1.
SCAVENGERS, WHITE KNIGHTS AND OTHER
OUTSIDE BIDDERS FOR DEBTOR’S ASSETS –
ARE THEY ENJOYING A LEVEL PLAYING FIELD
WITH INCUMBENTS?
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2.
HYPOTHETICAL
 Insolvent entity – business continued by Administrator
 Current owners are preparing a Plan of Reorganization
(“Sanierungsplan”) offering creditors 20%
 Outside bidder is interested in purchasing debtor’s enterprise as a whole
 If outside bidder was allowed due diligence, its offer would increase the
quota creditors receive compared to the pay-out under the Plan of
Reorganization
 Variant: Plan of Reorganization fails (e.g., due to inability to come up
with necessary cash portion). Therefore, current owners attempt a buy-
out through a “Auffanggesellschaft” (rescue SPV) which would result in
only a 10% quota
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3.
ISSUES
 How can outsider get a reasonable chance to succeed against
incumbents? In particular, how can outsider get access to information
about target?
 What are the risks of allowing outsiders to compete?
 What are creditors to do if they whish to trigger competition?
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4.
AUSTRIA: LAW AND STRUCTURE OF PROCEEDINGS
SLANTED IN FAVOUR OF INSIDERS
 Exclusivity for debtor to submit Plan of Reorganization
 Outside bidder has no access to company information and file of
insolvency proceeding
• Thus outside bidder may initially only stitch together rough indicative
bid (based on industry reports, and past financial statements and,
sometimes, own knowledge of sector)
 By contrast, management, and Administrator, and often current owners
have access to all information and do not need to conduct a due
diligence which facilitates Plan of Reorganization or buy-out
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Statutory Bias

5.
AUSTRIA: LAW AND STRUCTURE OF PROCEEDINGS
SLANTED IN FAVOUR OF INSIDERS
 Insolvency Administrator
• Due to collaboration with debtor’s management often psychological
bias in favour of insiders/incumbents
• Due diligence risks: outsider obtains valuable information about
debtor enterprise and may solicit key employees
• Thus risk of liability towards company (creditors) and maybe current
owners
• Comfort factor: if Administrator refuses due diligence, he has less
work (no need to set-up a data room, no need to manage a bidding
process).
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Institutional and Transactional Bias

6.
AUSTRIA: LAW AND STRUCTURE OF PROCEEDINGS
SLANTED IN FAVOUR OF INSIDERS
• BUT:
 Administrator has duty to preserve business and maximize quota
for creditors. Hence indicative offer may prompt Administrator to
allow due diligence and thus competition
 Administrator is bound to inform creditors committee of competing
offer(s)
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7.
AUSTRIA: LAW AND STRUCTURE OF PROCEEDINGS
SLANTED IN FAVOUR OF INSIDERS
 Creditors’ Committee, Creditor’s Meeting and Court
• Oftentimes mere rubber stamp for Administrator’s proposals
• Key motivation to side with insiders/incumbents and Administrator is
fear of
 damage to business (misuse of trade secrets, poaching of key
employees)
 withdrawal of Plan of Reorganization
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Institutional and Transactional Bias

8.
AUSTRIA: STRATEGY FOR OUTSIDE BIDDERS AND
CREDITORS
 Outside Bidders
• Send letter indicating interest
• Mention potential purchase price along with proof of funds
• Ask for due diligence
• Offer strict secrecy and non-exploitation terms, ideally with
liquidated damages provision
• Lobby stakeholders, in particular management, key employees,
unions, and creditors (via Administrator, Creditors Committee and
Court) by stressing advantages to business and creditors
• Always keep cooperation with insiders/incumbents in mind (e.g.,
participation of one or more current owners in bidding SPV)
• Maybe informal inquiries with Court
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9.
AUSTRIA: STRATEGY FOR OUTSIDE BIDDERS AND
CREDITORS
 Creditors
• Seek potential outside bidders
• Give as much information as possible to potential outside bidders to
facilitate assessment of target (but keep risks in mind)
• Assist outside bidders with their strategies (see points above)
• Eventually, request Court to refuse Plan of Reorganization or
buy-out by insiders/incumbents
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10.
OTHER JURISDICTIONS, IN PARTICULAR CEE
 Creditors may submit Plan of Reorganization (e.g., Serbia and Poland)
• Evaluate possible cooperation with qualified creditor
• Evaluate buying claims to be able to submit Plan of Reorganization
 Possibility of sale of shares in insolvent entity free of liabilities
(e.g., Serbia)
• Advantage, e.g., vital contracts stay in place
• Precondition is valuation of business resulting in indicator of fair
value/price
 Creditors Committee unusually weak (e.g., Poland and Bulgaria)
• Lobby Court, especially if Administrator is recalcitrant (Poland)
• Lobby major creditors with a view to achieve out-of-court settlement
(Bulgaria)
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11.
THANK YOU
FOR YOUR
ATTENTION
RA Dr. Christian Hoenig, LL.M.
Schubertring 6
1010 Vienna
Austria
T +43 1 515 10 5040
christian.hoenig@wolftheiss.com
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