Recent Developments

Global—On 1 March 2013, the U.S. Court of Appeals for the Second Circuit issued an order in NML v. The Republic of Argentina, No. 12-105(L) (2d Cir. Mar. 1, 2013). The order directed the Republic of Argentina, on or before March 29, 2013, to submit in writing to the court the precise terms of any alternative payment formula and schedule for repaying defaulted bond debt as well as exchange bonds to which it is prepared to commit in lieu of the ratable payment formula ordered by the U.S. district court in its ruling of November 21, 2012. Specifically, the court order requires Argentina to indicate: (i) how and when it proposes to make current those debt obligations on the original bonds that have gone unpaid over the last 11 years; (ii) the rate at which it proposes to repay debt obligations on the original bonds going forward; and (iii) what assurances, if any, it can provide that the official government action necessary to implement its proposal will be taken, and the timetable for such action.

On 26 March 2013, the Second Circuit denied Argentina's request for a rehearing of the court's 26 October 2012 ruling (NML Capital, Ltd. v. Republic of Argentina, 699 F.3d 246 (2d Cir. 2012)) upholding a district court order enjoining Argentina from making payments on restructured defaulted debt without making comparable payments to bondholders who did not participate in the restructuring.  Argentina had argued that the Second Circuit ruling of 26 October  will make voluntary debt restructuring by sovereign nations "essentially impossible".

Spain—The capital structure of the Asset Management Company for Assets Arising from the Spanish Bank Restructuring ("SAREB") established in late November 2012 by the Fund for Orderly Bank Restructuring (Fondo de Restructuración Ordenada Bancaria ("FROB")) in connection with the Spanish banking sector recapitalization and restructuring process has been completed. SAREB was created as a limited liability stock company for a term not to exceed 15 years. It is governed by the provisions of Law 9/2012 of 14 November 2012 on Restructuring and Resolution of Credit Entities ("Law 9/2012"), by the Royal Decree 1559/2012 of 15 November 2012, which established the Legal System for Asset Management Companies, and by other private law regulations.

The exclusive purpose of SAREB is ownership, management and administration (whether directly or indirectly) as well as the acquisition and sale of distressed assets which have been transferred to it by: (i) financial institutions that required public assistance from FROB when Royal Decree-Law 24/2012 on Restructuring and Resolution of Credit Entities (now repealed by Law 9/2012) entered into force; and (ii) institutions that require public funds, according to the Bank of Spain's judgment and independent analysis of the capital needs and quality of the assets of the Spanish financial system (carried out within the framework of the Memorandum of Understanding on Financial-Sector Policy Conditionality executed by Spanish and European authorities on 20 July 2012).

SAREB will be managing total assets of more than €50 billion after acquiring the assets of Group 1 entities (i.e., banks that have already been nationalized: Bankia, Catalunya Bank, NCG Banco-Banco Gallego and Banco de Valencia) for approximately €36.7 billion and the assets of Group 2 entities (i.e., banks that require public capital: BMN, Liberbank, Caja3 and CEISS) for approximately €14 billion, all according to parameters defined by restructuring plans approved by the European Commission on 28 November 2012.

Germany—On 3 January 2013, the German Ministry of Justice circulated draft legislation that would establish procedures governing the coordination of insolvency proceedings of affiliated companies. Existing German law does not provide for a joint approach to such insolvencies, but is instead structured to accommodate companies on an individual basis. Under current law, an insolvency petition must be filed in the court of the district where the centre of a group member's economic activity is located. This often results in the involvement of multiple insolvency courts and the appointment of multiple officeholders to administer the insolvency proceedings of group members. As a result, it is frequently difficult to achieve the best results for stakeholders in cases where corporate functions serving the whole group have been allocated to a single group member before insolvency proceedings, or where similar dependencies exist among group members. Close cooperation of group members following the filing of an insolvency petition may not be possible if different courts and officeholders are involved, although such cooperation may be desirable for economic reasons. The proposed legislation is intended to change this, consistent with broader EU legislative activity promoting closer cooperation between courts and officeholders in insolvency proceedings of group companies carrying on economic activity in different member states.

The German ministry's proposed legislation provides for a single insolvency court to have jurisdiction over all the members of the group. Which particular court shall have such jurisdiction depends on a number of factors, including: (i) a finding by the court that the petitioning group member is of sufficient significance to the group to warrant commencement of joint proceedings in the district where the centre of that group member's economic activity is located; and (ii) the interests of creditors. The court presiding over joint proceedings may generally appoint a single insolvency administrator for all group members. The court may also appoint a joint creditors' committee. However, each group member's insolvency proceeding will be administered separately—the draft legislation does not provide for the substantive consolidation of group members' estates. In cases involving the appointment of multiple insolvency administrators, the court may appoint a coordinating administrator to harmonize the joint proceedings, including by means of a joint insolvency plan. Finally, in cases involving multiple insolvency courts and officeholders administering the proceedings of group members, the courts and officeholders would be obligated to exchange relevant information and to cooperate generally.