For the benefit of our clients and friends investing in European distressed opportunities, our European Network is sharing some current developments.
Global—On 1 November 2013, in a summary order without explanation, a three-judge panel of the US Court of Appeals for the Second Circuit refused to lift a stay of execution, pending possible en banc or US Supreme Court review, of its 23 August 2013 ruling upholding a lower court's order directing Argentina to pay holdout bondholders US$1.33 billion. The request to lift the stay was made on 15 October 2013 by holdout bondholders led by hedge funds NML Capital Ltd, a unit of Elliott Management Corp., and Aurelius Capital Management LP. On 18 November 2013, the Second Circuit rejected Argentina's request that a larger panel of circuit judges reconsider its 23 August 2013 ruling. The court also denied requests by groups holding restructured bonds to reconsider the case. On 7 October 2013, the Supreme Court had denied Argentina's seemingly premature petition for the court to review a non-final 2012 ruling by the Second Circuit (NML Capital, Ltd. v. Republic of Argentina, 699 F.3d 246 (2d Cir. 2012)) upholding a lower court's orders barring Argentina from paying holders of debt restructured in 2005 and 2010 without also paying holdout bondholders in full but remanding to the trial court on the issue of implementation of the remedy. The US Supreme Court is expected to have the opportunity to review another appeal from Argentina in coming months.
The EU—The scope of what constitutes winding-up proceedings in the EU has been broadened by a decision of the European Union Court of Justice ("EUCJ"). The ruling—LBI hf v Kepler Capital Markets SA  EUECJ C-85/12 (24 October 2013)—will make it more difficult for creditors to bring enforcement actions, as companies may be adjudged to be protected sooner by winding-up proceedings, and in some cases moratoria on creditor action may be retroactive. In LBI, there was a court-ordered moratorium on legal proceedings over certain Icelandic credit institutions. Following a change of law, those companies were then deemed to be in winding-up proceedings by virtue of the fact that they were subject to the moratorium. The EUCJ has previously held that these winding-up proceedings fall within the 4 April 2001 Directive on the reorganisation and winding-up of credit institutions (2001/24/EC) (the "Directive"), and so are recognised across the EU (and the European Economic Area). The EUCJ also held that the Icelandic moratorium had retroactive effect, effectively blocking an enforcement action begun in France against one Icelandic institution before the moratorium was granted.
The decision contradicts a ruling by the English High Court on the same point in which the High Court held that winding-up proceedings would not be recognised under the Directive unless there was an actual winding-up order issued by the Icelandic court. By its ruling in LBI, the EUCJ appears to be broadly construing legislation in an attempt to ensure that the assets of distressed credit institutions throughout the EU are dealt with by the law of the home member state of the institution.