Topic: Restructuring

Welcome to our second quarter issue of Norton Rose Fulbright's International Restructuring Newswire.

The chapter 11 case of SAS, Scandinavia’s national airline, considered the applicability of Alternative A of the Cape Town Convention and its Aircraft Protocol to United States bankruptcy proceedings for the first time.

HMRC has published long-awaited guidance on when it will offer support to companies looking to restructure their debts.

On 21 June 2023, the District Court of Amsterdam (the WHOA Court) granted its judgment in one of the largest public proceedings under the WHOA (also known as the ‘Dutch Scheme’) in the restructuring of Steinhoff International Holdings N.V. (Steinhoff), a multinational company active in the sale of housekeeping goods and other related goods.

After three banks in the United States and Europe collapsed earlier in the year, financial regulators in other jurisdictions have been left wondering what they can do to protect their financial institutions from suffering similar fates. In Australia, the Australian Prudential Regulation Authority (APRA) is empowered to appoint a ‘statutory manager’ to distressed financial institutions to restabilise them and, in turn, protect Australia’s financial stability.

A statutory manager is someone appointed by APRA under the Banking Act 1959 (Cth) and/or the Insurance Act 1973 (Cth) to take temporary control of a troubled financial institution. Control is granted over the entire operation of the financial institution, including its assets and liabilities, for the purpose of protecting the interests of depositors where there is serious concern about the financial viability of the financial institution. When appointed, the statutory manager is able to:

1. conduct investigations into the financial institution’s affairs to assess its financial health, risk management practices, and compliance with regulatory requirements;
2. restructure the financial institution or initiate winding-up procedures; or
3. impose specific requirements to address identified problems with the financial institution and mitigate the risk of future distress.

APRA is then able to assess the extent of financial damage and design an appropriate solution. The regime would only come into effect in extraordinary circumstances and as a measure of last resort for financial institutions experiencing acute financial distress. 

What financial institutions does this power apply to?

APRA can appoint a statutory manager to authorised deposit taking institutions (including banks and superannuation firms) and insurance companies. APRA can exercise the statutory manager power if it considers the entity may become unable to meet its obligations, has suspended payments or likely will be unable to carry on banking business in Australia consistently with the interests of its depositors or with the stability of the Australia financial system. Generally, this would happen if APRA has no confidence in the board and management’s ability to resolve the crisis satisfactorily, or where the board and management are mismanaging the entity, including where the entity is insolvent or near insolvent.  

Foreign financial institutions play a large role in Australia, providing a range of important services such as corporate lending and trade finance. For this reason foreign financial institutions are, to a limited extent, subject to APRA’s statutory manager power. APRA is able to exercise control over Australian assets and liabilities of a foreign regulated body with a local branch office. This means APRA could easily prevent transfer of capital from Australia, revoke the body's authorisation or wind up the branch. 

Has this happened before?

We do not know what the statutory manager power would look like in practice, as the regime has not been tested with any of Australia’s banks to date. This reflects the long period of financial stability that Australia has enjoyed. 

In the case of insurers (where APRA holds similar powers), the Court has only appointed a judicial manager on APRA’s application on two occasions in 2009 and 2010. In both instances, APRA appointed managers over small general insurers which were both wound up after they had been deemed as insolvent. 

Are there any other jurisdictions with these sort of powers?

The global financial crisis in 2007 taught us that when complex financial institutions enter distress, there will be severe economic consequences if the problems are not swiftly addressed and comprehensively resolved. Despite this, economic systems globally exposed their vulnerability to such problems in March 2023, following the collapse of sophisticated banking enterprises. Jurisdictions other than Australia have contemplated equipping regulators with crisis management toolkits such as the one wielded by APRA.

If such measures are implemented globally, their efficacy may come into question in cross-border contexts. This will require cooperation between relevant authorities to ensure powers are applied in an effective and coordinated manner. This may prove difficult when different levels of power are conferred in different jurisdictions, meaning powers applied in one jurisdiction will not be recognised in others. This may lead to uncertainty for relevant stakeholders and a greater risk of disorderly outcomes – all issues which must be worked through and managed.

In the latest development in the long running Galapagos litigation, the English High Court held, in July 2023, that the 2019 restructuring was valid.

Earlier this year the English High Court held that a charge granted by a company (Avanti) was properly characterised as a fixed charge (as opposed to a floating charge), despite Avanti retaining a degree of control to dispose of the charged assets. The decision is the first major ruling on how to characterise fixed and floating charges since the leading House of Lords’ case, Re Spectrum Plus . It marks an evolution in the law by moving away from a rigid analysis that suggested only total control over a charged asset by a security holder would constitute a fixed charge.

The current headwinds facing businesses in the global economy have led to an increase in client queries on cross border restructuring solutions. Those businesses that understand the options available to them will have the advantage when it comes to navigating economic challenges. In response, we have updated our interactive cross border restructuring guide to provide a general overview of restructuring and insolvency frameworks across more than 20 jurisdictions.

The US Bankruptcy Code provides significant advantages to businesses looking to restructure their financial affairs, liquidate assets, and administer claims.

In this blog, our Dutch team examines the recent WHOA restructuring of Royal IHC (the Company) where they played a leading role advising the dissenting secured lender. This was a landmark restructuring and one of the largest WHOA cases to date. It was also the first WHOA proceeding involving a syndicate of lenders. The entire WHOA proceeding was completed in an expedited timeline of less than three months.