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
Protecting employment stability is a policy issue that strongly influences the outcome of extraordinary administrations of large insolvent enterprises.
The Italian state can guarantee (in whole or in part) debts incurred with financial institutions by large insolvent enterprises in extraordinary administration (see answer to Question 7) to finance ongoing operations and re-open and complete plants, real estate and industrial equipment. The overall amount of state-granted guarantees cannot exceed EUR550 million.
Public administrations get involve in some of the restructuring process when the company is relevant in the region in terms of gross domestic product or number of employees. Its informal influence is made through the collaboration of public financial institutions in the restructuring process or its relationships with the main creditors of the debtor.
Non availability of direct state support is given in the restructuring proceedings.
The national government may pressure certain stakeholders in restructurings or insolvencies if there is the possibility of significant social impact or unemployment issues. The national government creates or joins corporate reconstruction funds aimed at supporting restructurings, such as the Enterprise Turnaround Initiative Corporation of Japan (‘ETIC’, now the Regional Economy Vitalization Corporation of Japan), and these funds support certain restructurings taking into consideration the value of the business, social impact and the like.
For instance, in 2010, ETIC decided to support Japan Airlines Co., Ltd. (‘JAL’) in creating restructuring plans and providing enough financing to pay unsecured debts from commercial transactions, except financial debts, before filing for corporate reorganisation proceedings. JAL was the largest airline in Japan with about 110 subsidiaries and 48,000 employees in its group, so the national government wanted to avoid significant social impact and unemployment issues. Owing to ETIC’s support, JAL was reorganised and re-listed on the Tokyo Stock Exchange in 2012.
In comparison, prefectural governments are unlikely to have additional influence over stakeholders. Each prefectural government has a restructuring support system for distressed medium-sized companies, although this system is consigned by the national government.
Generally, the opinion in Denmark is that employees are not to be affected by the employer’s unsuccessful restructuring and subsequent insolvency and consequently the employees’ back pay will prior to the insolvency as well as during the subsequent notice period be secured by the Employees’ Guarantee Fund.
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.
As in many other jurisdictions, socio-political factors may have some influence in certain restructurings, particularly depending on the industry.
In the recent past, the state has not provided support even in important cases like the Mexicana de Aviación insolvency procedure.
British Virgin Islands
As noted above, there are relatively few categories of preferential creditors. Because BVI companies generally operate exclusively outside the BVI, there is rarely any specific public policy issue concerning employees or other protected group within the territory. In addition, many BVI companies are holding companies, so do not employ significant numbers (other than directors, local agents, and other professionals).
Socio-political factors do not play a significant role in commercial restructurings in Bermuda. Typically, one is dealing with entities that are part of a wider business operating in a transnational sector such as insurance, finance, transport or international trade. Issues such as employees and pensions are therefore unlikely to be substantial. Bermuda is committed to its role as a hub for offshore commerce and any action to prejudice that position is unlikely.