“Abandon hope all ye who enter here?” – First Practical Experiences with the New German Bond Restructuring Act

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In response to a need for a modern bond restructuring law permitting extensive financial restructurings outside formal insolvency law proceedings, the German legislator introduced a new German Bond Restructuring Act (Schuldverschreibungsgesetz, the “2009 Act”) which became effective in August 2009. The 2009 Act replaced the German Bond Restructuring Act of 1899 (the “1899 Act”) which was in need of overhaul and did not adequately deal with current international best practices for bond restructurings. Recently, several German courts were called upon to decide on some precedent restructuring cases handled under the new law. To the surprise of many practitioners, the relevant courts construed the 2009 Act rather narrowly, creating a hurdle that will be difficult to overcome in many future bond restructuring cases. This newsletter will summarize the effects of these widely recognized precedent cases (Pfleiderer, Q-Cells and Boetzelen/Deikon) and their key consequences for the general bonds restructuring practice.

Summary Conclusions – Key Consequences

- The decisions of the Frankfurt courts not to allow a restructuring of bonds issued prior to 2009 by a 75%-majority bondholder resolution (so called opt-in resolution) and the decision of the Cologne court to grant bondholders a right to demand early repayment of bonds in a typical close-to-insolvency situation can be considered a slap in the face of the German legislator whose clear intention it was to facilitate bond restructurings by introducing the 2009 Act. According to recent press reports, the German government is now working on a proposal for a reform of the 2009 Act to extend the applicability of the opt-in resolution and to further facilitate bond restructurings.

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