Do sociopolitical factors give additional influence to certain stakeholders in restructurings or insolvencies in the jurisdiction (e.g. pressure around employees or pensions)? What role does the state play in relation to a distressed business (e.g. availability of state support)?
Restructuring & Insolvency
There is very little state involvement or government intervention for distressed businesses in Australia. However there are certain circumstances where the government has stepped in to guarantee some financial support in formal insolvency proceedings, in particular, in relation to employee entitlements. Whilst employee entitlements (including wages, superannuation, leave entitlements and redundancy payments) are given statutory priority over the payment of other unsecured debts in a distribution of assets, it is sometimes not possible for those debts to be met out of the recoverable assets of the company in a timely manner or indeed, at all.
Pursuant to the Federal Government’s Fair Entitlement Guarantee (FEG), when a company is placed into liquidation leaving employee entitlements unpaid, the Federal government, through FEG, can make payment to employees of certain levels of unpaid entitlements. The government then becomes the creditor and is afforded the same priority in the distribution as the employee claims it paid. Importantly, the position of directors and management is different, and the priority afforded to them is capped substantially.
There is no state support available to distressed businesses in the Cayman Islands. As noted above, given the importance of the funds industry in the jurisdiction, the Cayman Islands have been careful to maintain their reputation as a creditor friendly jurisdiction.
Unlike in other jurisdictions, pension authorities do not typically play an important role in restructuring or insolvency proceedings in Switzerland. Unions may play a more active role, namely where a restructuring requires a (mass) dismissal of employees. That said, employment laws in Switzerland are fairly liberal when compared to other jurisdictions.
Leaving aside the TBTF discussion for financial institutions, Swiss governmental authorities do not play a relevant role in relation to distressed businesses and state support would not generally be available. State creditors may, however, be willing to discuss payment terms etc. as any other creditor.
German trade unions tend to act in a far less aggressive manner than eg French ones. This applies also in a crisis of a debtor, where trade unions may even consent to measures reducing the debtor’s labor costs.
In Germany, the economic doctrine prevails that the state should not interfere with insolvency procedures, their macroeconomic function being to eliminate uncompetitive players. While the German State intervenes in fact far less in restructurings than eg the French State, it frequently does not remain passive if very important companies are threatened by insolvency.
While state guarantees may thus under certain conditions be available (at federal or state level), they must comply with the EU ‘Guidelines on State aid for rescuing and restructuring non-financial undertakings in difficulty’ (2014/C 249/01) which allow state support only under narrow circumstances.