Apax finds French twist on bankruptcy tourism

March 6, 2012

By Neil Unmack

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Restructuring specialists have a lot to thank the UK for. The country’s creditor-friendly legal framework has drawn companies from across Europe to restructure in London. European Union law states that companies should use the insolvency regime relevant to their centre of main interest, or “comi” for short. But the concept is elastic; a Greek mobile telecoms company, Wind Hellas, was able to restructure in London by relocating one of its companies from Luxembourg to the UK.

Disgruntled creditors say the UK has become a bankruptcy brothel. Restructuring experts prefer to extol the advantages of UK law, which allows for smooth restructurings by disenfranchising stakeholders who are out of the money, such as shareholders or junior creditors.

Apax has found a new twist on this theme. When Marken, a logistics company it bought in 2009 for 975 million pounds, breached covenants at the end of December, it moved a unit of the group to France. Unlike the UK, French bankruptcy law and its restructuring framework, called sauvegarde, is considered borrower-friendly. Courts give greater credence to shareholders and employees, and it is harder to disenfranchise creditors whose loans are out of the money. Take Eurotunnel, where shareholders were left with value even though creditors took losses.

In practice, a so-called “comi shift” to France could be harder and less predictable than it sounds. Bondholders may threaten legal action. French courts could look askance at highly leveraged arrivistes, while documents drafted under UK law could create complications.

However, the move may give Apax, and other buyout houses in similar situations, a subtle edge in negotiations with creditors. In Marken’s case, the two sides will probably hammer out a deal without the company having to go through the trauma of sauvegarde. However, a high-profile example of a French comi shift and restructuring would create a precedent for other financial sponsors. With many private equity-owned companies creaking under high debt loads, sponsors may be tempted to explore all ways of stopping creditors from seizing control.

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