Going for broke
26 February 2001
22 January 2001
15 January 2001
29 January 2001
31 January 2000
22 January 2001
While the UK economy is still buoyant, at least for the time being, the same has not been true in other corners of the globe. Depressed markets close to home and further afield have created work for insolvency practitioners on a range of mammoth and intricate deals over the last year. As an easy guide to what has happened in involvency work, The Lawyer has compiled a list of the top 10 insolvency and corporate recovery deals of 2000. The list is obviously subjective, but gives an indication of the big names to watch in 2001. The criteria used to determine the ratings are the value of the deal according to the size of indebtedness and the complexity according to information provided.
Guangdong Enterprises (Holdings) and Nam Yue Group restructuring
Value of debt: The restructuring covered approximately $6bn (£4.1bn) of public and private debt in total.
Complexity of dispute: Restructuring the indebtedness involved a massive corporate reorganisation and water company privatisation. Allen & Overy (A&O) was involved in the restructuring of bank indebtedness. More than 100 lawyers from A&O's banking, corporate, capital markets, litigation and property departments were involved over the project's duration. It was run from A&O's Hong Kong office and supported by seven of its other offices.
Unprecedented approvals were granted by the Chinese government, including the use of promissory notes as capital contribution.
The marathon restructuring is the largest in China. Its success has generated some new-found confidence in the Chinese market after a series of collapses in provincial and municipal People's Republic of China (PRC) government investment arms. The restructuring took two years to complete and closed on 22 December 2000.
Jurisdictions involved: Chinese, Hong Kong, English and US law.
Law firms and clients: A&O represented steering committees of 14 bank creditors of the Guangdong Enterprises group (Guangdong Group) and Nam Yue Group, which are the principal offshore investment vehicles of the Guangdong Provincial Government (GPG). The Standard Chartered Bank as liaison bank. Bayerische Hypo-und Vereinsbank and Rabobank led the steering committees. Lead partner: head of A&O's Asian business reconstruction group Mark Sterling. Team included: Mitchell Silk, head of A&O's Chinese banking practice; Moira Taylor, Vicki Liu and Simon Berry as consultants; Peter Mercer, senior associate.
Shearmans was international counsel to the GPG. Lead partner: Robert MacKinnon.
Richards Butler was Hong Kong counsel to the GPG. Lead partners: head of the banking group John McGuinness and corporate finance partner Christopher Williams. Team included: corporate partners Robin Nicholson and Graham Winter; insol
vency litigation partners David Morrison and Jonathan Green; capital markets partners Gordon Stewart and Nola Beirne.
Linklaters & Alliance (separately behind Chinese walls) acted for lead arranger ICEA and lenders and Goldman Sachs. Lead partners: Andrew Carmichael and Peter Treacy.
To achieve the restructuring, the monopoly water supplier to Hong Kong, the Dongshen Water Project, was controversially privatised by the GPG and transferred to a PRC-incorporated special purpose vehicle. Revenue from the water project will be used primarily to repay new debt.
The $600m (£413.3m) financing for the water project was incurred by the PRC company. $1.8bn (£1.24bn) of debt was issued by the PRC company and 19 per cent of the equity in the privatised water venture was issued to existing creditors of the Guangdong and Nam Yue groups. Three-hundred companies were involved in a corporate reorganisation. Assets in the Guangdong and Nam Yue groups were transferred to new companies, which in turn issued equity and debt to creditors and equity to companies controlled by the GPG.
The corporate reorganisation of the Guangdong and Nam Yue groups was structured from an asset transfer and insolvency perspective to limit the risk of challenges to the restructuring by non-participating creditors.
Creditor entitlements to the restructuring consideration were pooled and calculated according to aggregate exposure. A dispute resolution procedure was set up for contingent and disputed claims not resolved prior to the closing of the restructuring. In parallel, Richards Butler worked on the restructuring of bank indebtedness of Guangdong Investment (listed on the Hong Kong Stock Exchange) into which the privatised water company was injected. The whole deal is expected to be a benchmark for future Chinese and Hong Kong restructurings.
(See The Lawyer Deals, 22 January, and The Lawyer, 29 January)
Ionica scheme of arrangement
Value of debt: $350m (£241m) in bonds, plus £25m of secured bank finance, plus £85m of intercompany debt.
