Following huge trading losses and the discovery of alleged fraud in a Singaporean subsidiary, O.W. Bunker & Trading A.S. filed for bankruptcy on 7 November 2014in the Danish court, just seven months after the company floated on the stock market.  Since then, a number of other O.W. Bunker Danish and overseas entities have also filed for bankruptcy.

It was reported this month that O.W Bunker’s administrators have recovered over USD 100 million by selling oil stocks and financial derivatives (click here) and local insolvency officers have entered into Co-operation Agreements with the global receivers in order to recover funds for creditors.  The Danish media predicts that creditors’ claims against the company could total approximately USD 2 billion.  Click here to view a recent article published by Ship & Bunker on 27 April 2015.

Denmark is one of the only European countries that has not implemented the EU Bankruptcy Regulation that came into effect on 31 May 2002, or the rules under the UNCITRAL Model Law on Cross-Border Insolvency.

Shipping and oil investments (e.g. Torm A/S) are increasingly popular with distressed investors and borrowers are often based in Scandinavia.  Against that backdrop, this month's trade alert sets out some key considerations for trading loans in Denmark.

SECURITY, TRUSTS

The concept of a trust is not recognised under Danish Law and Denmark is not party to the Hague Convention on Trusts 1986.  Security agents are however recognised andact as agent on behalf of the lenders as beneficiaries.

The terms "trusts" and "trustees" are therefore generally not used in Danish law, instead Danish law refers to bondholder representatives and security agents.

A power of attorney is generally granted to the security agent to act on behalf of the lenders in accordance with Sections 4(f) and 4(g) of the Danish Securities Trading, etc. Act.  The security agent then holds and enforces the security on behalf of the lenders in accordance with its power of attorney.  Moreover, if the security agent holds share pledges on behalf of the lenders, the share register of the company is not required to be updated with the name of each individual lender.  However, the identity of the lenders are often listed in an annex to the share register for practical reasons, if the structure is not too complex. 

Parallel debt structures are not recognised under Danish law, due to security generally being granted in favour of the  lenders individually.  It is anticipated that the Danish courts would be reluctant to recognise such an artificial security structure, preferring the security agent to act on behalf of the lenders under a power of attorney.

WITHHOLDING TAX AND STAMP DUTY

Generally, non-resident lenders are not subject to Danish withholding tax on interest payments received from a Danish borrower.  However, interest payments on “controlled debt” (i.e., where a lender and borrower are within the same corporate group) may be subject to a 22% withholding tax  since 1 March 2015.

Whilst Denmark has over 100 international tax treaties in force which may result in a lower final tax rate, notable exceptions are France and Spain where Denmark has terminated its double taxation agreements.

With regard to real estate, a stamp duty of EUR 221 plus 0.6% of the purchase price (or, if higher, the value) of the property applies in connection with the transfer of ownership. In respect of mortgages, a stamp duty of EUR 221 plus 1.5% of the principal amount of the mortgageapplies on initial registration of the mortgage.

BANKING LICENCE REQUIREMENTS

Under Danish law, there are no banking licence requirements for acquiring or issuing loans as long as the lender is not deposit taking. Danish law does not regulate the making of a loan, but a lender may be subject to regulation due to other activities.  Under Danish law entities involved in lending activities will be subject to the anti-money laundering regulation requiring the entity to be registered with the Danish FSA.

TRANSFERABILITY OF LOANS AND METHOD OF TRANSFER

Given the agency structure in relation to security, assignment is the recommended method of transfer in relation to Danish loans.

When a loan is transferred, there are generally no special requirements in order to guarantee enforceability provided that the transfer is validly agreed between the parties and made in accordance with the terms of the credit agreement.  In order to eliminate conflicting interests due to property law issues, and ensure that the debtor can only pay with releasing effect to the transferee, the debtor should be notified of the loan transfer.

POST – COMPLETION FORMALITIES

Registration fees may be payable and electronic registrations may be mandatory in respect of transfer of security.

Special Note:

Special thanks to Claus Bennetsen and Kristian Kaltoft Nielsen  at Horten Advokatpartnerselskab in Denmark, who assisted us with this Trade Alert.

OIL AND GAS UPDATE

O.W. BUNKER & TRADING A/S: O.W Bunker & Trading A/S filed for bankruptcy on 7 November 2014 following the discovery of fraud in a Singaporean subsidiary and substantial risk management losses.  The bankruptcy remains on-going and discussions continue between creditors and debtors.  Various Co-Operation Agreements are in the process being finalised between local subsidiary insolvency officers and the global receivers, which has substantially improved ING’s recovery of outstanding debt due to the lenders under the terms of the USD700m revolving facility agreement entered into in 2013.

According to Fichte & Co, a Dubai-based maritime firm, the Co-operation Agreements may help break a deadlock surrounding the collection of debts from O.W. Bunker's debtors, but "there is some confusion as to whether the CA will be effective while the physical suppliers' demands remain." Click here to read a recent article published by Ship & Bunker on 23 April 2015.

