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

France—Beginning 1 November 2014, certain small and mid-size French companies are obligated under Law No. 2014-856 (Loi sur l'Economie Sociale et Solidaire) of 31 July 2014 to give their employees at least two months' prior notice of any anticipated change of control or sale of the employer's business. The purpose of Law No. 2014-856, entitled "law regarding the social and solidarity economy," is to give employees an opportunity to make a competing offer for the company's shares or business. The new measure applies to all companies with fewer than 50 employees and certain companies with between 50 and 249 employees, depending on certain turnover and balance sheet tests, but it does not apply to companies subject to conciliation proceedings or formal insolvency proceedings. Any failure to comply with the new notification requirement can result in invalidation of the sale transaction.

The Netherlands—In August 2014, the Dutch legislature circulated a proposed bill that would introduce UK-style "schemes of arrangement" to Dutch restructuring law, a radical departure from existing procedures. The proposed bill follows the introduction of a pre-packaged insolvency mechanism in 2013. Acknowledging that the nation lacks a flexible corporate rescue procedure, the Dutch legislature has proposed legislation that would make schemes of arrangements patterned on UK law possible for distressed Dutch companies but under rules that could make such schemes even faster than their English counterparts. Under existing Dutch law, it is nearly impossible to alter the capital structure of a company without the unanimous approval of all debt and equity holders. The draft bill introduces rules that would bind dissenting creditors to a restructuring proposal under certain circumstances. In addition, under the proposed legislation, security rights granted to lenders that provide emergency financing during the period between introduction of a proposed scheme and the date the court decides whether to approve the scheme will no longer be subject to challenge (or annulment) by any trustee who is thereafter appointed to oversee the company's winding-up. The public consultation process for the draft bill commenced in August, and the legislation may be amended before it is implemented. Implementation is expected to take place on 1 January 2016.

Italy—On 12 September 2014, the Italian Council of Ministries enacted Law Decree No. 133 (Sblocca Italia (the "Law Decree")), which implements a series of measures designed to promote the Italian real estate market. In particular, the Law Decree, which entered into force on 13 September 2014, introduces: (i) several amendments to the current regime applicable to listed real estate investment companies; and (ii) deregulation of commercial property leases.

The amendments to the current regime applicable to listed real estate investment companies (Società di Investimento Immobiliari Quotate or "SIIQs"), the Italian equivalent of real estate investment trusts (REITs), are intended to encourage investment in these vehicles. The principal provisions in the Law Decree affecting SIIQs include: (i) revised requirements to qualify as a SIIQ; (ii) the introduction of less stringent investment management criteria; and (iii) harmonization of the tax regime applicable to SIIQs and Italian real estate investment funds, with the goal of eliminating the disparity between the tax regime applicable to SIIQs and the regime applicable to Italian real estate investment funds.

The Law Decree also deregulates commercial property leases with an annual rent greater than €150,000, which exceeds the threshold established under Law No. 392 of 27 July 1978. The goal of the amendment is to make Italian property lease agreements more attractive by implementing regulations with flexibility similar to that found in the laws of other EU member states. A detailed discussion of the Law Decree is available here.

Global—Argentina on 30 October 2014 defaulted on its sovereign debt for the second time since July when it failed to make a coupon payment on US$5.4 billion in par bonds issued under foreign law, thus increasing the risk of acceleration and economic collapse. Although Argentina had already defaulted in July on its discount notes, holders of the now defaulted par bonds are more likely to accelerate their debt because it is trading at a steeper discount to original value. If the debt is accelerated, Argentina could be obligated to pay investors US$30 billion immediately—US$2 billion more than the South American nation holds in its national reserves. In the aftermath of the default, Fitch Ratings downgraded Argentina's par bonds from C to D. Shortly after the default was announced, Argentine Cabinet Chief Jorge Capitanich told reporters that, in lieu of accelerating, bondholders should take legal action against US District Judge Thomas P. Griesa, who blocked debt payments when he ruled in favour of holdout bondholders.

On 4 November 2014, Argentina appealed to the US Court of Appeals for the Second Circuit Judge Griesa's 3 October 2014 order finding the South American nation in contempt of court for taking steps to evade his prior orders preventing Argentina from making payments on restructured debt without also paying holdout bondholders. Argentina filed a notice of appeal of the contempt ruling, in which Judge Griesa held that Argentina's moves to strip the Bank of New York Mellon Corp. ("BNY Mellon") as the trustee for the bonds and Argentina's plans to pay exchange bondholders locally without any recognition of the country's obligation to its holdout bondholders are unlawful and must not be carried out.

