This document discusses international and cross-border turnarounds. It notes that insolvency is generally value destructive, while consensual restructuring through negotiation preserves more value and is usually quicker. Key issues in international turnarounds include different insolvency laws between countries, stakeholder leverage and recovery percentages, and operational challenges. Forum shopping can occur to gain leverage advantages, though regulatory structures aim for cooperation over harmonization.

1. International and
Cross Border Turnarounds
Deborah Midanek – Solon, USA
Alan Tilley -- BM&T, London

2. The Turnaround
Crisis Management
Stabilisation
Recovery
Underperformance
Distress
Crisis
Zone of Insolvency
Insolvency
Performance(liquidity)
Time

3. The Fundamental Truth
Insolvency in all jurisdictions is enterprise value destructive and fee
intensive
It is a legal process and should be a last resort when creditors cannot
compromise through negotiation
Consensual restructuring preserves more goodwill and usually is quicker
and less fee intensive.
It can often be achieved by leveraging solutions off the threat of
insolvency and reduced recoveries for creditors

4. The Fundamental Truth
© 2012 Bryan, Mansell & Tilley LLP
Insolvency – with secured creditors
Admin Fees – 100%
Secured Creditors
100%
Unsecured creditors
40%
Equity – 0%
Claims on the estate Enterprise Value
Value Break

5. The Fundamental Truth
To be negotiated:
Write offs?
Redistributions?
What leverage?
Claims on the estate Enterprise Value
Consensual Restructuring in a turnaround

6. The Fundamental Truth
Restructuring Costs
Lenders
Trade
Equity
50
Claims on the estate Enterprise Value
Consensual Restructuring – Higher Enterprise Value

7. The Fundamental Truth
Restructuring Costs
Lenders
Trade
Equity
Claims on the estate Enterprise Value
Consensual Restructuring – Separate Lenders & Trade

8. The Fundamental Truth
Restructuring Costs
Lenders
Trade
New Equity - Lenders
Old Equity
50
Claims on the estate Enterprise Value
Consensual Restructuring – Debt Equity Swap example

9. Prerequisites for a successful
turnaround
Viable core business
Available short term liquidity
Credible management team
Fundable business plan

10. Key International and Cross Border Issues
© 2012 Bryan, Mansell & Tilley LLP
Communication & Stakeholder
Management
Employee
Representatives
Employees
Directors
Trade Creditors &
Credit Insurers
Customers
Landlords
Pension Trustees
Shareholders
Funders

11. Key International and Cross Border Issues
Issues are legal and operational
Different insolvency legislation between countries and states in USA affects
stakeholder recovery
Stakeholder leverage affects parties’ behaviour and division of recoveries
Efforts have been made by international bodies to bring discipline to the
process but harmonisation of insolvency laws has been elusive.
Forum shopping by stakeholders to seek leverage advantage
Process is continuously evolving driven by professionals imaginative response
to jurisdictional differences.

12. Managing International and Cross Border Issues
Legal Issues
Availability in some countries of pre insolvency remedies; Pre packs, Voluntary
arrangements and Company Law restructuring schemes
Debtor Friendly and Creditor friendly Jurisdictions;
Flexibility to facilitate Debt to equity restructuring and recognition of bond
holder rights differs from jurisdiction to jurisdiction
Case law (Pragmatic and Predictable) versus Civil law (Bureaucratic and
uncertain).
Costs of process and recovery percentages are better in case law countries

13. Managing International and Cross Border Issues
Recovery values
Recovery % Years Cost % of Estate
Italy 56.0% 2.8 22%
Spain 73.2% 2.0 15%
Poland 29.8% 3.0 20%
Germany 52.2% 1.2 8%
France 44.7% 1.9 9%
---------------------------------------------------------------------------------------------------------
USA 76.7% 1.5 7%
UK 84.2% 1.0 6%
Source; World Bank 2008

14. Managing International and Cross Border Issues
Standard and Poor’s Ranking of Post Default Recovery Prospects - 2014
Net of fees, length of time, employee rights, government priorities, outcome predictability
A1; Australia, UK, Ireland, Singapore, Hong Kong, Netherlands, Scandinavia
A2; USA, Canada, Israel, Japan, Switzerland, Germany, Belgium, Luxembourg. S Africa
B; France, Brazil, Italy, Mexico, Spain, Turkey, UAE
C; Russia, Kazakhstan, Ukraine

15. Managing International and Cross Border Issues
Operational issues
Cash management usually managed locally leading to cash hoarding in subs
- Payment priorities distorted by defensive local strategies
Many groups depend on intergroup trading which can be disrupted
- International groups can have common suppliers who hold solvent subs to
ransom
Debtor in Possession and DIP Funding
- Some jurisdictions allow management to retain day to day business control
- Some jurisdictions allow DIP (super priority) funding.

16. Managing International and Cross Border Issues
International Regulatory structure -- Forum Shopping
UNCITRAL, EU Regulation (2002) and Chapter 15
- Aim to promote cooperation not harmonisation
- Defines Main Proceedings and secondary proceedings
- Main Proceedings define the Jurisdiction managing the process with creditors
- Local law still prevails on property security rights and labour law.
Definition of Centre of main Interest (COMI)
- Presumption in country of registration
- But (loosely) defined where principal activity is seen to take place
- Has led to some “spurious” definitions
- Has encouraged jurisdictional change to discourage forum shopping
- Now being tightened up by review by EU Commission
- US Courts have “pierced the veil” of offshore Topco’s

17. Managing International and Cross Border Issues
Why Forum Shop (mainly to USA and UK)
Preserve Shareholder interest.
- Schefenacker used English Law C.V.A. to preserve family interest
- La Seda de Barcelona used English Company Law Scheme of Arrangement to
cram down dissenting syndicate members outside of insolvency
Ease of Restructuring
- German law was too restrictive to permit debt to equity swaps
- Spanish law (until March 2014) had no provision to cram down obstructive
hold outs
Predictability
- US Chapter 11 and UK Insolvency Law was tested and familiar to advisors.

18. Managing International and Cross Border Issues
Future Trends
Tightening up on COMI definition and applicable jurisdictions
- EU Regulation review 2014 applying tighter criteria
- US Courts view on applicable jurisdiction of Caribbean Topco’s used by Hedge
Funds and Private Equity.
Changes to Legislation
- Germany ESUG Insolvency law amendments 2012
- New French, Spanish and Italian Laws 2013/4
- EU Recommendation that all member states introduce pre insolvency
restructuring regimes by end 2015.
Use of Consensual Arrangements to preserve value and reduce costs
- Creditors Consensual Compositions