 and 2.2 percent in 2015, the picture is not uniform

across the economy. London and its surrounding areas continue to

outperform the rest of the country, although all regions are growing.

Manufacturing output has contracted and the lack of productivity

growth is something economists cannot explain. Overall, the economy

seems to be slowing, although the effects and uncertainties of the

upcoming EU referendum may be distorting the more recent figures.

The construction and retail sectors remain the weakest and have some

of the highest levels of insolvencies. The oil and gas sector has been

hard hit, particularly in North East Scotland. Overall, it is a mixed

picture and at the time of writing it is hard to predict what the result

and consequent effect of the EU referendum will be.



TRENDS CURRENTLY


ARE ANY PARTICULAR






UNITED KINGDOM • DAVID BRYAN • BM&T LLP


NOTABLE BANKRUPTCY/


UK, WHICH WILL HAVE AN


GOING FORWARD?

BRYAN: In the first half of 2016, two high-profile insolvencies have

been in the headlines. A large steel producer became very distressed

and provoked much debate about the effects of Chinese producers

dumping surplus steel at low prices and whether the government

should intervene to save strategically important industries. There has

also been a very high profile collapse of a large retail chain after it

was sold some 18 months ago for just £1 to a new owner with no

retail experience and a history of bankruptcy; 11,000 jobs are under

threat. This has resulted in televised questioning of the main players by

members of parliament and investigations by various authorities into

their conduct. Common to both the steel mills and the retail chain are

pension schemes with huge deficits. We will have to wait for the dust to

settle on all this before we see if it results in any changes to legislation

and processes going forward.

BRYAN: In the last few years most of the larger banks have run down their

workout departments and seemed to prefer to sell any loans that were

deemed non-performing. This was largely driven by the impact of such

loans on their own capital position. The general consensus is that such

activity has largely run its course. Indeed, there is now some evidence

that the banks are starting to rebuild their workout departments. Banks

remain reasonably supportive provided they can see a clear path to

a resolution of the distress. There is a lot of money looking for yield

and alternative financing sources are now becoming well established.

Funding is obtainable for restructurings but its availability and pricing

will depend on collateral. This can be problematic in service businesses

with few assets.


BANKS SUPPORTING


HOW EASY IS IT TO


DEBT IN THE CURRENT



RESTRUCTURINGS?






WOULD YOU DESCRIBE


ACTIVITY?



Q COULD YOU OUTLINE



OF A COMPANY IN THE UK


ENTERS BANKRUPTCY?

BRYAN: The market has plenty of investors looking for opportunities

to purchase distressed assets but not enough assets available. One of

the best know distressed investors in the UK, Jon Moulton, recently

called time on his fund and will wind it down citing “an absence of

opportunities in the turnaround market”. Activity is low and with

too much money chasing too few opportunities, prices are inevitably

driven up. It is interesting to note that the steel producer and retail

chain referred to above were both looked at by a number of trade and

distressed investors but the pension scheme deficits were a major factor

in the deals stalling. There are some suggestions that distressed M&A

activity may pick up, particularly with commodity based businesses

being forced to sell assets for liquidity needs.

BRYAN: The UK has always had a fairly clear regime. Case law has evolved

over the years and directors are required to file for insolvency when it

is clear there is no reasonable prospect of recovery. In practice, this

means that as long as there is a reasonable prospect of recovery then

no personal liability will attach to directors for pursuing that prospect.

Arguably, they should for the benefit of creditors. Most importantly,

directors should ensure they take good quality advice and record the

rationale for their decision making. A certain amount of judgement will

be required but common sense should prevail and the courts will look

at what directors should have known at the time rather than applying

the benefit of hindsight. Most directors who get into difficulties and

potential personal liability have acted either recklessly or fraudulently.




Q HOW DO YOU EXPECT

RESTRUCTURING AND


THE UK TO UNFOLD FOR THE


AND BEYOND?

BRYAN: The result and effect of the referendum on leaving or staying

in the EU is impossible to predict at the time of writing. That aside

there seems little reason to think interest rates will rise in the short

term and I think bankruptcy activity will remain subdued. Beyond that

there are numerous problems in the global economy that could give

rise to increased distress. Excessive debt, particularly in China, weak

productivity growth, ageing populations and underfunded pension

commitments are just some of the issues. Perhaps the most dramatic

impact in the UK could be the government’s proposals for a radical

change in the insolvency laws. In essence, these would bring most of

the features of the US Chapter 11 process to the UK but without the

large costs. This could result in many more distressed businesses being

turned around without the need for them to enter formal insolvency.

It will be fascinating to watch this unfold and it could be a real game

changer.

David Bryan

Managing Partner & CEO

BM&T LLP

+44 (0)20 3178 4902

[email protected]

David Bryan is a founding principal of BM&T, a boutique turnaround and restructuring firm operating in the UK, Europe and North America. A chartered accountant with many years’ experience in industry with both public and privately owned businesses, Mr Bryan is a passionate believer in the use of consensual turnaround techniques to avoid formal insolvencies and preserve value for all stakeholders. Mr Bryan is a director of the Turnaround Management Association in the UK and Europe and is a Fellow of the European Association of Certified Turnaround Professionals.

www.bmandt.eu


“ Perhaps the most dramatic impact in the UK could be the government’s proposals for a radical change in the insolvency laws.”




FRANCE

Q REFLECTING ON THE



FRANCE IN TERMS OF THE


BANKRUPTCY FILINGS?

OLIVIER MARIONPWC

MARION: France has experienced a progressive recovery in its

economy over the past 12 to 18 months, and 2016 is now expected

to achieve 1.6 percent GDP growth. In 2015, the number of failures

and bankruptcies remained stable compared to the prior year, at close

to 66,000 companies, and 2016 should see a limited reduction in this

number. That said, several industry sectors continue to suffer. While

we see fewer LBO structures in distress, more corporate groups are

currently suffering, and rather aggressive financing structures are being

put in place on new LBO transactions. As a result, we may well prepare

for new waves of restructuring transactions over the coming years.

