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Bucharest , 18. September 2013 - Towards a Romanian Chapter 11

Bucharest , 18. September 2013 - Towards a Romanian Chapter 11. A German Perspective on Restructuring Speaker : Frank Engelhard ( attorney at law ) ESCH & KRAMER Rechtsanwälte Wall 21, 42103 Wuppertal fon : +49 (0) 202-255505-0 fax: +49 (0) 202-255505- 5 http://www.eschkramer.de.

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Bucharest , 18. September 2013 - Towards a Romanian Chapter 11

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  1. Bucharest, 18. September 2013 -Towards a Romanian Chapter 11 A German Perspective on Restructuring Speaker: Frank Engelhard (attorneyatlaw) ESCH & KRAMER RechtsanwälteWall 21, 42103 Wuppertalfon: +49 (0) 202-255505-0fax: +49 (0) 202-255505- 5http://www.eschkramer.de

  2. Bucharest, 18. September 2013 -Towards a Romanian Chapter 11 Introduction: Financial andEconomicCrisisbeginning 2007 • In 2007 beginningofthe Sub-Prime crisis in the U.S. (housingcrisis) • Expansion intofinancialcrisiswithimpacts on companiesofthefinancialsector (ex. insolvencyof Lehman Brothers) • Since 2008 also negative effects on the real economy (drop in orders, losses, short time work etc.) • Transboundaryimpacts; Shrinkingeconomies in Germany, France andother European countries

  3. Bucharest, 18. September 2013 -Towards a Romanian Chapter 11 Effectsofthefinancialcrisis on the German Economy • 2009 decreaseofgrowthof 5.1 % • Public revenue in 2009: -47 billion €; in 2010: -65 billion € • Creditcrunchforcompanies • The massive economic crisis 2008/09 had substantial impacts on the innovation activities of the German economy • Slowdown in Sales; breaking down of productivity • Insolvency records: In 2008 the Federal Statistical Office in Germany reported 29.291 insolvencies of companies. In only 640 cases a restructuring of the companies was initiated with the measure of an insolvency plan • Ex. 1: Arcandor AG (until 2007 knownasKarstadtQuelle AG) filedforinsolvencyprocedures on 1. September 2009; a companywith 100.000 employeesand a turnoverof 15.3 billion € (in 2004) • Ex. 2: ThyssenKrupp AG: lossofvaluesince 2007 to 2008 of 50 %

  4. Bucharest, 18. September 2013 -Towards a Romanian Chapter 11 • AccordingtotheCentre of InsolvencyandRestructuring („Zentrum für Insolvenz und Sanierung (ZIS)“ as well asthecreditinsurer Euler Hermes, 2/3 of insolvent companieswithat least 5 Million € annualturnovercouldbesubjectstosuccessfulrestructuring. 50 % of mid-sizedcompanies (with an annualturnoverbetween 500.000 € and 5 Million €) couldbe subjectstosuccessfulrestructuring. • „Measuresofrestructuringareusedtoinfrequently“ (ZIS managingdirector Mr. Georg Bitter). Demand ofinsolvencyadministratorsand German industryfor substantial changes in German Insolvency Law in order tofacetheupcomingneedstopreserve, torestructureandtorescuecompanies

  5. Bucharest, 18. September 2013 -Towards a Romanian Chapter 11 In particular: • „Finanzmarktstabilisierungsgesetz (FMStG)“ German Financial Markets Stabilisation Act (17. October 2008)  Art. 5 FMStG: newdefinitionofover-indebtedness (§ 19 para.2 InsolvencyAct) since 18.10.2008 • „Gesetz zur weiteren Erleichterung der Sanierung von Unternehmen (ESUG) (7. December 2011)“: New insolvencylaw

  6. Bucharest, 18. September 2013 -Towards a Romanian Chapter 11 • I. „Finanzmarktstabilisierungsgesetz (FMStG)“ German Financial Markets Stabilisation Act (17. October 2008)  Art. 5 FMStG: newdefinitionofover-indebtedness (§ 19 para.2 InsolvencyAct) since 18.10.2008 • Change ofthedefinitionof „over-indebtedness“

  7. Bucharest, 18. September 2013 -Towards a Romanian Chapter 11 • Legislationbeforethecrisis: • Managing directorswereobligedtofileforinsolvencywithinthreeweeks after theoccurenceoftechnicalover-indebtedness. • Over-indebtednessoccursiftheassetsof a companynolonger cover theexistingliabilities.(Using fair marketvalues – not bookvalues). • The obligationtofileforinsolvencyappliedevenifthecompanyhad a „positive prognosistocontinueitsbusiness“ („positive Fortführungsprognose“).

  8. Bucharest, 18. September 2013 -Towards a Romanian Chapter 11 • Problem: The financialcrisiscaused heavy losses in valuesof real estateandshares • Companies areover-indebted, whichmaytriggerinsolvency, despitethefactthattheirliquidityandprofitabilitymaybesufficient in the medium run. • The German legislatorspassedthe „Financial Markets Stabilisation Act“ („Finanzmarktstabilisierungsgesetz“) on 01 November 2008. • Change ofsection 19 clause 2 ofthe German InsolvencyAct: „Over-indebtednessis on hand, iftheassetsofthedebtornolongercoverstheexistingliabilities, unless, itisaccordingtothecircumstanceshighly probable thatthebusinessistobecontinued.“ • In caseof a positive prognosisforcontinuingthebusinessnoobligationtofileforinsolvencyproceduresexists.

