In light of the UK’s cram down and director-friendly processes, in particular its scheme of arrangement model, major European economies such as France, Germany and Italy have worked hard to develop regimes that give greater emphasis to pre-insolvency alternatives. These new regimes create cram down mechanisms and encourage debtor-in-possession (DIP) financings, ultimately aiming to make restructuring plans more accessible, more efficient, and crucially more reliable; essentially more in tune with the Anglo-American approach to insolvency and restructuring.
In Germany, a jurisdiction that has long been tied to a more formal insolvency process, restructuring solutions such as debt-equity-swaps and the cram down of junior creditor claims are now more prevalent features of the market. The debtor’s management is also able to file for a moratorium or debtor-in-possession process, giving it time and space to create an insolvency plan without having to fight actions from creditors or demands from shareholders. This is especially crucial in light of Germany’s still strict directors’ duties regime.
Italy’s reforms to its bankruptcy laws have been frequent and plentiful. Strengthening the ability to cram down creditors has been an important move for a jurisdiction that has hundreds of banks. Italy has new reforms in place to encourage the financing of distressed companies, although with the absence of a developed alternative finance sector, thanks to strict banking legislation, it remains a challenge to find lenders with an appetite for that kind of risk.
France’s own reforms have recently centred on accelerating the insolvency process by creating accelerated safeguard proceedings applicable to all of a debtor’s creditors, as opposed to accelerated financial safeguard proceedings that only apply to loan and bond creditors. Accelerated safeguard proceedings allow a debtor to restructure debts within a maximum of three months at a two-thirds majority of its bank, bond and trade creditors. As in other insolvency proceedings, the insolvency court will rule on objections by such creditors in its decision ruling on the plan. The introduction of shareholder cram-down is more of a paradigm shift similar to that in Spain, although it requires further evolution.
Europe’s major economies have come a long way in replicating the many characteristics that Anglo-American restructuring or insolvency practitioners and their clients take for granted. The key to the reforms however, is their consistent and predictable application by the courts and the country’s practitioners, a question of precedent building. On that level, we see the English and US systems as hard to compete with and we expect companies to continue to avail themselves of these established regimes.