Has nothing changed (yet) after all? England seems to remain the financial restructuring hub in Europe

Before 2021, companies from all over the world have frequently and routinely made use of English insolvency and restructuring laws to deal with their financial troubles. For companies in EU Member States, access to English law company voluntary arrangements or schemes of arrangement was predictable and recognition at home was secured under applicable EU Regulations. As EU law ceased to apply in 2021, the question arose whether this disruption and the resulting legal uncertainty would effectively limit the use of English procedures by EU-based companies. This question loomed even larger as EU Member States had begun to improve their laws and saw their own “schemes” come into effect in 2021, most prominently in the Netherlands and Germany, following the implementation of the 2019 Insolvency and Restructuring Directive. The curious case of the German Adler Real Estate Group indicates that the disruption caused by the Brexit has done little damage to the comfort of foreign companies and their legal advisors in making use of English procedures to day.

The Adler group consists of companies registered in Germany and deals with the purchase, management and development of residential real estate in Germany. Facing financial difficulties, Adler approached its main financial creditors, bondholders under six issues of notes with maturity dates ranging from 2024 to 2029, with a proposal to amend and extend these notes in order to allow for the orderly winding-up of the group. After the consent solicitation pursuant to German bond law, the law governing these notes, failed in December 2022, Adler considered procedural options to bind dissenting minority noteholders under the laws of several jurisdictions, including the English Restructuring Plan (Part 26A of the Companies Act 2006), the Dutch WHOA restructuring plan and the German StaRUG restructuring plan. All of these options offer the restructuring tools needed by Adler. All three allow for the selection of financial creditors to be affected by the plan only, for the formation of creditor classes and class voting, and for the ability to cram down the plan against a dissenting creditor class. They require similar thresholds for the majority required in a class for plan acceptance (75 or 66 per cent). All of these court proceedings avoid the formal insolvency of the company debtor and promise to conclude within a couple of months.

Compared to the English option, the ability of a German StaRUG restructuring plan to modify German law governed notes was certain while the access to and the recognition of a Dutch scheme was potentially secured under EU laws. The post-Brexit recognition of an English restructuring plan in Germany, however, remains an issue yet to be tested in German courts.

The residual legal uncertainty regarding post-Brexit recognition did not hinder Adler to select the English option in December 2022. In order to secure the jurisdiction of English courts and to facilitate recognition in Germany, the group incorporated an English subsidiary (AGPS BondCo PLC) which immediately substituted the German Adler group entity (in accordance with the terms of the notes) as principal debtor in respect of the notes. The High Court accepted jurisdiction and granted permission to convene to vote on the plan in February 2023 before sanctioning the plan in April 2023 despite the fact that the class of 2029 noteholders failed to reach the requisite statutory majority when only a numerical majority of 62 per cent voted to accept the plan.

The Adler case gives proof to the fact that the professional and time-sensitive handling of a restructuring case in a manner predictable to the parties, as demonstrated in numerous cases by the High Court, remains the decisive factor in large scale financial restructurings and continues to favour the English restructuring option. Law reforms in Germany, the Netherlands and other EU countries may have closed a gap in legislation. The ability of their courts to handle new local scheme proceedings in a predictable fashion similar to English courts is, however, yet to be firmly established. It might take a landmark case or two in Germany or the Netherlands to establish a level of confidence for German or Dutch restructuring advisors to comfortably use options at home. Interestingly, such a landmark case is currently pending in a German court where the automotive supplier LEONI has presented a StaRUG plan to restructure almost 800m EUR of non-sustainable debt while wiping out equity. If successful, the market perception of the reliability of the new StaRUG options in Germany might improve significantly in the coming weeks. The competition with English restructuring options has only just begun.

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By Prof. Dr. Stephan Madaus, Professor of Civil Law, Civil Procedure and Insolvency Law at the Martin Luther University Halle-Wittenberg.

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