EuroResource--Deals and Debt
For the benefit of our clients and friends investing in European distressed opportunities, our European Network is sharing some current developments.
Recent Developments
US, UK and Canada—On 6 December 2013, a three-judge panel of the US Court of Appeals for the Third Circuit declined to compel arbitration between divisions of Nortel Networks Corp. ("Nortel") and their creditors in a battle over the division of US$7.5 billion in liquidation proceeds of the defunct Canadian telecom company, ruling that the agreement at the heart of the dispute does not require arbitration. In Nortel Networks Inc. v. Joint Adm'rs for Nortel Networks UK Ltd., No. 13-2739, 2013 BL 339861 (3d Cir. Dec. 6, 2013), the panel affirmed a bankruptcy court ruling rejecting a request by the UK division of Nortel to prevent the US court from deciding the dispute over the company's asset allocation. After Nortel filed for bankruptcy protection, its subsidiaries agreed to sell their assets and executed an agreement deferring the allocation of the proceeds. According to the Third Circuit panel, the absence of any express use of the word "arbitration" in that agreement demonstrated that there was no intent to use arbitration as a means of resolving disputes. The administrators of Nortel's UK division argued that the parties agreed to arbitration because the contract used the term "dispute resolver." However, the Third Circuit panel concluded that the term could encompass many things, including arbitrators, mediators or the courts. The panel also rejected the UK administrators' contention that the bankruptcy court authorised arbitration when it approved the agreement. A joint trial to resolve the allocation dispute is scheduled to commence before the Ontario Superior Court of Justice and the US Bankruptcy Court on 14 May 2014.
On 17 December 2013, Nortel's US division announced that it has reached a "milestone" deal with European creditors and representatives of British pensioners settling some of the "costly and contentious litigation" that has been tying up the division of Nortel's liquidation proceeds. The settlement ends disputes over how much European creditors and representatives of British retirees are owed by Nortel US. If approved by the US Bankruptcy Court, the settlement would allow Nortel US to resolve nearly US$2 billion in claims. The joint US–Canadian trial may be abbreviated as a consequence of the settlement.
The Netherlands—The Bonus Clawback Act will become effective on 1 January 2014. The Upper House of the Dutch Parliament recently adopted the "Clawback of Bonuses Act" (the "Act"). As of 1 January 2014 (without any transition period), the Act empowers a company's supervisory board or other governing body to adjust any bonus awarded to a director as part of his or her remuneration, but not yet paid, to an amount that is considered appropriate if the board later deems it unreasonable under the circumstances. The competent body may also claw back a bonus awarded and paid to a director for a period of five years after it has become known that such bonus was awarded based on inaccurate information. In addition, the Act requires that listed companies in merger and takeover situations, or with respect to which a decision has been made to fundamentally alter the company's identity, withhold from a director's remuneration any increase in the value of shares and options during a statutory window period starting prior to the announcement of, and ending after, the determining event. The new rules apply to all public limited liability companies ("NVs"), listed or unlisted, including nonfinancial undertakings, as well as all financial undertakings. They apply to directors of NVs and day-to-day policymakers of financial undertakings. The rules do not necessarily grant new powers to the supervisory board but provide a clearer framework for the board to act. Shareholders asserting that the rules are not being properly applied may take legal action to enforce them.
Germany—The Local Court (Amtsgericht) of Charlottenburg delayed confirmation of the insolvency plan of German book publishing house Suhrkamp Verlag GmbH & Co. KG ("Suhrkamp") to mid-January 2014. Suhrkamp's insolvency plan, pursuant to which the company will be transformed into a German stock corporation, cannot become effective until confirmation. Suhrkamp's minority shareholder had previously obtained a preliminary injunction from the Local Court of Frankfurt prohibiting the majority shareholder from voting on the plan. In granting the provisional relief, the Local Court held that the majority shareholder violated its duty of loyalty by initiating the insolvency proceedings with the sole intention of depriving the minority shareholder of certain rights. The Higher Regional Court (Oberlandesgericht) of Frankfurt thereafter vacated the Local Court's order, freeing the majority shareholder to vote on the plan. According to the Higher Regional Court, the Frankfurt Local Court overstepped its authority when it interfered with an insolvency proceeding pending in another court by enjoining a party from voting. Suhrkamp's insolvency has launched lively discussions among German legal experts regarding the relationship between German corporate and insolvency law. The ability to effect a change in corporate form by means of an insolvency plan has been part of German law only since 1 March 2012, when the German Insolvency Code (Insolvenzordnung) was amended comprehensively by the ESUG (Gesetz zur weiteren Erleichterung der Sanierung von Unternehmen).