MARION: We are currently seeing a lot of pain in the oil & gas sector,

given the significant continued drop in exploration and production

investments in 2015 and 2016. Visibility on a recovery remains limited

at this time. While low raw material, metal and energy prices have

overall benefited companies’ operating cost structure in 2016, those

doing business in these sectors have faced a significant decline in

revenue, resulting in pressure on their results and liquidity. The French

agro-business is one of these sectors. In addition, overall consumer

consumption remains weak, with a direct adverse impact on retail

activities.



TRENDS CURRENTLY


ARE ANY PARTICULAR







NOTABLE BANKRUPTCY/

INSOLVENCY CASES IN

FRANCE, WHICH WILL HAVE

AN IMPACT ON THE PROCESS

GOING FORWARD?

FRANCE • OLIVIER MARION • PWC

MARION: No high-profile cases have been reported in the recent

past. This is mainly because public shareholders have injected equity

into large corporations in difficult situations, such as metals company

Vallourec and nuclear energy company Areva.

MARION: While there is significant liquidity in the market, lenders

remain prudent about financing companies in restructuring situations.

They need to see a viable turnaround plan and control on the company

– through debt to equity swaps – in cases of underperformance. And

money remains expensive for those companies in weak positions.


BANKS SUPPORTING


HOW EASY IS IT TO


DEBT IN THE CURRENT



RESTRUCTURINGS?






WOULD YOU DESCRIBE


ACTIVITY?



Q COULD YOU OUTLINE



OF A COMPANY IN FRANCE


ENTERS BANKRUPTCY?

Q HOW DO YOU EXPECT

RESTRUCTURING AND


FRANCE TO UNFOLD FOR

THE REMAINDER OF THIS

YEAR, AND BEYOND?

MARION: Distressed M&A remains active in France, with good assets

in difficult situations offering interesting opportunities to investors

ready to take the risk. This includes a substantial portion of foreign

investments; France is not completely frightening anymore.

MARION: D&Os may be held personally liable for the company’s

liabilities in case of bankruptcy or insolvent liquidation, but only in case

of recognised mismanagement.

MARION: Restructuring activity is expected to remain sustained

until the end of the year, despite the progressive economic recovery,

especially in the industry sectors mentioned earlier.




Olivier Marion

Partner

PwC – France

+33 1 5657 8685

[email protected]

Olivier Marion is the partner responsible for leading Business Recovery Services (BRS) within PwC France. This group of 45 experienced professionals is dedicated to assisting companies, their creditors and shareholders during periods of financial difficulty, including insolvency, with the objective of identifying and implementing a restructuring scheme suitable to all parties. BRS also assists clients with investment opportunities among companies in difficulty. Mr Marion graduated from EDHEC Business School, is a chartered accountant in France and is treasurer of the French Restructuring Association (ARE).

www.pwc.com


“ Restructuring activity is expected to remain sustained until the end of the year.”




PORTUGAL

Q REFLECTING ON THE



PORTUGAL IN TERMS OF THE


BANKRUPTCY FILINGS?

HELENA SOARES DE MOURA, MORAIS LEITÃO GALVÃO TELES, SOARES DA SILVA & ASSOCIADOS

SOARES DE MOURA: Portugal still faces the effects of the financial

crisis, which is quite clear in the number and length of insolvency and

restructuring proceedings. In Portugal, companies face a shortage of

liquidity and access to funding which led to a considerable increase

of insolvency proceedings up to 2013. In 2014 and 2015 there was

a slight reversion of this trend. In fact, the filing of restructuring and

insolvency proceedings has slightly decreased.

SOARES DE MOURA: Companies are still experiencing significant

difficulties with bank funding, which has also contributed to the

increase of insolvency and restructuring proceedings. A large number

of Portuguese companies are facing restructuring processes. This trend

is not limited to a particular sector; on the contrary, it crosses the

majority of sectors. Construction and real estate seem to be displaying

early signs of recovery. In the domestic banking system, Portugal is still

being affected by the shockwaves of two bank resolutions which are

having unpredictable effects.



TRENDS CURRENTLY


ARE ANY PARTICULAR






PORTUGAL • HELENA SOARES DE MOURA, • MORAIS LEITÃO GALVÃO TELES, SOARES DA SILVA & ASSOCIADOS


NOTABLE BANKRUPTCY/

INSOLVENCY CASES IN

PORTUGAL, WHICH WILL

HAVE AN IMPACT ON THE

PROCESS GOING FORWARD?

SOARES DE MOURA: In August 2014, Portugal saw the collapse of

Espírito Santo Group, a conglomerate which comprised Banco Espírito

Santo, one of the biggest banks in Portugal. Some of the group’s holdings

were declared insolvent, in Portugal and abroad. The collapse led to

huge losses in several related Portuguese companies. For instance, the

biggest Portuguese telecommunications player, Portugal Telecom, was

severely affected; notably, the projected merger with Brazilian company

Oi did not occur.

SOARES DE MOURA: In Portugal, due to the financial crisis, it remains

difficult to obtain funding to finance restructuring and recovery. Such

funding usually takes place where banks are creditors and directly

involved and implicated in the recovery of the distressed company. In

general, Portuguese banks and financial institutions are reluctant to

inject capital into distressed companies. The renegotiation of existing

debt – include its total amount and repayment timeframe – are often

achieved through the approval of a recovery plan. Typically, the amounts

due are reduced and the timeframe for its repayment is extended. Apart

from commercial banks, there are some investment funds specialising

in distressed investments. Still, there are some public programmes

that aim to provide financing solutions and facilitate capitalisation

operations, namely through the constitution of revitalisation funds, or

programa revitalizar.


BANKS SUPPORTING


HOW EASY IS IT TO


DEBT IN THE CURRENT



RESTRUCTURINGS?






WOULD YOU DESCRIBE


ACTIVITY?





THAT MAY FACE D&OS OF

A COMPANY IN PORTUGAL


ENTERS BANKRUPTCY?

SOARES DE MOURA: There seems to be a significant interest in the

Portuguese market. For instance, following the fall of Espírito Santo

Group, several deals took place. These included the acquisition of

Rioforte, part of the Espírito Santo Group, by Swiss fund Spring Watter

Capital, the acquisition of Espírito Santo Viagens by Springwater Travel

Group, the acquisition of hotels pertaining to the Tivoli Hotel chain

by Thai company Minor International, and the acquisition of Portugal

Telecom by Altice. Also worth noting is that Chinese and Angolan

players are particularly keen to invest in the Portuguese market.