GULF KEYSTONE PETROLEUM (“GKP”): The oil and gas exploration and production company has announced its 2014 year end results. Amassing losses of USD 248.2m, GKP’s share price has fallen by 48% since the turn of year and with a further 4% in the first week of April 2015. GKP’s future remains uncertain, notably with the ongoing discussions of potential asset transactions, corporate sale or takeover.

ICELANDIC CREDITORS’ MEETINGS

Click here for the Kaupthing Public Creditors' Report dated 22nd April 2015

NOTABLE TRANSACTIONS

  1. Torm A/S: on 20 April 2015 the restructuring agreement (which was entered into by the company, Oaktree Capital Management and certain lenders on 27 March 2015) gained the support of 92% of the company's lenders by value. The required thresholds to implement the restructuring through an English law scheme of arrangement have been reached. The anticipated restructuring would reduce the company's debt by around USD 550 million to around USD 860 million and result in ownership of the company's equity being roughly 55% (Oaktree), 41% (distressed funds), 3% (banks), and <1% (existing shareholders).

For Debtwire articles click here and here (requires log- in).

  1. General Healthcare Group ("GHG") restructuring implementation – PropCo securitisations, Theatre Hospitals No 1 and No 2, have received sufficient consents by the early deadline of 22 April 2015 to pass the restructuring resolutions on 5 May 2015. A majority of at least 75% is required to pass the extraordinary resolutions.  The consent solicitations were launched on 10 April 2015 to vote on the global restructuring agreement, with an early consent fee of 0.40% of the principal amount of notes on offer to noteholders voting in favour prior to the early deadline and 0.20% for noteholders voting in favour after the early deadline, but before the expiration deadline of 30 April 2015. Under the restructuring plan, GBP 175m of new money is being provided by certain funds and most of the hedge crystallisation will be converted into super senior debt. For Debtwire article click here (requires log- in).
    1. Ahmad Hamad Algosaibi & Brothers Company (AHAB) one of the Saudi region's largest corporate collapses in 2009 – litigation continues in various countries including Saudi Arabia, Bahrain, Switzerland, the Cayman Islands, the United States and the United Kingdom.  The company is in the process of agreeing a proposal with creditors offering a “good percentage increase” on both the upfront payment and overall recoveries for lenders compared to the initial terms offered by the company a year ago (being an immediate repayment of 10 cents on the dollar with a further 10% after selling its real estate portfolio).  However, the specific terms of the revised offer have not yet been provided.  An all claimants meeting is due to take place in Dubai on the 18 June 2015 where the steering committee comprising Arab Banking Corporation, BNP Paribas, Emirates NBD, Fortress Investment Group and Standard Chartered intend to explain to lenders how recoveries will work once the debt settlement has been approved by the majority.

Please click here for Economist article published on 21 March 2015.

Please click here for Financial Times article published on 21 April 2015.

  1. Promotora de Informaciones, S.A. ("PRISA") announced on 30 April 2015 that the public deed to formalise the share capital reduction and contrasplit has been executed. The share capital is reduced by EUR 1.30 by redeeming 13 treasury shares (of EUR 0.10each) and cancellingthe remaining 2,158,078,740 shares (of EUR 0.10 each) and exchanging them for 71,935,958 new shares (of EUR 3.00 each) implementing the contrasplit in the ratio of thirty shares to one. The exchange of shares will take effect from 22 May 2015. Shareholders recorded as such at the close of the markets on 21 May 2015 will be entitled to one new share for every thirty old shares and this exchange will take place automatically.
  2. RIO FORTE INVESTMENTS S.A.  (“Rio Forte”): Following the decision of the Luxembourg Appeal Court on 3 December 2014 rejecting Rio Forte’s application for controlled management, bankruptcy proceedings opened on 8 December 2014, and Alain Rukavina and Paul Laplume have been appointed as liquidators. The deadline for filing claims is 1 June 2015 (please click here for the official announcement and here to access the official website). If you require any assistance with filing claims, please contact Caroline Friederichs.

ICELANDIC UPDATE

The Kaupthing hf. Creditors’ Meeting was held on 22 April 2015 in Reykjavik. For further information click here to view the CWT client update.

  1. Judgments: The District Court of Reykjavik has passed judgment on the case of Dromi, an asset holding company established to manage assets of the savings bank SPRON, which lodged a priority claim for a total amount of EUR 226m under Art 113 of the Bankruptcy Act.  A settlement agreement was concluded on 24 November 2014 resulting in the EUR 240m and ISK 15m priority claim being fully and finally withdrawnEUR 240m which had been previously held in a custody account was therefore released to Kaupthing.
    1. Currency Controls: Since the last Creditors’ Meeting, the Prime Minister has indicated there will be more information forthcoming for a plan to implement the lifting of capital controls by the end of the parliamentary session (end of May).  The meeting highlighted that Iceland’s current economic situation is favourable for lifting the capital controls and the Minister of Finance has called 2015 a “year of action”.
    2. Taxes: Arion Bank has indicated that there could be a 35-40% exit tax on Icelandic Asset Distributions.  However, we note that there is still no substantive information provided to creditors in relation to any exit tax on distributions.

NEXT CREDITORS’ MEETINGS (REYKJAVÍK) 

Glitnir hf.:  8 September 2015

Kaupthing hf.: 21 October 2015