Vol 4 (2007) - Issue 4

Article preview

German Companies heading towards England for their Rescue

Introduction

Until the early days of this century, insolvencies mainly remained a national matter with some exceptions in the Anglo-American hemisphere. Few cases, like the Maxwell insolvency, where insolvency administrators in the UK and the US orchestrated their efforts through so-called protocols, required a more international ap-proach to insolvency.

When finally globalisation hit the rest of the world and ever bigger conglomerates emerged, it was only a question when a major default would happen involving a group of companies with subsidiaries in various countries. And so it came – ISA/Daisytek, MG Rover – to name but a few. Only shortly prior to that, the European Union influenced the process of the ‘internationalisation’ of insolvency work: First, the European Council introduced the European Regulation on Cross Border Insolvencies which entered into force in May 2002. The Regulation’s aim (among others) is to facilitate the recognition of one member state’s in-solvency procedure in another member state. Secondly, the European Court of Justice (ECJ) in three consecutive judgements issued until the end of 2003, furthermore paved the way for the ‘free movement’ of corporations in the European Union.

It was not very long before practitioners discovered the usefulness of these two contemporaneous acts: It started in 2004, when the German Deutsche Nickel AG faced serious financial problems and underwent a complicated procedure to get rescued. Another attempt to use this path and to rescue the then faltering Hans
Brochier GmbH & Co. KG, started in 2006, however, failed. And as this article goes to press, Schefenacker AG has successfully completed the restructuring process using the almost same way as DNICK did.

This article will in turn present the three aforementioned German cases and evaluate the overall approach to what has recently been termed ‘migration’ of com-panies6 while highlighting the dos and don’ts.

The case of Deutsche Nickel AG

Deutsche Nickel AG, a part of a group of companies in the coin manufacturing industry experienced a boom at the beginning of the century due to the introduction of the Euro currency. However, as a result of the dropping demand for Euro coins following the completion of its introduction, DNICK incurred high losses which finally led to financial difficulties in 2004. Although the management took action and introduced a number of operational changes, the financial difficulties remained, especially due to bonds issued in 1999 and carrying an interest of 7.125 per cent p.a.

In 2004, an attempt to reorganise the corporate debt structure was undertaken in accordance with the provisions of the German law pertaining to bonds (‘Schuldverschreibungsgesetz’,SchVerschrG)whichdates back to 1899. This attempt, however, failed to receive the appropriate rate of approval as required by law. Therefore, a new approach to rescue the company was taken: In a first step, the shares in Deutsche Nickel AG were sold to ‘DNICK Ltd’, a newly founded private company limited by shares under English law having its corporate seat in the city of London. Following the sale, the German Aktiengesellschaft Deutsche Nickel AG was converted into a Kommanditgesellschaft (‘KG’, a limited partnership under German law).7 In this case, DNICK Ltd became general partner and another company under English law (‘EuroCoin Ltd’) became limited partner. Then, the limited withdrew again from the partnership, making the general partner the sole partner. Under German law, with the withdrawal of the (limited) partner, the assets and liabilities of the limited partnership merges by way of universal succession into the remaining partner (in this case DNICK Ltd) and the limited partnership ceases to exist as a separate legal entity (‘Anwachsung’). After this further ‘conversion’, DNICK Ltd, by way of spin-off, transferred all operating entities which were not already held by a subsidiary into newly set-up entities. Furthermore, another subsidiary to DNICK Ltd, DNICK Holding plc. was founded which took over all subsidiaries from DNICK Ltd.