SOARES DE MOURA: As a general rule, directors and shadow directors

may be held personally responsible for their conduct whenever an

insolvency is considered to be caused by mismanagement, meaning

that it results from fraudulent action or a serious fault committed prior

to the filing for insolvency. In such cases, those held responsible may be

prohibited from undertaking any trade or holding a position on a board

of directors, may be criminally sanctioned with a fine or imprisonment,

and may be held responsible for the outstanding debts of the insolvent

company.

PORTUGAL • HELENA SOARES DE MOURA, • MORAIS LEITÃO GALVÃO TELES, SOARES DA



Q HOW DO YOU EXPECT

RESTRUCTURING AND


PORTUGAL TO UNFOLD FOR


YEAR, AND BEYOND?

SOARES DE MOURA: For the remainder of this year and beyond, we

expect to see a slight decrease of the number of companies filing for

restructuring and insolvency proceedings. However, it should be noted

that an increase of ‘special revitalisation proceedings’ – or processo

especial de revitalização – is expected to occur in the near future,

namely for companies whose recovery plans were unsuccessful.

Helena Soares de Moura

Partner

Morais Leitão, Galvão Teles, Soares da Silva & Associados

+351 21 381 74 53

[email protected]

Helena Soares de Moura joined the firm in 1997 and became a non-equity partner in 2013. She is a member of the litigation and arbitration team. She coordinates the team handing insolvency and restructuring. Ms Soares de Moura has significant experience in litigation focusing her practice mainly on civil and commercial litigation and bankruptcy and insolvency litigation. She often participates, as a speaker, in seminars and conferences, mainly on insolvency and healthcare. She has lectured at the Biomedical Law Institute of the University of Coimbra and was an elected member of Lisbon’s District Council of the Portuguese Bar Association (2011-2013).

www.mlgts.pt

PORTUGAL • HELENA SOARES DE MOURA, • MORAIS LEITÃO GALVÃO TELES, SOARES DA SILVA & ASSOCIADOS

“ We expect to see a slight decrease of the number of companies filing for restructuring and insolvency proceedings.”




SWITZERLAND

Q REFLECTING ON THE



SWITZERLAND IN TERMS OF

THE FAILING BUSINESSES

AND BANKRUPTCY FILINGS?

PETER DAUWALDERKPMG

DAUWALDER: Following the peak of bankruptcy filings for companies

in 2013, new insolvency cases in 2014 decreased noticeably. With an

increase of 14 percent compared to 2014, this trend clearly reversed

in 2015, which reflects the current general business climate since

the abandonment of the euro cap by the Swiss central bank (SNB).

Insolvencies in 2015 were slightly lower than the peak in 2013, while

incorporations of new companies simultaneously decreased slightly

from 2014 to 2015. This trend seems to be continuing, as from January

to April 2016 insolvencies increased by 9 percent compared to the

same period last year.

DAUWALDER: The SNB changed its foreign exchange and interest rate

policies in January 2015, which led to an immediate appreciation of

the Swiss franc against the euro. While certain industries were affected

same day – for example, retailers suffered substantial price pressure

– the impact on other industries is expected to materialise with a

delayed effect. For example, strategic suppliers of manufacturers in

the industrial sector often enter into mid-term agreements with their

clients. In such situations, price pressure challenges will materialise

with a certain delay, but at latest when it comes to renegotiating such

agreements. Other sectors under pressure include hospitality, due to

structural weaknesses, and power & utilities, due to the anticipated

market deregulation and pressure on margins from cheap imports.

Furthermore, a new Swiss law that restricts the construction of new

vacation properties is increasingly causing substantial issues for

construction companies, especially in certain touristic regions. Given

the outlook for Swiss real estate, such challenges in the construction

sector may also extend to other, non-touristic regions of Switzerland.



TRENDS CURRENTLY


ARE ANY PARTICULAR







NOTABLE BANKRUPTCY/

INSOLVENCY CASES IN

SWITZERLAND, WHICH WILL



SWITZERLAND • PETER DAUWALDER • KPMG

DAUWALDER: We have not observed major insolvency cases in

Switzerland. Compared to 2014, we see an increasing trend of

insolvencies in medium sized enterprises, especially in the retail and

consumer goods sector. Furthermore, we have observed a certain

degree of relocation activity, where industrial players are shifting

more of their operations to lower-cost countries. Regarding potential

significant restructuring cases in the near future, our prior year

expectations of struggling power & utilities companies, due to ongoing

market liberalisation as well as the Swiss Energy Strategy 2050, were

supported by recent announcements of large corporates in this sector.

DAUWALDER: The commercial bank financing market has not

experienced any significant changes in recent years, so access to new

debt capital for stressed or distressed companies remains difficult.

The renegotiation of existing debt is strongly dependent on the mid-

or long-term competitiveness and earnings power of the borrower,

while stressed and distressed companies have very limited access to

unsecured debt financing. However, most Swiss banks have a common

understanding of the rules to be applied in restructuring situations,

including rules regarding repayments and increases to bank loans or the

assignment of collateral. Over the past year, we have seen more mid-

sized companies issuing bonds. The negative interest rate environment

creates opportunities for low rated companies to raise capital due to

investors seeking higher returns.


BANKS SUPPORTING


HOW EASY IS IT TO


DEBT IN THE CURRENT



RESTRUCTURINGS?






WOULD YOU DESCRIBE


ACTIVITY?





THAT MAY FACE D&OS OF A

COMPANY IN SWITZERLAND


ENTERS BANKRUPTCY?

DAUWALDER: While certain companies are struggling with the

removal of the euro cap, many Swiss corporates are still looking for

investment opportunities. Acquisitions remain one of the key drivers

of strategic growth for Swiss corporations. Nevertheless, the number

of distressed M&A transactions by strategic buyers has remained low

throughout the last 12 months. Investors have a rather low appetite to

invest in distressed companies; however, the level of interest appears

to be higher for strategic investors when it comes to companies in

distress or even bankruptcy that are available at low valuations. Even in

challenged industries such as hospitality, the appetite of international

investors has declined due to increased valuations for foreign investors

because of the strong Swiss franc and due to the lower earnings power

and outlook of companies in the sector.

