Recent Developments
Global
On 29 March 2013, the Republic of Argentina proposed an
alternative payment formula to the U.S. Court of Appeals for the
Second Circuit that, if accepted, would allow Argentina to resolve
litigation with creditors holding defaulted bonds. The proposal was
filed in response to a 1 March 2013 order of the court. The order
directed Argentina to submit in writing to the court the precise
terms of any alternative payment formula and schedule for repaying
defaulted bond debt as well as exchange bonds to which it is
prepared to commit in lieu of the ratable payment formula ordered
by the U.S. district court in its ruling of 21 November 2012. That
ruling, which was appealed to the Second Circuit, required
Argentina to pay $1.3 billion to holdout bondholders no later than
15 December 2012.
Argentina proposed to offer holdout bondholders a choice of bonds
equal to the debt's value at the time of the country's 2002
default or discount bonds, the same terms offered to bondholders
during a 2010 debt restructuring. Holdout bondholders, who are
seeking full payment immediately, previously rejected this offer.
Moreover, the par-value option would be limited to investors
holding less than $50,000 in face value bonds, effectively meaning
that the hedge fund plaintiffs involved in the litigation could be
compensated under Argentina's proposal only by taking a big cut
to their possible recovery.
On 2 April 2013, the Second Circuit directed holdout bondholders to
submit a response to Argentina's latest proposal no later than
22 April. Bondholders rejected the proposal on 19 April, paving the
way for the Second Circuit to issue a ruling on the merits of the
underlying dispute.
Global—On 16 April 2013, the U.S. Court of
Appeals for the Second Circuit ruled, in a matter of first
impression, that a foreign debtor's "center of main
interests" ("COMI") for the purpose of determining
whether its foreign bankruptcy proceeding should be recognized
under chapter 15 of the U.S. Bankruptcy Code must be determined
based on the debtor's "activities at or around the time
the Chapter 15 petition is filed," rather than on the
commencement date of the foreign proceeding. In Morning Mist Holdings Ltd. v. Krys (In re
Fairfield Sentry Ltd.), No. 11-4376, 2013 BL 102426 (2d
Cir. 16 Apr. 2013), the court also held that the "public
policy exception" to relief under chapter 15, which is based
on UNCITRAL's Model Law on Cross-Border Insolvency (the
"Model Law"), is to be narrowly construed, and that
restricted access to documents in a debtor's British Virgin
Islands liquidation proceeding "is no basis on which to hold
that recognition of the BVI liquidation is manifestly contrary to
U.S. public policy."
However, the Second Circuit cautioned, "given the EU
Regulation [Council Regulation (EC) No 1346/2000 of 29 May 2000]
and other international interpretations, which focus on the
regularity and ascertainability of a debtor's COMI, a court may
consider the period between the commencement of the foreign
insolvency proceeding and the filing of the Chapter 15 petition to
ensure that a debtor has not manipulated its COMI in bad
faith." Factors that may be considered in determining COMI,
the court explained, "are not limited and may include the
debtor's liquidation activities."
By its ruling, the Second Circuit resolved a split among lower courts in the circuit on the issue and aligned itself with the approach taken by the Fifth Circuit Court of Appeals in In re Ran, 607 F.3d 1017 (5th Cir. 2010). This approach has been criticized as an invitation to bad-faith "COMI manipulation" or forum shopping by corporate debtors seeking to liquidate in countries that have favorable laws but have little or no connection to their pre-filing activities. In fact, an UNCITRAL working group considering various proposed changes to the Model Law adopted a proposal in 2012 to amend the Model Law to clarify, among other things, that the date of commencement of a foreign insolvency proceeding should be used to determine both COMI and the related concept "establishment."
The UK and France—The English Court (Chancery Division) has again considered the problem created for French companies that are parties to litigation outside France by French Law No 68-678 of 26 July 1968 (the "Law"). The Law prohibits the communication or disclosure (and possibly even the search for) documents or information of an economic, commercial, industrial, financial or technical nature for use as evidence in foreign judicial or administrative proceedings without an order of the French Court. Breach of the Law is a criminal offence exposing the company and individuals to up to six months' imprisonment and/or a fine. In National Grid Electricity v. ABB and Others, [2013] EWHC 822 (Ch), 11 April 2013, the English Court considered whether to order disclosure of documentary evidence for the purpose of establishing damages in litigation commenced by National Grid against various companies for breach of European competition rules.
