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9 January 2013
In light of the Enron collapse, there has been a massive focus on insolvency procedure both in Europe and the US. The interest has been consolidated by PricewaterhouseCoopers' warning that more European energy companies could follow. The argument given is that traditional European utilities lack the sophisticated trading skills needed to cope with the volatile price movements caused by the European energy market's liberalisation. So while insolvency lawyers are gearing up for the predicted onslaught, they may do well to consider the impact of the EU legislation which comes into force at the end of May.
The new regulations will delineate one jurisdiction for the main insolvency proceedings based on the corporate's main seat of business. This will increase the efficiency of the process and eliminate the dogfight that can erupt when there are a number of courts in a number of countries all vying for supremacy.
But floating charge lenders could find themselves in a tricky situation. Although it should be possible to identify where the mainstay of business is at the time of investment, it will not necessarily be possible to predict the mainstay of business in the future. This means that they will not be able to guarantee their creditor status in the event of insolvency as they can presently.
This is likely to have an impact on lawyers. Insolvency has long been a cross-border discipline, but there will be more need for pan-European capability following the introduction of the new regulations. Indeed, there are a number of firms in the UK with good domestic insolvency practices that may find themselves challenged to deliver a seamless European service. Clifford Chance is on pretty safe ground here, as are Freshfields Bruckhaus Deringer and Linklaters, although the latter two are traditionally stronger in restructuring than in insolvency. Allen & Overy may find it has more to prove on the Continent. It has the international network, but its German practice is still very much finance-focused, despite efforts to build up corporate. Complicated insolvency is dependent on public and private M&A, which means that capital markets and knowledge of the stock exchange rules is not enough. Litigation is also important, given that most European insolvency is court-driven.
Denton Wilde Sapte has a strong domestic insolvency practice, and although it has a visible presence in Eastern Europe and Asia, it may lack the requisite strength for Western Europe. CMS Cameron McKenna is in a stronger position. Its German partner CMS Hasche Sigle Eschenlohr Peltzer is one of the only big German firms with a strong administration practice. Future Italian partner Adonnino Ascoli & Cavasola Scamoni and French ally Bureau Francis Lefebvre are both full service, although the latter is known mainly for tax. What it will do in Spain, the Netherlands and Scandinavia, though, is still unclear.
The other firms with strong administration practices in Germany are White & Case Feddersen and DLA's German ally Görg. In Europe, it tends to be boutique firms that run the administrators, although most firms with a strong corporate practice can advise the creditors.
In the last year, Latham & Watkins has pulled off mergers in France and Germany and has strong corporate practices in both. It has links in Spain, Italy and the Netherlands and would do well to consolidate relationships there in the near future.
In the UK Bingham Dana and Cadwalader Wickersham & Taft have built up respected insolvency and restructuring practices on the backs of their relationships with bondholders. Neither has a European network, but their argument is that, because bondholders are generally unsecured creditors, the insolvency's allocated jurisdiction is less consequential. Already they have a network giving local advice which will not change.
Not everyone, though, would agree with their argument, and the market perception is that it is becoming increasingly important to be able to provide local law on insolvency for all lenders in all jurisdictions.
The forthcoming Enterprise Bill is expected to water down the powers of the floating charge holders and move the UK procedure one step further away from the US and one step closer to Europe. Insolvency is just one more discipline to add to the list of reasons to sort out that international network. The message is loud and clear: if you cannot think global, at least think Europe.