DAUWALDER: According to Swiss Law, members of the board of

directors of companies that are close to insolvency status have

increased responsibilities and personal liability risks compared to the

ordinary course of business. In critical situations, board members face

the personal risk of being co-liable for the company’s unpaid social

security contributions. Additionally, they also face the risk of liability

claims and even criminal lawsuits, and we expect that these may slightly

increase in the future. As the highest governing body of a company, in

distressed situations, board members must adhere to their increased

responsibility with respect to the strategic guidance of the company.

With this respect, they must undertake best efforts to stabilise the

situation and maintain liquidity, in order to secure the business as a

going concern, and to avoid any over-indebtedness according to the

provision of Swiss law.




Q HOW DO YOU EXPECT

RESTRUCTURING AND


SWITZERLAND TO UNFOLD

FOR THE REMAINDER OF THIS

YEAR, AND BEYOND?

DAUWALDER: The Swiss economy has enjoyed relative stability in

recent years, being less affected by the global financial and economic

crisis than many other nations. The challenging economic situation in

which Swiss companies currently find themselves due to the strong

Swiss franc, however, means they must enhance their sustainable

competitiveness. Due to the reasons outlined above, such as the delayed

Swiss franc effect on companies in long-term agreements with clients,

we expect an increase in company crises in the near future in industries

that are most exposed to the significant challenges we have set out.


Peter Dauwalder

Partner, Head of Restructuring and Head of Markets

KPMG

+41 58 249 41 80

[email protected]

Peter Dauwalder is partner and head of Transactions & Restructuring Switzerland at KPMG. He has over 20 years of experience working for professional service firms and has led numerous restructuring projects (for example, independent business review and monitoring on behalf of bank syndicates, buy-side lead advice, reorganisation, liquidity planning, restructuring planning and execution support) as well as international and multi-disciplinary transaction advisory projects. Mr Dauwalder is familiar with many sectors such as chemicals, consumer goods & retail, industrial manufacturing as well as telecommunications & media.

www.kpmg.com

“ In critical situations, board members face the personal risk of being co-liable for the company’s unpaid social security contributions.”




GERMANY

Q REFLECTING ON THE



GERMANY IN TERMS OF THE


BANKRUPTCY FILINGS?



TRENDS CURRENTLY


ARE ANY PARTICULAR




PETER WIEGANDKPMG

WIEGAND: In the last 18 months, the restructuring and insolvency

market in Germany has been very quiet. At the beginning of 2016, when

financial markets experienced some turbulence, the market was already

expecting the next crisis. These expectations turned out to be wrong.

Despite some smaller restructurings, especially in the automotive

sector, 2016 has been as quiet as previous years. Ongoing problems can

be observed in the German bond market for small and medium sized

companies, so-called Mittelstandsanleihen, with a number of issuers

facing significant refinancing problems, as their operating performance

is still insufficient to cover interest payments typically ranging between

6 and 9 percent.

WIEGAND: The German export industry is highly dependent on the

development of BRIC countries, especially China. For the automotive

and manufacturing sector, China has become the most important

trade partner. Large German car manufacturers – especially BMW, Audi,

Mercedes and Volkswagen – generate a significant portion of their annual

growth from this market. As the European and North American markets

are already saturated, growth comes mainly from emerging markets.

A cool down of these markets would affect not only the automotive

industry with its suppliers but also hit the manufacturing sector. There

is also pressure on the energy sector due to the German switch to

green energies. Last but not least, digitalisation puts pressure on the

retail market where we spot some upcoming cases. Uncertainty also

remains, with the questions on how a ‘Brexit’ would affect the economy

and what the low interest level will mean for future business.




NOTABLE BANKRUPTCY/

INSOLVENCY CASES IN

GERMANY, WHICH WILL




BANKS SUPPORTING


HOW EASY IS IT TO


DEBT IN THE CURRENT



RESTRUCTURINGS?

GERMANY • PETER WIEGAND • KPMG

WIEGAND: Larger insolvencies in Germany were mainly triggered

by disruption to business models. In the fashion sector especially,

traditional retailers seem to have no answer to digital disrupters such as

Zalando.com and BestSecret.com. Nevertheless, the impact from those

insolvencies is expected to be relatively small. A European Commission

Consultation on an effective insolvency framework within the EU is

expected to have a significant impact on future restructuring processes.

The introduction of pre-insolvency proceedings, like a scheme of

arrangement in the UK, is currently being discussed in this context, as

many large restructuring cases have moved to the UK due to a lack of

such a process.

WIEGAND: The current financing environment is very favourable for

companies even if they are facing financial stress. Banks are willing

to support restructuring processes with additional funding to existing

borrowers. The existing interest rate level makes it nearly impossible

for banks to generate sufficient interest income. Supporting existing

borrowers in difficult situations gives banks the opportunity to derive

additional income from one off fees, such as stand still, waiver,

settlement fees, and so on. Some German banks have even set up new

teams of restructuring specialists to provide financing in distressed

situations, even to new borrowers where there is no existing relationship.

Of course, banks still perform extensive due diligence before they provide

new financing in distressed situations and it requires a restructuring

concept indicating a convincing turnaround plan.








WOULD YOU DESCRIBE


ACTIVITY?




A COMPANY IN GERMANY


ENTERS BANKRUPTCY?

WIEGAND: We see more and more activity in the distressed M&A

market in Germany. One reason may be that prices for performing

targets are at very high levels. Generating sufficient returns for

investors has become difficult in these markets. Therefore, investors

are moving to sub or underperforming targets. Indeed, investors from

South East Asia are willing to buy assets out of insolvency proceedings

or restructuring processes. The appetite for troubled assets definitively

gained momentum in recent years. This development can also be

observed in the real estate sector where investors are adding stressed or

risky assets to their portfolio in order to generate additional returns.

WIEGAND: Insolvency administrators have become much stricter in

recent years. Wherever they see the slightest opportunity to enrich

insolvency assets through a lawsuit against former management, they

seem to file a claim. When former management is backed by D&O

insurance, administrators are chasing claims as the potential amount

to expect from insurance is much higher than what to expect from an

individual.


