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Editor's Note The fallout from Enron and Parmalat continues to find expression in legislative activities all over the world. The latest chapter in this saga is the proposed company law reforms now being introduced and debated in the UK. The Company Law Reform Bill is presented by its proponents as an attempt to codify the current law on directors' duties. It provides that a director must "act in the way he considers in good faith would be most likely to promote the success of the company for the benefit of its members as a whole." So far so good; a subjective test toughened up by the good faith element. But the Bill goes on to confuse matters completely with an objective test which is open to challenge by hindsight, and it is this aspect which can be laid squarely at the Enron/Parmalat door. The Bill requires directors to have regard to a shopping list of six factors, including the interests of employees, the need to foster business relationships with customers and suppliers, impact on the environment and on the community and the desirability of the company maintaining a reputation for high standards of business conduct. Consideration of these factors is mandatory and will inevitably add to the burdens of boards in the UK. Some might say "So be it", and it is hard not to sympathise with that view. Inevitably, however, boards will take whatever steps their legal advisers consider are needed to avoid challenge at some unspecified future time based on concepts which are new and whose meaning can at this point not be determined with sufficient certainty. Best practice will grow to include recording in appropriate detail every single board decision against the backdrop of the six factors. This will of course be a "real" exercise because that is what it has to be, requiring extra time both in the preparation and conduct of the meeting. This is the kind of legislation which does not sit well with the realities of running a company. It is however the unfortunate price we apparently all must pay for the dishonesty of the tiniest minority of directors. Sandy Shandro | |
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Cross-Border Challenges to Security in Europe? The PrimaCom Case One of Europe's most well-known fallouts over a second lien financing involving multiple lawsuits in Germany and the UK, recently came to an end with a settlement deal between PrimaCom, the cable television network operator, and its subordinate lenders. After the failure of a restructuring attempt the new supervisory board of the company decided to frustrate the UK and US based lenders' interests by initiating tactical torpedo-lawsuits in Germany. PrimaCom argued inter alia that the second secured facility would violate German usury laws and that the covenants package and the share option would render the claims equity replacing. This article considers the lessons learned, in particular the steps that can be taken against a debtor who is trying to frustrate its lender's rights with frivolous litigation. It further considers how to avoid such situations from the very beginning e.g. by drafting adequate jurisdiction clauses in international loan and security agreements. For the full article please click here. Lars Westpfahl, Partner |
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AMERICAS Second Circuit Revisits Role of International Comity Involving Foreign Proceedings JP Morgan Chase Bank v Altos Homos de Mexico - S.A. de C.V., 412 F.3rd 418 (2nd Cir. 2005) In this case, US Court of Appeals for the Second Circuit reaffirmed its long-standing rule, first set forth in Koreag, Controle et Revision S.A. v Refco F/X Assocs., Inc., [961 F.2d 341, 349-50 (2d Cir. 1992)] that US Courts do not owe comity to foreign bankruptcy proceedings in connection with disputes regarding the ownership of a foreign debtor's US assets. In so doing, the Second Circuit took the opportunity to explore the foundations of international comity and to explain the scope of the so-called "Koreag exception" to the general rule that US Courts should ordinarily decline to adjudicate creditor claims that are the subject of a foreign bankruptcy proceeding, so long as the foreign proceedings are procedurally fair and...do not contravene the laws or the public policy of the United States. For a detailed case note see White & Case Insolvency Notes, June 2006, Page 8. EUROPE, AFRICA & MIDDLE EAST Re Collins & Aikman Europe SA & Ors [2006] EWHC 1343 (Ch) In European Cross-Border Insolvencies Local Creditors' Rights will be Preserved Ten Companies incorporated in various European jurisdictions had been placed into administration in England as "main proceedings" under Article 3(1) of the EC Regulation. The administrators applied for directions to make distributions and payments to the creditors of the companies and, when doing so they should apply the priorities and rules of foreign law where the company in question was incorporated rather than English law. In particular, the administrators had given assurances to creditors at the outset of the administrations that their rights under the relevant foreign laws would be respected and wished to give effect to these assurances. The Court held that the administrators are permitted to implement the assurances which they earlier gave to the creditors and hence may protanto depart from the application of ordinary provisions of English law, the law of the main proceedings. The Court also held that it had jurisdiction to give such directions and in exercise of such discretion, directed the administrators. For a case note see 3/4 Digest, June 2006, P. 4 |
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ASIA & PACIFIC RIM Changes to the Australian Bankruptcy Act, 1966 The Bankruptcy Legislation Amendment ( Anti Avoidance) Bill 2005 which was passed by the Australian Senate came into effect on 31 March 2006. The new provisions amends the Bankruptcy Act, 1966 and in particular strengthen the provisions allowing the trustees of bankrupts to "clawback" property that has been deliberately disposed of by bankrupts at a time they were insolvent. For more details see note by Sally Nash, Sally Nash & Co., Sue in Hong Kong: Enforce in China On 14 July 2006, the Hong Kong and Mainland China governments signed an important agreement under which they agreed to recognise and enforce judgments made in each others courts. Legislative changes will be made in Hong Kong and in the Mainland in order to implement the provisions of this agreement. This agreement has important consequences for anyone doing business in the Mainland or with Mainland persons. If a commercial contract designates Hong Kong as the exclusive forum for resolving disputes arising from the contract, a judgment obtained in Hong Kong will be recognised and enforced in the Mainland if the judgment debtor has assets there. The reverse will also apply. For more details see a "Legal Update" from Deacons, Hong Kong.
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EUROPE, AFRICA & MIDDLE EAST Floating Company Charges.... New Possibilities in Denmark As of 1 January 2006, it has been possible for Danish enterprises to give security for loans in their inventories or claims as a floating charge, i.e, in current and future assets including claims. Before January 2006, it was not possible to give or take floating charges in Denmark and security could only be given in specific assets. Floating charges are already used in Norway, Sweden and Great Britain but they do not take quite the same form as the ones used in Denmark. This article looks at the types of available floating charges, its forms and use in practice. |
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This issue was kindly sponsored by:
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INSOL Contacts If you would like to send an article for inclusion in one of our forthcoming issues please contact our Technical Manager, Sonali Abeyratne at sonali@insol.ision.co.uk If you would like to introduce a new member to INSOL International please contact our Communications Manager, Penny Robertson at pennyr@insol.ision.co.uk |
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