Complexity of dispute: A settlement agreement was entered into to release Ionica and its parent company Micadant (formerly Ionica Group) from various third-party claims and claims against each other. A term of the agreement was that it be bedded down in Section 425 of the Companies Act scheme of arrangement (the scheme). Given the drafting of the bonds, the application of New York law to the company and the application of English law to the administration, it had to be determined who the creditors were. Accordingly, Cadwalader Wickersham & Taft established a dual voting system for both the bondholders and the indenture trustee to cover the two main groups of potential creditors under the applicable legislation.
The scheme was notable for several reasons. Representing a compromise between the company and creditors, the scheme was exceptional in that it released a third party from creditor claims. Creditors of Ionica released parent company Micadant from claims, as well as Ionica itself. The court considered that it had jurisdiction to sanction such an arrangement as it was part of the scheme between Ionica and its creditors. Third-party releases are now possible under schemes of arrangement according to the authority of this case.
It is also believed to be one of the first schemes of arrangement to involve the adjustment of bondholder rights in relation to telecoms. An indication was given by the case as to how the courts will view the application of such schemes to new world companies and bondholder right adjustments.
Jurisdictions involved: US and English law.
Law firms and clients: Cadwalader acted for the bondholders and, when Ionica became insolvent, also acted for the joint administrators in the scheme of arrangement. The administrators were Neville Barry Khan, Christopher John Hughes (later replaced by Anthony John Kett), all then partners at PricewaterhouseCoopers (PwC) and Gareth Howard Hughes of Ernst & Young. Lead partners: head of financial restructuring and corporate department Andrew Wilkinson, assisted by Yvette Croucher and senior associate Richard Gregorian, both from the financial restructuring department.
Berwin Leighton advised Micadant. Lead partner: Banking and capital markets partner Mark Palley. Team included: corporate partner Anthony Grossman.
Linklaters acted for the joint administrators on all other aspects other than the scheme. Lead partner: Tony Bugg. Team included: senior assistant Rebecca Jarvis and assistant Paul Bromfield.
Ionica was a provider of fixed telephony services over a fixed radio access network. It became insolvent when it failed to meet the conditions of its revolving credit facility with syndicate banks and Micadant refused further funding. An administration order was obtained in 1998.
Cadwalader initially acted for the bondholders of Ionica on the bond issues during 1992-97.
A third administrator independent from PwC was appointed after representations by the Ionica bondholders as PwC had advised on a business plan to attract new investment and on contingency insolvency plans.
The scheme of arrangement became effective on 27 November 2000.
Value of debt: £500m total bank debt.
Complexity of dispute: The restructuring of the Slovakian steel manufacturer involved local legal and political issues and a diversification of the VSZ group into two separate businesses from more than 100 interlinked companies. There were also 49 creditor financial institutions and ongoing litigation. The assets used in the steel manufacturing business were consolidated into one company by a variety of transfers in different jurisdictions.
The group indebtedness was consolidated through a number of complex transactions, including debt purchase agreements and bond transfers for repayment of the remainder by VSZ.
Jurisdictions involved: Cross-border deal; UK bank debt involved; Slovakian law; US purchaser in acquisition of Slovakian steel company VSZ.
Law firms and clients: Linklaters acted for VSZ with Deutsche Bank as financial adviser. Lead partner at Linklaters: Jo Windsor, banking. Team included: banking assistants Richard Bussell, Bruce Bell and Gavin McLean; litigation partner Andrew Legg and assistant Eleni Pavlopoulos.
A&O acted for the creditor banks. Lead partner: Gordon Stewart. Team included: fellow banking partner Richard de Basto assisting Stewart; associates Katrina Buckley, Karl Clowry and Robert Westwater.
Weil Gotshal & Manges' London and Prague offices advised US Steel which was the purchaser of VSZ.
The largest Slovak restructuring ever, state-owned Slovakian steel manufacturer VSZ was restructured over a two-year period and eventually sold to US Steel. The $500m (£344.4m) acquisition saved VSZ, the main contributor to the Slovakian gross domestic product, and gave the law firms involved a big footprint in cross-border insolvency work. It closed in November 2000.
(See The Lawyer, 22 January)
Independent Energy insolvency
Value of debt: Group debt of more than £170m (after market capitalisation of £1.3bn about six months earlier).
Complexity of dispute: This was the first insolvency of a second-tier electricity and gas supplier since the UK energy deregulation. Complications also arose over the breach caused by Independent Energy's failure to carry on business. The electricity supply by regional energy providers to about 450,000 end-users continued even though Independent Energy should have supplied these providers. Questions arose as to liability for the supply.