“ The appetite for troubled assets definitively gained momentum in recent years.”



Q HOW DO YOU EXPECT

RESTRUCTURING AND


GERMANY TO UNFOLD FOR


YEAR, AND BEYOND?

WIEGAND: The activity level in the restructuring market in the first half

of 2016 remained relatively low, as in the last few years. However, we are

seeing increasing activities in some sectors. The automotive sector is highly

dependent on export markets, especially China, but might also face some

technical challenges, EVs or other alternative power. As already mentioned,

even a slight cool down of the Chinese market will cause significant

hiccups with suppliers. OEMs appear to be quite well-positioned in general;

problems in the sector can be observed further down the supply chain

where small manufacturing companies are fighting hard, with low margins

due to increasing pressure from their customers. The German shipping

industry enters its eighth year of crisis with no end in sight. Restructuring

of ship finance is normally limited to debt restructurings as all operative

measures have already been exhausted. Also, retail fashion is a sector where

we expect to see more restructuring activity until the end of the year. We

expect an increase in activity toward the end of 2016 but, compared to the

financial crisis of 2008 and 2009, the levels will remain relatively low.


Peter Wiegand

Partner/Head of Restructuring

KPMG AG Wirtschaftsprüfungsgesellschaft

+49 30 2068 4348

[email protected]

Peter Wiegand heads KPMG’s restructuring practice in Germany. His team offers a full scope of service to clients in difficult situations, from turnaround advisory for clients seeking to improve their performance, to financial restructuring for clients in stressed or distressed situations, to insolvency advisory for corporate clients and even assistance for insolvency administrators. Over more than 20 years, Mr Wiegand has gained extensive experience in all sorts of restructuring situations, advising creditors and debtors in all major industries.

www.kpmg.com




AUSTRIADR EDMUND ROEHLICHPROKSCH & PARTNER RECHTSANWÄLTE OG

Q REFLECTING ON THE



AUSTRIA IN TERMS OF THE


BANKRUPTCY FILINGS?

ROEHLICH: Six years after the financial and economic crisis which

caused a peak of bankruptcy filings in Austria, the amount of business

failures is at an 11 year low and continues to decline. In 2015, the

number of Insolvencies dropped around 5 percent in comparison to

2014, but the insolvency of one considerable retail chain caused a 5

percent increase of the affected employees. However, the first quarter

of 2016 did not continue this trend. Statistics of the first quarter show

an increase of more than 10 percent in bankruptcy filings compared

to the first quarter of 2015. If this trend continues, the number of

insolvencies will reach the level of 2014.

ROEHLICH: One crucial trend affecting businesses in Austria this year

is the statutory implementation of a cash register. Every enterprise

with annual sales exceeding €15,000 or €7500 in cold cash has to

launch an electronic recording system to document its cash earnings.

This law is supposed to minimise tax evasion and unreported income.

The obligation to use a cash register has been highly criticised since it

is exceedingly difficult for small companies with a low yearly turnover

to raise the funds needed for the installation of a cash register. The

Austrian Constitutional Court recently delivered a verdict that these

new rules do not create any disproportionate infringement for small

businesses. Recently, new ideas appeared about the implementation

of a new machine tax and the reduction of working hours. Some think

those measures could reduce unemployment, others feel afraid that

a new machine tax might have a negative effect on several business

branches in Austria by reducing new investments in machinery and

equipment, slowing down innovation and weakening Austria as an

industry location, which will, in the end, even increase unemployment.



TRENDS CURRENTLY


ARE ANY PARTICULAR






AUSTRIA • DR EDMUND ROEHLICH • PROKSCH & PARTNER RECHTSANWÄLTE OG


NOTABLE BANKRUPTCY/

INSOLVENCY CASES IN

AUSTRIA, WHICH WILL HAVE


GOING FORWARD?

ROEHLICH: At the end of 2015, supermarket chain Zielpunkt filed

for bankruptcy proceedings. With more than €235m in liabilities, the

Zielpunkt insolvency has been the biggest in 2015. The food chain

comprised 229 branches, and its insolvency affected more than 2700

employees. Following Zielpunkt, some of its suppliers became insolvent

as well. As a result of the Zielpunkt disaster, one meat supplier went

bankrupt, which affected 269 more employees.

ROEHLICH: Considering that distressed companies need loans and

financial aid to survive, they have to overcome a vicious circle. The

banks demand larger securities than ever and relatively high interest

and fees, so many companies do not want to borrow or are even

incapable of taking out loans. On the other hand, banks would like

to grant more credits, but see themselves as being confronted by

increasingly stricter laws like Basel III, Basel IV and other equity rules.

Businesses are confronted with the demand for high personal securities,

and even if they can provide sufficient collateral, companies complain

that sometimes the requested amount of funding is not available. So,

the current situation in the debt market for troubled companies is

not the best. Another possibility would be to use the crowdfunding

method. In September 2015, the Austrian government passed the

‘alternative funding law’, which provides the legal framework for

financing a business with the aid of a large amount of small investors.

As compensation for the gap in the debt market, the possibility of

crowdfunding is not sufficient for the majority of companies in Austria.

Only start-ups and small companies consider financing their projects

via crowdinvesting platforms as an alternative to bank loans.


BANKS SUPPORTING


HOW EASY IS IT TO


DEBT IN THE CURRENT



RESTRUCTURINGS?






WOULD YOU DESCRIBE


ACTIVITY?



Q COULD YOU OUTLINE



OF A COMPANY IN AUSTRIA


ENTERS BANKRUPTCY?


ROEHLICH: According to yearly publications based on special

investigations, in 2015 the number of notable M&A transactions

concerning insolvent or bankrupt companies decreased from about 60

in 2014 to about 55 confirmed cases. Those transactions are equally

distributed on many branches, with the highest number of distressed

M&A activity in retail with 18 transactions. Around 50 percent of such

shares were bought by foreign investors. Compared to 2011, when the

foreign share of insolvent M&A transactions was at an all-time high

of 60 percent, this leads to the conclusion that the Austrian market

for distressed companies has lost some appeal for foreign investors.