European Union—The European Securities and Markets Authority ("ESMA") issued guidelines on 12 November 2013 clarifying the definition of "acting in concert" in takeover situations. In accordance with the EU Takeover Directive (directive 2004/25/EC) (TBD), individual EU Member States have adopted national rules requiring any investor who, as a result of its acquisition or the acquisition by persons "acting in concert" with such investor, holds securities of an issuer that directly or indirectly give the acquirer a certain percentage of voting rights (and therefore control), to tender an offer for the target's remaining securities as a means of protecting the target's minority shareholders. Due to the ambiguous wording of the "acting in concert" rule and the perceived risk of having to make such a mandatory bid, international investors have been reluctant to cooperate on any governance matters. On 12 November 2013, ESMA, after consulting with the European Commission and members of the Takeover Bid Network, published a "White List" that identifies various collaborative activities among shareholders that should not be deemed to trigger an "acting in concert" mandatory bid. Such activities include: board consultation, exercising statutory rights (e.g., convening shareholders' meetings, tabling resolutions and placing items on the agenda of shareholders' meetings) and exercising voting rights on certain matters (other than in relation to the appointment of board members). Although the ESMA's guidance is helpful, it remains to be seen how the regulatory bodies of individual EU Member States will apply the White List guidelines to particular facts in specific cases. The White List does not identify or "safe harbor" specific activities relating to cooperation with respect to board appointments due to the different approaches adopted by the EU Member States, but it does include guidance on the assessment of such activities by the national authorities.
Spain—Effective 1 December 2013, Royal Decree Law 14/2013 of 29 November 2013 ("RDL 14/2013") clarifies the priority of credits transferred by Spain's "bad bank" SAREB (Sociedad de Gestión de Activos procedentes de la Reestructuración Bancaria) to third parties. RDL 14/2013 amends section h of article 36.4 of Act 9/2012 of 14 November 2012, which governs the restructuring and resolution of financial institutions, to provide that credits acquired by a third party from SAREB will not be subordinated to the claims of other creditors in any bankruptcy proceeding of the borrower, unless: (i) the credit was designated as subordinated prior to being transferred by SAREB; or (ii) at the time of the transfer, the transferee was an insider of the borrower or otherwise satisfied the conditions for subordination of the credit set forth in articles 92.5 and 93 of the Insolvency Act.
Newsworthy
Jones Day is representing the City of Detroit, Michigan, in connection with the largest bankruptcy filing ever undertaken by a US city. In a landmark decision handed down on 3 December 2013 (with a written opinion issued on 5 December 2013), US Bankruptcy Judge Steven W. Rhodes ruled that Detroit is eligible to be a debtor under chapter 9 of the US Bankruptcy Code. Among other things, Judge Rhodes concluded that Detroit, once the fourth largest city in the US and the cradle of the US auto industry, is insolvent. Detroit has approximately US$18 billion in long-term liabilities, including US$3.5 billion in unfunded pension obligations. The judge overruled objections to Detroit's chapter 9 petition by unions, pension funds and retirees, which, like other creditors, stand to have their claims impaired under any plan of adjustment. Notably, Judge Rhodes made it clear that public employee pensions are not provided with any "heightened protection" under chapter 9 because the Michigan Constitution treats such obligations as contractual obligations; bankruptcy permits impairment of contractual obligations. The judge cautioned, however, that the court would be careful before approving any cuts in monthly payments to retirees. The ruling was immediately appealed by Detroit's unions and certain other union creditors.
Jones Day advised long-standing client France Telecom (Orange), a leading global telecommunications company, in connection with the US$1.435 billion (€1.1 billion) sale of 100 percent of Orange Dominicana S.A., France Telecom's subsidiary in the Dominican Republic, to Altice, a multinational cable and telecommunications company. The business being sold was established in 2000 and is now a leading telecommunication operator in the Dominican Republic, one of the largest and most dynamic economies in the Caribbean, with an estimated population of more than 10 million. The transaction was the result of an auction process with multiple bidders.
Jones Day is advising Vista Desarrollo, S.A., S.C.R. in connection with the €400 million (US$540 million) sale of 100 percent of Laboratorios Indas, S.A., a Spain-based manufacturer of hygienic-sanitary products, to Domtar Corporation. Closing of the transaction is expected by year-end 2013, subject to customary closing conditions, including the notification required by the Spanish antitrust authorities.
Jones Day counseled UK real estate investment trust LondonMetric Property PLC ("LondonMetric") in connection with a joint venture with BRAVO Strategies II LLC for the £175 million (US$286.5 million) acquisition of a portfolio of 27 DFS commercial properties from the administrators of Delphi Properties Limited. The portfolio is to be acquired by a new joint venture that LondonMetric has formed with Luxembourg-based LVS II Lux X S.a r.l. called LMP Retail Warehouse JV Property Unit Trust.
