1. Meltdown? Recent developments in Insolvency Law Jennifer Marshall and Susan Hazledine

2. 1930s revisited?  Lehman’s demise  Fannie Mae/Freddie Mac  Icelandic banking collapse  $750bn capital injection in the States  Unprecedented government funding and rate cuts

3. Setting the scene  Unprecedented events of the last few months  Greatest impact on financial institutions but corporate sector to follow  When bank gets into difficulties, number of options:  private sector deal (merger, guarantee, loan)  state support  emergency pre-insolvency legislation  insolvency proceedings  When company gets into trouble, options more limited:  consensual restructuring  insolvency proceedings

4. Crisis checklist  Impact of insolvency proceedings on contracts  Impact of insolvency proceedings on set-off  Impact of insolvency proceedings on enforcement rights  The cross-border framework

5. To perform or not to perform?  Good or bad contract?  Contractual provisions  Insolvency process  Jurisdiction

6. Good contract  Effect of breach by counterparty  Affirm contract  Ability to insist on performance?  Avoid breach of own obligations  Obligations as expense

7. Bad contract  Contractual termination provisions?  Nature of breach  Anticipatory breach  MAC clauses  Repudiatory breach?  Consequence of choices

8. Simple set-off Options:  Can I set off the 100 I owe against the 150 I am owed and prove for the net 50 (thus recovering 5)? or  Do I need to pay the 100 I owe in full and then prove for the 150 (thus paying out 100 and only recovering 15)? AB £100m £150m

9. Simple set-off: issues arising  Different types of set-off:  contractual set-off (and exclusions of set-off)  transaction or equitable set-off  independent or statutory set-off  current account set-off or combination  insolvency set-off  When do the insolvency set-off rules come into play?  Requirements for insolvency set-off under English law:  mutuality  provable debts  claims incurred or acquired after the cut-off date

10. Impact of insolvency proceedings on simple set-off  Stays on exercising rights of set-off:  self-help remedies  defence and counterclaim in legal proceedings  Insolvency set-off rules may replace other rights of set-off  Acceleration and valuation of incoming claim for set- off purposes

11. International impact on set-off  Cross-border issues and Article 6 of the European Insolvency Regulation:  general rule  exception where set-off permitted by law governing insolvent debtor’s claim  subject to claw-back challenges and does not protect netting

12. Build-up of set-off Options:  Can my affiliate assign to me the benefit of all or part of its 150 claim so that I can set this off against the 100 I owe and pay nothing?  If I pay less than 100 for the claim, I have benefited from this transaction  If my affiliate is paid more than 15, it will have benefited from the transaction  The other creditors of the insolvent company are prejudiced, however, as they lose the benefit of an asset worth 100 A B C 100 150 Assign

13. Impact of insolvency proceedings on build-up of set-off  Cut-off date for acquired claims:  date of liquidation (or earlier date of notice of winding up petition / creditors’ meeting)  date of administration (or earlier date of notice of application / filing of documents with court for appointment of administrator)  However, in administration, insolvency set-off rule does not come into play immediately

14. Impact of insolvency proceedings on build-up of set-off (cont’d)  Does this mean that creditors can build up and exercise rights of set-off in the meantime?  no clear legal reason why not  may be general policy against such build-up  need to take into account risks in pricing of claim  NB acquired claim must actually be set off prior to insolvency set-off rule coming into play (use or loose)

15. Enforcement options where your counterparty is in…  bad shape but not bust  administration  liquidation  control of your assets  another country  a different country from where the assets are located

16. The cross-border framework  Cross-border questions:  where should insolvency proceedings be commenced?  what law applies in those proceedings?  will those proceedings be recognised in other jurisdictions?  Cross-border answers:  is there an international treaty or European legislation that applies?  is the UNCITRAL Model Law relevant and has it been implemented in the relevant jurisdiction?  are there any mutual assistance provisions under the domestic insolvency law?  otherwise comes down to matters of comity and the individual judge’s discretion

17. It all comes down to the nature of the beast …  EEA credit institutions (Credit Institutions Winding Up Directive):  single set of EEA proceedings  only applies to winding up proceedings and reorganisation measures, not regulatory proceedings  EEA insurers (Insurance Undertakings Winding Up Directive):  single set of EEA proceedings  NB priority for policyholder claims  EU companies other than credit institutions, insurance undertakings and investment undertakings (European Insolvency Regulation):  main and secondary proceedings

18. It all comes down to the nature of the beast …  EU investment undertakings (e.g. LBIE) (black hole):  recognition of such proceedings will be a matter for the courts of each relevant jurisdiction  Relevant country companies (s.426, IA 86):  English court required to give assistance to court of relevant country  Non EEA / EU companies including credit institutions and insurance undertakings (Part V, IA 86 and UNCITRAL Model Law):  requirement for sufficient connection with the jurisdiction  recognition of insolvency proceedings commenced in the place of the CoMI

19. Recent events  Contracts  Set off  Restrictions on enforcement  International  Nature of entity

20. Speakers’ details Susan Hazeldine Partner, Litigation Email: susan.hazledine@allenovery.comsusan.hazledine@allenovery.com Direct line: 020 3088 3729 Jennifer Marshall Partner, Restructuring Email: jennifer.marshall@allenovery.comjennifer.marshall@allenovery.com Direct line: 020 3088 4743

21. Questions? These are presentation slides only. The information within these slides does not constitute definitive advice and should not be used as the basis for giving definitive advice without checking the primary sources. Allen & Overy means Allen & Overy LLP and/or its affiliated undertakings. The term partner is used to refer to a member of Allen & Overy LLP or an employee or consultant with equivalent standing and qualifications or an individual with equivalent status in one of Allen & Overy LLP's affiliated undertakings.

22. Meltdown? Recent developments in Insolvency Law Jennifer Marshall and Susan Hazledine

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