Apart from the acquisition of distressed companies in 2015, foreign

involvement in M&A activity reached an all-time peak, with a cross-

border aspect in 270 cases, or 69.1 percent of all confirmed acquisitions

in Austria. All these numbers point to the same direction: Austria is on

its way from being the classical ‘buyers’ nation to becoming a ‘sellers’

nation.

ROEHLICH: According to Austrian law, D&Os are liable to the company,

with their entire personal fortune for five years after their withdrawal,

including culpability for unpaid social security contributions and taxes.

In the case of obvious illiquidity, a managing director has to file for

bankruptcy within 60 days after the inability to pay has first been

diagnosed. Should he or she miss that window due to carelessness,

he or she can be held liable by the company and its creditors – and

of course by liquidators within insolvency proceedings. In the case of

gross carelessness, and of course in the event of fraud, D&Os may

also face criminal prosecution. To minimise the personal risks of D&Os

in times of insolvency, a company can acquire directors and officers

liability insurance. The insured is usually the company itself; insured

persons are the D&Os currently employed.



Q HOW DO YOU EXPECT

RESTRUCTURING AND


AUSTRIA TO UNFOLD FOR


YEAR, AND BEYOND?


ROEHLICH: A decrease of insolvencies is not to be expected in the

medium term, but an increase is not likely either. Much will depend on

the interest rates. According to several forecasts and publications, the

prevalent low interest rate environment makes it possible for many

enterprises to just barely stay afloat. When the interest rates rise, many

businesses may have to face bankruptcy.

Edmund Roehlich

Senior Partner

Proksch & Partner Rechtsanwälte OG

+43 1 713 46 51

[email protected]

Dr Edmund Roehlich is a well-known insolvency practitioner in Austria, and a member of INSOL International. He is appointed as a liquidator within insolvency proceedings by the Commercial Court in Vienna on a regular basis. His main fields of activity include insolvency and banking, restructuring, litigation and real estate matters. He is also a member of Eurojuris International and president of Eurojuris Austria.

www.proksch.at

“ To minimise the personal risks of D&Os in times of insolvency, a company can acquire directors and officers liability insurance.”




DENMARK

Q REFLECTING ON THE



DENMARK IN TERMS OF THE


BANKRUPTCY FILINGS?



TRENDS CURRENTLY


ARE ANY PARTICULAR




BORIS FREDERIKSENKAMMERADVOKATEN

FREDERIKSEN: The economy in Denmark has been improving at a

modest pace in 2015 and 2016. In 2015, this was reflected in the falling

number of bankruptcies and in-court restructurings compared to earlier

years. So far, 2016 has been characterised by a considerable increase

in bankruptcy petitions, due to various reasons, but primarily that the

Danish tax authorities in 2016 initiated collection and recovery of due

taxes and VAT after a long period in which the collection had been

affected by IT problems in the IT based collection system put into

operation in 2013. Consequently, the number of bankruptcies in the

segment of small and medium-sized enterprises is expected to increase

in 2016 compared to 2015.

FREDERIKSEN: Low interest rates continue to help companies that

experienced difficulties and were forced to increase their bank facilities

in order to survive during the financial crisis. If there is a change in

interest rates in the short term, this situation may change. The retail

sector is challenged by a combination of a lack of growth in consumer

spending combined with increasing costs for rent and other business-

related costs. Similarly, the agricultural sector is seriously financially

challenged. The situation has been basically unchanged since

2011/2012, and the problems in the sector do not appear to have

been resolved. After attempts at out-of-court solutions with the banks

and mortgage credit institutions involved, the number of bankruptcies

within the sector increased in 2015 and 2016.



DENMARK • BORIS FREDERIKSEN • KAMMERADVOKATEN


NOTABLE BANKRUPTCY/

INSOLVENCY CASES IN

DENMARK, WHICH WILL




BANKS SUPPORTING


HOW EASY IS IT TO


DEBT IN THE CURRENT



RESTRUCTURINGS?

FREDERIKSEN: After a large number of high profile bankruptcy and

restructuring cases between 2008 and 2013, no large cases have been

in the news. One exception is the case involving Danish wholesaler

and retailer F Group, which runs the FONA shops selling radio and TV

equipment, which went through a restructuring at the beginning of

2016.

FREDERIKSEN: The banks seem primarily focused on resolving matters

out-of-court with debtors suffering financial distress. This is a reaction

to the large number of bankruptcies arising from the financial crisis and

the experience gained in that respect, combined with the increasing

level of economic activity. If a bank considers that an enterprise has

a sustainable business case, it is possible to renegotiate the terms of

the existing debt if the proposals put forward are serious and have

been carefully prepared. It is, however, still difficult to switch banks

for companies currently or previously in distress. In that respect, the

consequences of the financial crisis have not yet been fully overcome –

even though the Danish banking sector was subsequently strengthened

between 2008 and 2013.






WOULD YOU DESCRIBE


ACTIVITY?






A COMPANY IN DENMARK


ENTERS BANKRUPTCY?

FREDERIKSEN: The Danish market for purchasing ‘troubled assets’ is

not large. But in 2015 and 2016, the state-owned company tasked

with winding up distressed banks sold large parts of acquired loans,

typically to foreign purchasers. All sales were effected after an open and

transparent sales process.

FREDERIKSEN: In such situations, the most significant risk for D&Os

is incurring liability for their actions. The central question is typically

whether the management reacted too late to the financial problems

and failed to discontinue operations until the so-called ‘point of no

return’ had been passed. A number of liability cases have been brought

in recent years, especially when the case involves debt to the state. In

the event of non-payment of taxes and VAT, either the tax authorities

or the bankrupt estate of the company often bring legal proceedings

against former management.




Q HOW DO YOU EXPECT

RESTRUCTURING AND


DENMARK TO UNFOLD FOR


YEAR, AND BEYOND?

FREDERIKSEN: I expect the number of in-court, winding-up bankruptcy

cases to increase in 2016, especially for small and medium-sized

enterprises. The primary reason is the Danish tax authorities’ focus

on collecting debt. Due to the IT problems in the collection system

mentioned earlier, the debt of Danish companies to the state increased

significantly between 2014 and 2016. The collection system is now

partly operational again, resulting in a considerable number of

bankruptcy petitions in 2016 compared to 2014 and 2015. But that

apart, it is expected that restructuring and bankruptcy activity will

decline from 2017 onwards.