On 27 October 2014, Judge Griesa denied a request by a group of Argentina's creditors to access US$539 million in funds in the custody of BNY Mellon to satisfy money judgments against Argentina. Judge Griesa ruled that the creditors cannot have access to the funds, which were earmarked to make payments to Argentina's exchange bondholders, because the funds are located outside the US. Judge Griesa held that the Foreign Sovereign Immunities Act ("FSIA") does not authorize the attachment or execution of sovereign property outside of the US. BNY Mellon has held the money in its accounts at Banco Central de la Republica Argentina since Judge Griesa ordered the bank to do so on 6 August 2014, stating that BNY Mellon would suffer no liability as a consequence. BNY Mellon had urged Judge Griesa to deny access to the funds, contending that Argentina has no interest in the money being held. In his 27 October 2014 ruling, Judge Griesa wrote that "even if plaintiffs show that the Republic has an interest in the funds, which the court does not reach, turnover would not be authorized by the FSIA."

On 6 November 2014, the English High Court of Justice, Chancery Division, made two rulings in litigation commenced by a group of investors holding euro-denominated bonds (the "Euroholders") issued by Argentina pursuant to its 2005 and 2010 exchange offers.  In Euroholders Knighthead Master Fund LP v. The Bank of New York Mellon (2014), Claim No. HC-2014-00070, Mr. Justice Newey adjourned until mid-December 2014 the Euroholders' application for declarations in respect of their interest in funds held by BNY Mellon and with regard to the alleged irrelevance of the injunction issued by Judge Griesa to BNY Mellon's payment obligations, pending notice to the holdout bondholders involved in the US litigation, and to give the holdout bondholders an opportunity to intervene in the UK action.  In addition, Mr. Justice Newey declined the Euroholders' application for an injunction restraining BNY Mellon from disbursing the funds to parties other than the Euroholders.


Andrés Lorrio has joined Jones Day's Madrid Office as a partner in the Banking & Finance Practice. Mr. Lorrio focuses his practice on advising international clients in a wide range of banking and finance transactions, including structured finance, projects and capital markets. He is recognized as one of the leading lawyers in Spain on derivatives. He also advises on insolvency and distressed/defaulted debt transactions and acts regularly in financial litigation and dispute resolution matters.

On 23 October 2014, Jones Day client Texas Keystone Inc. ("Texas Keystone") secured a landmark English High Court litigation funding decision. Following the English Commercial Court's December 2013 decision to dismiss all claims asserted by Excalibur Ventures LLC ("Excalibur") against Texas Keystone, Gulf Keystone Petroleum Limited, Gulf Keystone Petroleum International Limited and Gulf Keystone Petroleum (UK) Limited (the "Defendants"), the High Court reached a landmark decision as to whether the third-party funders who funded the litigation should be jointly and severally liable to pay the Defendants' costs of the action (which amount to more than £20 million) on an indemnity basis. Jones Day advised Texas Keystone throughout the legal proceedings.

In a decision that carries major ramifications for the burgeoning litigation funding industry in the UK and overseas, Lord Justice Christopher Clarke found against each of Excalibur's funders and ordered that they were jointly and severally liable to pay the Defendants' costs of the action on an indemnity basis. This typically allows for recovery of around 85 percent of incurred costs rather than the standard 65–70 percent. It was held to be no defence that the funders themselves took no active part in the conduct of the litigation. In a new legal development, the Court also found that providing funds solely to enable a claimant to meet an order for security for costs rather than to finance its own case did not absolve a third-party funder from being subject to an indemnity costs order against it.

Jones Day is representing STERIS Corporation ("STERIS") in connection with its recommended offer to acquire Synergy Health plc ("Synergy") in a cash and stock transaction valued at approximately US$1.9 billion. STERIS is a major provider of infection prevention and other procedural products and services, focused primarily on health care, medical devices, pharmaceuticals and research. STERIS has established New STERIS, which is incorporated in England and Wales, to undertake the transaction. Following completion of the combination, New STERIS will become the holding company of Synergy (by way of a court-approved scheme of arrangement) and STERIS (by way of a merger governed by Ohio law). New STERIS is expected to have a combined revenue of approximately US$2.6 billion and employ approximately 14,000 people throughout its operations in more than 60 countries around the world.

Jones Day represented Kortrijk, Belgium-based Barco NV ("Barco") in connection with the sale of its Defense & Aerospace division to US-based Esterline Corporation for €150 million (US$200 million). Barco's Defense & Aerospace division encompasses activities in defense, avionics, air traffic control, training and simulation. It has offices in the US, Asia and Europe and employs 600 employees.

Jones Day is representing the City of Detroit, Michigan, which on 7 October 2014 obtained confirmation of a chapter 9 plan of adjustment, effectively ending the largest bankruptcy case ever filed by a US city. The comprehensive restructuring plan confirmed by US Bankruptcy Court Judge Steven Rhodes eliminates more than US$7 billion in debt while rehabilitating crippled city services. Ruling from the bench, Judge Rhodes concluded that the plan satisfies the chapter 9 plan confirmation requirements and can be feasibly implemented by city and state officials. The plan, which is supported by nearly all of Detroit's financial stakeholders, pays pensioners more than bondholders, frees up US$1.7 billion to reinvest in essential services and keeps the city's rare art collection safe from creditors. Two California cities, Stockton and San Bernardino, have each spent more than two years under court protection, whereas Detroit, a city of approximately 690,000, took only 16 months to complete its restructuring.

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