Phoenix Companies - directors’ re-use of company names permitted

Section 216 of the Insolvency Act 1986 restricts the use by a Phoenix company or successor business of a similar name or trading style to that of a company in insolvent liquidation as reported in an earlier post.

Any director of the insolvent company who is involved in managing the successor, unless he has leave of the court and subject to the exceptions in rules 4.228 to 4.230 Insolvency Rules 1986, is both liable to criminal prosecution and personally liable (under s217) for the debts of the successor.

The first exception - when notice is given to creditors (rule 4.228) was found wanting by the Court of Appeal in Churchill & Churchill v First Independent Factors and Finance Ltd ([2006] EWCA Civ 1623).

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Serbian bankruptcy law

Winning the Eurovision Song Contest was only one of Serbia’s European achievements last weekend. They also hosted INSOL Europe’s 3rd Accessing Countries Committee conference, as reported by Economy, the Serbian business news website.

An abridged version of a paper on Serbia’s bankruptcy law developments by Jelena Marjanovic, winner of the 2006 Richard Turton Award, is available here (as published in Eurofenix, INSOL Europe’s quarterly journal).

Serbia has the advantage of having developed its bankruptcy law since 2000, incorporating many of the best bits of other insolvency regimes around the world. Making good use of that law is a work in progress.

Vorläufiger Insolvenzverwalter - EuInsVO Art. 1(1)

Does the appointment of a schwacher vorläufiger Insolvenzverwalter (a “weak” preliminary administrator) under German law normally entail the partial or total divestment of the debtor as set out in Article 1(1) of the European Insolvency Regulation?

I had understood from various German sources that it did not, and that therefore such an appointment would not normally constitute insolvency proceedings under the Regulation. Moreover, this is not an uncommon English view.

In Hans Brochier Ltd vs Exner ([2006] EWHC 2594 (Ch)), Warren J found, although the point was not argued, that
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Is now the time to grow an insolvency practice?

Leading US insolvency lawyer Richard Levin moving from Skadden Arps to Cravath has generated some chatter (see the Wall Street Journal post here).

Gerry Riskin’s post Does Cravath have an ace up its sleeve? caught my eye, suggesting the time is right for Cravath to start a new insolvency practice, but it seems predicated on a more pessimistic view of economic performance than currently fashionable to the east of the Atlantic.

I say the fashionistas should remember where the weather comes from - what say you?

European Insolvency Procedures

For a current guide to insolvency procedures in nine major European jurisdictions, try Clifford Chance’s European Insolvency Procedures (2007 Edition).

A reasonably heavyweight (68 pages) briefing note, it is a useful and digestible reference guide (in English) to procedures in:

  • England & Wales
  • France
  • Luxembourg
  • Belgium
  • Germany
  • Spain
  • The Netherlands
  • Poland

The note includes an introduction on the European Insolvency Regulation and a brief comparative analysis of insolvency and restructuring trends in Europe.

Covenant lite debt bubble fuels private equity

The New York Times DealBook blog reports a Boston Globe article interviewing private equity firms TA Associates and Thomas H. Lee Partners (thanks again to Bob Eisenbach for flagging this here). The article reinforces the view we expressed in an earlier post that lax credit standards could magnify default rates in an economic downturn.

A private equity investor borrowed at 2.25 per cent over LIBOR. When the target investment defaults, the investor can “toggle” its loan repayments into “payments in kind”, borrowing more from the lender (at a 0.5 per cent interest premium) to make loan repayments. No real penalty for loan default then - hence, “covenant lite”!

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Powerhouse CVA dispute victory

Yesterday’s judgement in the Powerhouse company voluntary arrangement (CVA) dispute has been hailed as a victory for landlords, but in reality will lead to landlords seeking greater security from tenants.

Reported in The Times and Citywire, the High Court decision (Etherton J) in fact held that parent company guarantees can effectively be avoided through a CVA, provided the value of the guarantee is recognised in the proposal. In other words, guaranteed creditors must get a better deal than ordinary unsecured creditors.

Whilst the landlords’ advisers, Addleshaw Goddard and Lovells, are keen to emphasise the judge’s ruling against “guarantee stripping”, a well-crafted and balanced CVA remains a powerful tool for managing minority creditors’ claims.

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Schefenacker refinancing agreed

Schefenacker reports that its bondholders have agreed today, at a company voluntary arrangement meeting, to take:

  • EUR 7.5 million cash;
  • 5% of the equity; and
  • warrants that could raise the equity to 15%.

The shareholder, Dr Alfred Schefenacker, retains 25% of the equity but has contributed:

  • EUR 20 million of new money;
  • his personal equity in the Engelmann subsidiary; and
  • the cancellation of EUR 100 million of shareholder loans.

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Debt risk rising in private equity

The credit that is fuelling leveraged buyouts and other private equity deals may become tomorrow’s problem, according to a recent post by Bob Eisenbach. The US Bankruptcy lawyer draws on articles in the Financial Times and the Guardian (courtesy of a New York Times blog).

Sub-prime mortgage lenders are suffering in the US just now and commentators are drawing parallels to suggest that lax credit standards in the corporate arena could magnify default rates in an economic downturn. The problems will be exacerbated by investors who have chased returns and moved towards more illiquid hedge and buyout funds.

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European insolvency news - Eurofenix

Eurofenix is INSOL Europe’s quarterly journal.

Like insolvency-blog.com(!), it is essential reading for all insolvency practitioners, distressed investors and other relevant professionals who are interested in European insolvency and restructuring. I declare an interest as Eurofenix’s editor, so to read the Winter 2007 issue and form your own view, click here.

If you like it, use this form to become a subscriber and receive your personal copy each quarter.