Boris Frederiksen

Partner

Kammeradvokaten / Law firm Poul Schmith

+31 72 30 72 22

[email protected]

Boris Frederiksen is partner and head of the firm’s insolvency department. He represents public and private clients in all matters relating to insolvency law. He has extensive experience with the protection of creditor interests. Moreover, as a trustee, he has participated in a large number of bankruptcy proceedings where his clients have had significant interests, including a number of major bankruptcy proceedings in the Danish financial sector, a number of major bankruptcies in the Danish commercial property sector and bankruptcies related to VAT fraud.

www.kammeradvokaten.com

“ I expect the number of in-court, winding-up bankruptcy cases to increase in 2016.”




NORWAY

Q REFLECTING ON THE



NORWAY IN TERMS OF THE


BANKRUPTCY FILINGS?



TRENDS CURRENTLY


ARE ANY PARTICULAR




OFTEDAL: Norway as a whole has experienced a decline in the

number of bankruptcies during the last year. However, in the oil & gas

and offshore vessel clusters in Hordaland and Rogaland, the number

of bankruptcies has surged over the last few months. The number of

bankruptcies has increased by 48 percent and 21 percent from last

year, for Aust-Agder and Hordaland respectively.

OFTEDAL: The drop in the oil price has adversely affected investments

in the oil and gas industry, which is having a ripple effect in oil services

and the offshore segments. Oil and gas, and the oilfield services industry

in general, is demonstrating structural weaknesses at the moment.

Increased governmental spending has been used as a countermeasure

to the downturn in oil & gas, and has increased activity in the building

and construction sector. The central and local governments have also

initiated the construction of new schools, kindergartens and nursing

homes. The largest countermeasure will be larger infrastructure projects

that are currently being planned. We expect to see the full effect of

these countermeasures over the next few years. As for other sectors,

the seafood industry is experiencing growth due to increased demand.

The export business is also seeing an upsurge due to low interest

rates and a fall in the value of the Norwegian currency. The fall in the

Norwegian currency has also had a positive effect on the Norwegian

tourism industry.

HEGE MERETE OFTEDALADVOKATFIRMAET PWC




NOTABLE BANKRUPTCY/

INSOLVENCY CASES IN

NORWAY, WHICH WILL HAVE


GOING FORWARD?


BANKS SUPPORTING


HOW EASY IS IT TO


DEBT IN THE CURRENT



RESTRUCTURINGS?

NORWAY • HEGE MERETE OFTEDAL • ADVOKATFIRMAET PWC

OFTEDAL: At present, we are seeing an upsurge in notable bankruptcies

among contracting companies to the oil & gas industry. There have

been a few larger bankruptcies in this sector. Our impression is that

companies in distress have, perhaps temporarily, been able to refinance

or restructure their debt, and therefore have not yet been forced to file

for bankruptcy. We expect that there will be an upsurge in bankruptcies

in the next six months, and a change in which business sectors

experience distress.

OFTEDAL: Many of the offshore companies have recently renegotiated

their bank debt. In general, banks have changed their lending policy

somewhat in recent years, and will now normally demand more

guarantees and security for investments. Investors are still showing

interest in restructurings but are more cautious with investments in

the oil industry. Refinancing in the bond market is still an option. We

have seen an increased interest from international bond investors due

to a fall in the value of the Norwegian currency. In our opinion, funding

is generally available to finance transactions, but we have seen limited

new capital in connection with refinancing as many companies have

negotiated terms of their existing loans.






WOULD YOU DESCRIBE


ACTIVITY?



Q COULD YOU OUTLINE



OF A COMPANY IN NORWAY


ENTERS BANKRUPTCY?

OFTEDAL: We see interest from international private entities based on

the situation in Norway. In our experience, international investors are

actively looking for interesting turnaround cases in Norway. Distressed

M&A activity has been limited, as most distressed companies have

worked on restructuring their debt.

OFTEDAL: Board members may be held personally responsible for

any negligence resulting in loss for the company or others prior to

bankruptcy. The board members are not only obliged to safeguard the

interests of both the company and the shareholders, but also third-

parties such as creditors. Consequently, we always advise the board of

directors to be diligent in documenting their choices and actions when

the company’s finances are distressed.




Q HOW DO YOU EXPECT

RESTRUCTURING AND


NORWAY TO UNFOLD FOR


YEAR, AND BEYOND?

OFTEDAL: We have seen a severe impact on businesses closely related

to the oil industry due to a drop in the oil price over the last two years.

This has been especially evident in the southern and western parts of the

country, where most of the oil industry is situated, but has also affected

other industries in this area. As a result, we have in the southern and

western parts of the country experienced an increase in bankruptcies

over the last few years and a significant increase in restructurings. The

full impact on oil-related businesses is not expected be evident until

2017. We expect that this impact may reach other parts of the country

and businesses not directly linked to the oil industry.


Hege Merete Oftedal

Partner

Advokatfirmaet PwC

+47 95261029

[email protected]

Hege Oftedal is a partner and leader of Advokatfirmaet PwC Norway’s insolvency team. She has extensive experience in advising and assisting both public sector and private sector clients in complex domestic and international dispute resolution, and specialises in insolvency and real estate. Mrs Oftedal has more than 15 years’ experience as administrator of estates and is regularly appointed as such. She has been appointed as an arbitrator and has two years of experience as a deputy judge.

www.pwc.com

“ The full impact on oil-related businesses is not expected be evident until 2017.”




AUSTRALIADERRICK VICKERSPWC

VICKERS: Over the last 12 to 18 months in Australia, we have seen a

reduction in the size and number of corporate insolvencies, continuing

a trend that started in 2013. During this period, appointments by

secured lenders as a proportion of total insolvencies have also decreased.

Personal bankruptcies have been falling over the last few years, with

2015 reporting the lowest level of filings since 2006. In terms of affected

industries, mining services, mining and retail have seen marked declines

in financial performance. Generally, we are observing a growing number

of small business failures as a result of unsecured creditors petitioning the

court for orders to wind up debtor corporates. Also, the last six months

has seen a few significant insolvencies in the retail industry and base

metal refineries.