Another aspect of the deal was that the main business of Independent Energy was sold out of receivership to Innogy, the demerged UK part of National Power. The receivers were not willing to continue trading and incur vast debts. A deal was therefore concluded within 48 hours, with Innogy making it liable to take up supply costs and the running of the business as an agent of Independent Energy in receivership. Innogy would then negotiate new terms with its suppliers and customers.
There was no arrangement under the electricity legislation enabling the regulater Ofgem to require other suppliers to take on customers of the company in receivership.
Other sales are ongoing. The receivership occurred in September 2000.
Jurisdictions involved: English law (including energy regime).
Law firms and clients: A&O advised receivers KPMG. Lead partner: Francis Bridgeman. Team included: banking partner Nick Segal supporting Bridgeman; assistants Amanda Hamilton-Stanley, Jennifer Marshall, Carolyn Conner, Sebastian Speight and Richard Birks. The sale to Innogy alone involved 25 lawyers across several departments.
Linklaters advised Innogy. Lead partner: Robert Elliott.
Herbert Smith represented the regional electricity companies in meetings with the receivers, Innogy and Ofgem.
(See The Lawyer, 18 September 2000)
Value of debt Approximately $1.5bn (£1bn).
Complexity of dispute The first major successful restructuring of a Russian bank. Uneximbank, one of Russia's major banks, defaulted on repayments after the August 1998 Russian debt moratorium. Difficulties were inherent for A&O, which was acting for an informal steering committee that had not been formally mandated by the creditors. The deal closed on 3 July 2000.
Jurisdictions involved: English, Russian, US, Luxembourg, Dutch, German, Cyprus and Swiss law.
Law firms and clients A&O advised the informal steering committee of Western financial creditors of Uneximbank. The European Bank for Reconstruction and Development (EBRD) and Citibank were the leading players among these creditors. Lead partners: Nick Segal and Francis Bridgeman. Team included: Moscow partner Trina Mashlenko; Luxembourg partner Marc Fieder.
Hogan & Hartson advised Uneximbank and its affiliate Rosbank.
Mayer Brown & Platt represented a steering committee of bondholders.
Indocement Tunggal Prakarsa Tbk restructuring
Value of debt $1.164bn (£801.8m).
Complexity of dispute: Believed to be one of the largest restructurings for an Indonesian debtor since the 1997 economic crisis. The transaction involved the merger of three corporate entities, including a joint venture company with proj
ect financing. Parallel sets of restructuring terms were set up in the alternate events that a strategic investor did or did not acquire debt and equity stakes. A legal device was included to permit the restructuring to proceed without the investor and to switch to different terms if the investment was made.
Jurisdictions involved: Indonesian and Singapore law.
Law firms and clients: A&O advised Bank of America as chairman of the steering committee of creditors to Indocement Tunggal Prakarsa (Indocement). Lead partner: Singapore partner John Richards. Team included: partner Moira Taylor (before moving to Hong Kong) and senior associate Honor Irvine.
Ali Budiardjo Nugroho Reksodiputro was the Indonesian legal adviser to the Bank of America as chairman to the steering committee. Partners: Theo Bakker and Emir Nurmanayah.
Shook Link & Bok was the Singapore legal adviser to Bank of America as chairman to the steering committee. Partner: Tan Lai Huat.
Baker & McKenzie was international legal adviser to Indocement. Lead partner: Paul Elliott.
Hadiputranto Hadinato & Partners was retained as Indonesian legal adviser to Indocement. Partner: Melli Darsa.
Indocement was a leading cement producer in Indonesia. The restructuring involved $1.164bn (£801.8m) of Indocement's debt and that of its subsidiary, Indo Kodeco Cement. The restructuring completed on 6 December 2000.
(See The Lawyer, 15 January 2001)
Crystal Palace FC (1986) administration
Value of debt: £10m with £4.5m of that owed to Juventus FC and Strasbourg FC.
Complexity of dispute: Complexities of the case involved Football League insolvency protocol and whether Juventus and Strasbourg qualified as football creditors under the protocol. Protracted negotiations between the Football League and FIFA, UEFA and the Football Association. Murray Rosen QC of 11 Stone Buildings was instructed by Hammond Suddards Edge to advise on potential anti-competition issues and whether the protocol breached European competition legislation.