  9. Bucharest, 18. September 2013 -Towards a Romanian Chapter 11 • First, this provision was meant as a “sunset provision”: The legislator’s aim was that the change of this definition remains in effect only temporarily. (The old rule was meant to get back in force beginning January 2011) • Extension until 31. December 2013 • In the meantime: The time-limit was abandoned: This means, a company is not overindebted according to German Insolvency Law, if a positive prognosisforcontinuingthebusinessexists

  10. Bucharest, 18. September 2013 -Towards a Romanian Chapter 11 • Gesetz zur weiteren Erleichterung der Sanierung von Unternehmen (ESUG) (7. December 2011)“ New insolvencylaw

  11. Bucharest, 18. September 2013 -Towards a Romanian Chapter 11 Aimof ESUG: → Strengtheningthepositionof a debtor in possession (self-administration, „Eigenverwaltung“) ∙ Measures: • facilitating a debtor`sreorganisationand • strengtheningthepositionof a debtor in possession • creationof a protectivescreen • appointmentof a Funding Register administrator (Sachwalter) • strengtheningthecreditors` rights (i.e. a creditors` committee) • supportandrationalisationofinsolvencyplans

  12. Bucharest, 18. September 2013 -Towards a Romanian Chapter 11 ∙ Facilitationofthereorganisation → Conditions: • imminent inabilitytopayor imminent over-indebtedness (tobeexaminedbycourt) • Request forself-management (Eigenverwaltung) • Explanatorystatementthattheaspiredreorganisationdoes not obviously lack theprospectofsuccess • Submission of an expert`scertificationthattheabovementionedconditionsarefulfilledor plausible

  13. Bucharest, 18. September 2013 -Towards a Romanian Chapter 11 ∙ Strenghteningtheself-administration: The debtorisentitledto manage anddisposeoftheassetsinvolved in insolvencyproceedingsundersurveillanceof a Funding Register administrator.

  14. Bucharest, 18. September 2013 -Towards a Romanian Chapter 11 ∙ Conditions: • Request forself-administration • Reasonwhythepersonisqualified • Reasonwhyself-administration will not leadtocreditors` disadvantage • Approvalofthepreliminarycreditors` committee ∙ Advantage: • The debtorremains a keyplayer.

  15. Bucharest, 18. September 2013 -Towards a Romanian Chapter 11 Process: Preparationoffilingforinsolvencyproceedingsat an earlystageiscrucial (only imminent inabilitytopaymayexist) → Step 1: Establishment of a preliminarycreditors` committee → Step 2: well preparedfilingforinsolvencyproceedings

  16. Bucharest, 18. September 2013 -Towards a Romanian Chapter 11 Step 1 Establishment of a preliminarycreditors` committee Torepresent all groupsofcreditors in thecreditors` committeeitshouldcomprisepersonsfromthe 5 followinggroups: - banks` representatives - creditorsholdingthemaximumclaims - representativesofthegroupofsmallsumcreditors - representativesoftheemployees - whereappropriateanyother neutral creditors` representative

  17. Bucharest, 18. September 2013 -Towards a Romanian Chapter 11 ∙ Advantages of an establishedcreditors` committee: unanimousdecision or bindingvoteforself-administration bindingvotefor an insolvencyadministrator / Funding Registry administrator

  18. Bucharest, 18. September 2013 -Towards a Romanian Chapter 11 Step 2 Tofileforinsolvency → tofileforinsolvencyincluding an explanation → requestforself-administrationwithexplantion → proposalof a Funding Register administrator → announcementof an insolvency plan → requesttoestablish a preliminarycreditors` committee

  19. Bucharest, 18. September 2013 -Towards a Romanian Chapter 11 Summary: → The insolvencyproceedingsmaybecometoproceduresgovernedbytheparties → The creditorgetsmoreopportunitiestoreorganise in case he decidesearlytofileforinsolvency → The creditorobtainsinfluence on thecompositionofthepreliminarycreditors` committee → The creditorgetsimpact on theannouncementoftheFunding Registry administratorthroughthepreliminarycreditors` committee → Ifthecreditorsactunanimouslytheinsolvencycourt loses impact.

  20. Bucharest, 18. September 2013 -Towards a Romanian Chapter 11 Effects: → Creditorsspottheexistenceof a crisisearlier → Creditorscantakepart in iussing a recovery plan at an earlystage → Debtorandcreditormayco-ordinatetheprocessofinsolvencyproceedings → The successofreorganisationisgreater due toco- operationbetweendebtorandcreditor

  21. Thankyouforyourattention! Frank Engelhard Attorneyatlaw ESCH & KRAMER RechtsanwälteWall 21, 42103 Wuppertalfon: +49 (0) 202-255505-0fax: +49 (0) 202-255505- 5http://www.eschkramer.de

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