VICKERS: The Australian economy is currently undergoing a period of

slowed growth, low inflation and record low interest rates. Structural

weaknesses continue to be observed in the resources sector due to the

end of the mining boom. Business uncertainty has also grown due to

the depressed commodity prices placing pressure on profit despite the

expectation that production phases in LNG and iron ore projects will

support export growth. Economic outlooks suggest that non-mining

investment is also expected to remain subdued in the near future with

the potential exception of the services industry, including international

education and tourism. Due to Australia’s heavy reliance on the

exportation of raw materials, moving forward the outlook of one of our

main trading partners, China will be a large determinate of the strength

of the Australian economy.

Q REFLECTING ON THE



AUSTRALIA IN TERMS OF THE


BANKRUPTCY FILINGS?



TRENDS CURRENTLY


ARE ANY PARTICULAR






AUSTRALIA • DERRICK VICKERS • PWC


NOTABLE BANKRUPTCY/

INSOLVENCY CASES IN

AUSTRALIA, WHICH WILL




BANKS SUPPORTING


HOW EASY IS IT TO


DEBT IN THE CURRENT



RESTRUCTURINGS?

VICKERS: The failure of retailer Dick Smith Electronics in January this

year was to be considered by a Senate Committee inquiry into the causes

and consequences of the collapse of listed retailers. The Committee’s

terms of reference included investigating the impact of the appointment

of external administrators on all creditors, including employees and

customers holding gift cards. This Senate Committee inquiry is now

suspended pending the federal Australian election to be held on 2 July

2016. The largest corporate insolvency case for a number of years in

Australia involved steelmaker Arrium, which collapsed in April 2016

owing a multinational banking syndicate of over 20 members $2.8bn.

The administration has attracted widespread public scrutiny and state

and federal governments, financiers and employee union representatives

are showing a keen interest in taking action to minimise the potentially

significant impact of the administration should operations be shut down

and its 10,000 employees lose their jobs. There is a growing recognition

in Australia that some insolvency and restructuring reform is required.

VICKERS: At a macro level, as growth is subdued and interest rates are

at historic lows, it is noticeably easier to obtain an extension of current

finance facilities as long as management is seen to be actively addressing

the reasons for poor cash flow and profit. Banks and financiers generally

appear increasingly supportive of informal restructurings for companies

in financial distress. Similarly, management of corporates are more

willing to call in restructuring expertise when required and to seek more

innovative ways to access additional debt and equity. Consequently, there

is a growing recognition and need of the expertise of certain firms to

provide restructuring services and special situation lenders are becoming

more active in the Australian market.




VICKERS: Non-distressed M&A activity has been steady in Australia with

competition for assets from existing businesses and PE firms. The existing

businesses are struggling to achieve organic growth and are therefore

trying to find growth via acquisitions. The PE firms are taking an increased

interest in Australian assets due to the depreciation of the Australian

dollar and market volatility. Most of the distressed M&A speculation is in

the areas of mining and energy. There are a significant number of mines

which are on care and maintenance, but still require cash to survive. At

some point, unless commodity prices significantly rebound, they will need

to source additional funds. At the same time, there are a small number of

mid-sized miners with little debt who are looking at making acquisitions.

At this point, while there are opportunities being explored and the odd

acquisition made, the view seems to be commodity prices may have

further to fall and so purchasers are remaining cautious.

VICKERS: There are a number of personal risks for directors and company

officers of an Australian company approaching insolvency. The most

prevalent are breaching a director’s duty to prevent a company trading

whilst insolvent as per section 588G of the Corporations Act 2001, entering

into unreasonable director-related transactions as per section 588FDA

Corporations Act, and failing to address a Directors’ Penalty notice issued

by the Australian Taxation Office (ATO) – all of which may allow creditors

access to the directors’ personal assets. In a liquidation scenario, a

company’s directors may be held personally liable for new debts incurred

while a company was cash flow insolvent. The Australian government has

released a discussion paper for several proposed insolvency law reforms,

including the introduction of a ‘safe harbour’ from the personal liability

associated with insolvent trading to allow for a potential restructuring

to take place. Similarly, once in liquidation, any “unreasonable director-

related transactions” of a company are voidable under section 588FDA

of the Corporations Act 2001. Recent court decisions have potentially

expanded the applicable period for assessing these transactions from six

months to four years and broadened the scope of the provision to include

entities in which a director has a financial interest. Directors Penalty





WOULD YOU DESCRIBE


ACTIVITY?




A COMPANY IN AUSTRALIA


ENTERS BANKRUPTCY?

“ Holistically, banks’ provisions for bad debts are now starting to increase despite historically low interest rates.”




notices issued by the ATO give directors 21 days to address amounts

owed to the ATO in respect of employee entitlements such as PAYG and

superannuation. If not resolved within this period, directors may become

personally liable for any outstanding amounts.

VICKERS: Over the balance of the year, we expect to see further reductions

in the level of investment in mining and continued pressure on companies

operating in the resources sector. Asset impairments in this sector are

significant and gearing remains high. It is highly likely that there will be

further restructuring and corporate collapses in this sector. Retail trade is

likely to continue to be a challenging sector, with the continued growth of

online competition and consumer demand potentially weakening during

the year. Holistically, banks’ provisions for bad debts are now starting to

increase despite historically low interest rates. This would suggest that an

increase in restructuring and insolvencies will also occur.

Q HOW DO YOU EXPECT

RESTRUCTURING AND


AUSTRALIA TO UNFOLD FOR


YEAR, AND BEYOND?


Derrick Vickers

Partner

PricewaterhouseCoopers

+61 7 3257 5141

[email protected]

www.au.pwc.com

Derrick Vickers leads PwC’s Business Recovery Services team in Australia and has over 20 years’ experience in providing insolvency and restructuring services to a wide variety of clients. These include businesses from small individual companies to multifaceted ASX listed entities across a range of industries including finance, mining and mining services, property and construction and retail. Mr Vickers works with clients to respond to financial stress and underperformance by assisting them in managing insolvency issues, implementing turnaround and restructuring strategies and assessing credit risks from loan inception through to secondary exits.

FWS U P P L E M E N T

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A N N U A L R E V I E W

Economy & Finance

Financier Worldwide Bankruptcy & Restructuring Review 2016