Jurisdictions involved: English, Swiss, French and Italian laws.
Law firms and clients: Denton Wilde Sapte acted for football club administrators Moore Stephens Booth White. Lead partner: Mark Andrews. Team included: insolvency partner Richard Scopes; litigation partner Rachel Anthony; property partner Mark Menhennet.
Hammonds acted for the Football League. Lead partner: business finance and recovery partner Andrew Visintin, assisted by Peter Millichip.
The Football League must approve all administrations for football share transfers to be permitted. An agreement could not be reached between the relevant parties and all the assets of Crystal Palace FC were sold in administration.
Hammonds has also redrafted the insolvency protocol for the Football League to address the issues raised by the administration. The administration closed in July 2000.
Value of debt: Bank debt exceeded £70m, plus debt owed to Ford Motor Company of approximately £12m.
Complexity of dispute: Work involved acting for the administrative receivers of 30 UK Transtec group companies and automotive industry-specific issues. Litigation also arose from a dispute between Ford and the Transtec receivers.
The receivers, who kept the business going while looking for a buyer, sought elevated prices for Transtec parts, which were in short supply by Ford. Ford sought the appointment of provisional liquidators in a High Court hearing, which was held to be an abuse of court process. The receivers were held to have acted properly and the case established the ability of receivers to exploit commercial advantages in the interests of creditors. Judgment was given in the litigation on 31 March 2000 and the deal completed in May 2000.
Jurisdictions involved: English, US, Spanish and Australian law.
Law firms and clients: Dentons acted for Transtec receivers Arthur Andersen in selling more than 20 businesses. Lead partner: deputy chairman Mark Andrews. Team included: six specialist insolvency partners worked on the deal, including head of workouts Graham Paine, litigation partner Rachel Anthony and banking partner Richard Scopes; senior banking finance associate Michael Rutstein.
Lovells represented Ford. Lead partner: Nick Froome. Team included: insolvency partners Robin Spencer, Deborah Gregory and Cary Kochberg.
Value of debt: Approximately £360m UK bank debt.
Complexity of dispute: 17 syndicated lenders involved in the receivership.
Jurisdictions involved: French and English law.
Law firms and clients: Ashurst Morris Crisp acted for the syndicated banks and receiver Ernst & Young; Alan Bloom, Andrew Woollaston and William Tacon on instruction from the lender banks. Key people: head of Ashursts' banking and capital markets department Nigel Ward and Paris partners Jonathan Nabarro and Simon Thrower.
Linklaters acted for the Royal Bank of Scotland, which was one of the syndicated banks with separate legal representation, as it was providing overdraft facilities to Finelist. Lead partners: Tony Bugg and senior associate Chris Howard.
CMS Cameron Mc-Kenna advised the receivers on potential conflict matters with the lending banks. Gide Loyrette Nouel represented Autodis' interests.
The restructuring arose after the acquisition of Finelist (UK automotive spare parts company) by Autodis (French automotive company) in spring 2000. Receivers were called in after the discovery of Finelist's cashflow problems in October 2000. Ashursts had acted for the lending banks during the acquisition.
Iaxis corporate voluntary arrangement
Value of debt: $240m-270m (£165.3m-186m) comprising $120m (£82.65m) debt owed to Iaxis NV, the parent company of the debtor Iaxis company.
Complexity of dispute: The sum of $40m (£27.55m), which was returned to the creditors, is believed to be one of the largest creditor distributions through a corporate voluntary arrangement (CVA). A three-way deal was agreed between Iaxis, Iaxis NV and purchaser Dynergy (US company).
Jurisdictions involved: French, German, Swiss, English, US and Isle of Man law.
Law firms and clients: Clifford Chance was retained by Iaxis. Lead partner: Adrian Cohen. Team included: assisstants John MacLennan and Anne Buckingham.
Dentons acted for Steven Pearson and Tony Lomas of PwC, the administrators of Iaxis. Lead partner: Howard Morris. Team included: Nigel Barnett and Rachel Anthony, partners and insolvency lawyers in Dentons' overseas offices and Denton International Group.
Iaxis group companies own a fibre network in various jurisdictions and provide bandwidth capacity to internet service providers. Clifford Chance was initially instructed on restructuring Iaxis, and later brought in PwC on the administration. The CVA was approved on 15 December 2000.