More food for thought in a post by John Armour on the Credit Slips blog.

I agree with the conclusion that:

"we're going to see a number of the highly leveraged buyouts that run into difficulty winding up in formal bankruptcy proceedings, after a workout has been attempted and failed".

And this may well lead to attempts to reform some European bankruptcy codes.

It will also promote and no doubt extend the migration concept (previously discussed here).

Moving a COMI (centre of main interests) to a jurisdiction where the insolvency regime is more suited to concluding a successful restructuring not only can be done, but can add huge value to the restructuring.

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Schefenacker PLC's creditors' meeting, which was due to have been held on Friday 30 March to cram down €200million of bondholder claims to a 5% equity stake through a Company Voluntary Arrangement, has been adjourned to 4 May, according to the company and as reported by Plastics Industry News. Modifications offering bondholders 15% of the equity and a total of €7.5m in cash will be put to the vote when the meeting reconvenes.

Speculation (see earlier post) that the original proposals, published on 9 February, did not offer enough for bondholders proved correct.

Full details of the modifications - particularly how far Dr Schefenacker, the original shareholder, will be diluted if the bondholders receive 15% - have yet to emerge, but it is clear that bondholders were prepared to risk losing everything in a liquidation rather than settle for 5%.

After a very difficult 6 months, is there light at the end of the Schefenacker tunnel? And is migration becoming a successful and accepted mechanism for restructuring distressed German companies?

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Debtors migrate but creditors forum shop.

Robert Hickmott and Alex Ballman write in Legal Week about how the trio of German cases:

• Deutsche Nickel


• Hans Brochier


• Schefenacker

It has been established through cases like Staubitz-Schreiber that debtors can move their COMI, and this facility was used in the Collins & Aikman restructuring and insolvencies.

But forum shopping, where creditors race to their court of choice, is what the European Insolvency Regulation sought to avoid.

With COMI now established as elsewhere than the place of a company's registered office only as a result of factors that are both objective and ascertainable by third parties, such cynical or opportunistic forum shopping by creditors is rightly deprecated.

There are many reasons why a debtor might choose to make use of an alternative insolvency regime by moving its COMI, such as:

• to give UK and US stakeholders comfort that a flexible and familiar (UK) restructuring environment will be available;


• to make use of Insolvenzgeld funding (Germany & Austria);


• to avoid Acquired Rights Directive/TUPE problems with employees (Netherlands);


• to enhance employee protection (France); or


• to use DIP financing (Sweden).

The Deutsche Nickel mechanism - conversion to a limited partnership and transfer of the assets and liabilities to the new general partner (in that case an English company) by universal succession - is a specific form of migration that nevertheless requires a COMI to be established in another jurisdiction.

Migration is the acceptable face of forum shopping, and we will see more of it!

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