Background and Summary
The English scheme of arrangement (“Scheme”) has found particular utility throughout the European Union (the “EU”) and internationally as a restructuring tool for both foreign and UK companies alike. Providing creditors with access to a court sanctioned compromise procedure (which can be used prior to formal insolvency), the Scheme has combined flexibility with a high degree of commercial and procedural certainty for all involved, including creditors.
However, there is the question of whether the appeal of the Scheme looks to be threatened by the outcome of the UK’s 2016 referendum to withdraw from the EU (“Brexit”). Departure from the EU will only occur in the spring of 2019 following two years of exit negotiations, but at this stage, the exact Brexit model remains distinctly unclear. This post shows that whilst Schemes will face challenges they should survive the impact of Brexit and maintain the UK’s position as a key restructuring jurisdiction.
Europe has been a hot bed of legislative reform in the R&I space since the GFC. This panel discussed where some of the key jurisdictions had ended up in this process, in some cases, making significant changes to allow greater flexibility of treatment and efficiencies of process. Led by Philip Hertz (Clifford Chance), Lucas Kortmann (RESOR), Angel Martin (KPMG) and Dr Leo Plank (Kirkland & Ellis) discussed processes available in the UK, the Netherlands, Spain and Germany and some impending changes.
The general picture conveyed was that huge strides have been made but, in many cases, much remains to be done. The Netherlands is to introduce a new Scheme-like procedure which will additionally incorporate features such as vertical as well as horizontal cramdown, and a light touch from the courts, which is therefore likely to be relatively cheap. Significant progress has been made in Spain and there are successful examples of restructurings using new procedures there. Whilst Germany made changes in 2012, they may not be sufficiently flexible requiring all debt, not only say financial debt, to be restructured and only available to insolvent companies. Hence, the line of significant German restructurings that have been effected through UK Schemes.