The court decided to order disclosure. The judge considered it
virtually inconceivable that, where another European court had
assumed jurisdiction over a French company in accordance with the
Brussels Regulation in order to determine a claim for damages
alleged to result from an established and serious violation of a
fundamental provision of EU law, the public authorities of France
would, in the exercise of their discretion, institute criminal
proceedings against that company for complying with the procedural
rules of the Member State where the proceedings had been brought.
This was particularly so where the proceedings served an objective
of EU policy. Follow this
link for a more detailed description of the case.
Cyprus—On 18 April 2013, the Cypriot
House of Representatives approved a number of tax law changes as
part of the agreement concluded with the European Stability
Mechanism and the International Monetary Fund for up to €10
billion in financial assistance to Cyprus over the next three
years. The changes include: (i) an increase in the tax on corporate
profits from 10 percent to 12.5 percent, retroactive to 1 January
2013; (ii) an increase in the "special defence
contribution" on interest income earned by Cyprus tax
residents from 15 percent to 30 percent, subject to certain
exceptions, effective upon publication of the legislation in the
Government Gazette; (iii) an increase in the special levy imposed
on credit institutions operating in Cyprus from .11 percent to .15
percent of total deposits, retroactive to 1 January 2013; (iv)
regular increases in the consumption tax rates; and (v) a freeze in
promotions for public sector employees.
Newsworthy
Jones Day was named as one of the six "best movers and
shakers," the top tier among firms making waves as innovators,
in the 2013 "BTI Brand Elite: Client Perceptions of the
Best-Branded Law Firms" report issued by The BTI Consulting
Group. The report is based upon the recommendations of general
counsel at some of the world's largest companies, who
recognized six firms that have adopted innovative techniques and
targeted them to their clients' wants and needs as those that
are shaking up the legal market.
Jones Day is advising the German Federal Agency for Financial
Market Stabilization, which manages the German Financial Market
Stabilization Fund ("SoFFin"), in connection with the
contemplated €2.5 billion rights offering of Commerzbank, the
second-largest German bank. In support of the transaction, SoFFin
intends to exercise its subscription rights in full and, in
proportion to its 25 percent stake in Commerzbank, to contribute
silent participations for shares. It is also intended that a
consortium of banks under the lead of Deutsche Bank, Citi and HSBC
will place Commerzbank shares held by SoFFin with investors at the
beginning of the subscription period. SoFFin will thereby
participate in the capital increase without investing new capital,
and its holdings in Commerzbank are expected to decrease to below
20 percent.
Jones Day advised Barcelona, Spain-based Softonic International
S.L. ("Softonic International"), a Grupo Intercom
subsidiary, in connection with the merger of Softonic International
with its majority shareholder, Intershare S.L., to create Softonic,
a global multiplatform software guide that allows users to explore,
download and manage software applications on multiple devices in
more than 10 different languages. Through a catalogue of more than
160,000 software titles for desktop and mobile operating systems,
Softonic connects more than 140 million monthly users with a
diverse portfolio of software and applications distributors.
Softonic is a global top-40 internet business and the clear market
leader in its segment today. Softonic is valued at €275
million (US$360 million). Global private markets investment manager
Partners Group took a 30 percent stake in the merged entity for
€82.5 million (US$110 million). Jones Day advised Softonic in
connection with the merger and represented both Softonic and its
shareholders in connection with the negotiations with Partners
Group.
Jones Day is advising Mitsui Chemicals in connection with its
€450 million (US$578 million) acquisition of the dental
business of Heraeus. The transaction, which is subject to customary
closing conditions such as the approvals of the merger authorities,
is expected to close by the end of June 2013. Mitsui Chemicals is a
Japanese publicly traded chemical company with 13,000 employees
worldwide. Heraeus, based in Hanau near Frankfurt am Main, Germany,
is a globally active precious metal and technology group that also
employs approximately 13,000 employees around the globe.
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