1 st morning technical session Kindly sponsored by Ebner Stolz Mönning Bachem

1. 1st morning technical session Kindly sponsored by Ebner Stolz Mönning Bachem

2. Opening remarks by the Secretary General of INSOL Europe and Technical Co-Chairman of the Annual Congress Marc Udink (Udink & De Jong) Samantha Bewick (KPMG)

3. Keynote speaker Niki Lauda (Austrian entrepreneur & former three-time F1 World Champion)

4. Government, Ethics & Society's roles in insolvency Professor Christoph Paulus (Humboldt-Universität zu Berlin) Dan Bilak (CMS Cameron McKenna) Prof. Kern Alexander (University of Zürich) Andrew Smith (Chief Economist, KPMG LLP UK)

5. Government, Ethics & Society’s roles in Insolvency Professor Dr. Christoph G. Paulus, LL.M. (Berkeley)

6. History • Not to pay back what was promised meant to disrupt expectations which were thought to be well founded. • Question: where comes this belief in such foundation from? • Possible answer: Contractual binding is the attempt to make calculable the fundamental human uncertainty – namely what the future brings. • Disappointing this construct means to demolish the fragility of any such attempt and will accordingly punished brutally.

7. Ethics • Fairness ... • Antwerp in early 16th century: the dear foreign merchants demanded the enactment of a bankruptcy statute ... why? • Wolfensohn in his pre-WBpresident time as investment banker: before going into a new country he would check the efficiency of the bankruptcy system ... why? • Possible answer: Ultimatum game (worldwide applicability)

8. Society • The stigma is a luxury: throwing out entrepreneurs who failed • Modern times begin to overcome this luxury by helping the debtor ... why? • Possible answer: Not because of altruism. But egoism in the tertiary economic sector (i.e. service society with its primary personalized assets such as know-how, good will, charisma, etc.) works differently than it used to work in the secondary economic sector with its primary assets „mobiles, immobiles et nomina“. These goods have been made tradable already by the ancient Romans.

9. Government • Beginning with canalizing personal revenge (XII tables – Shakespeare’s Merchant of Venice) • ... then taking over control • ... and now, through the plan proceeding, stepping out of the game by just bringing the parties together on one table. Government thereby privatizes insolvency (but see Opel, but als General Motors) • Big danger in this context: too big to fail = escaping the insolvency risk by keeping the government in charge! • Funny coincidence: when the government steps out, the insolvency of sovereigns gets on the political agenda.

10. Government, Ethics & Society's roles in insolvency Andrew Smith (Chief Economist, KPMG LLP UK)

11. Why have insolvency regimes? Creditor remedy over defaulting debtor fundamental to free market Regime should minimise costs of financial distress Transform individual to collective creditor rights Mechanism to resolve claimants’ conflicting views Liquidation or reorganisation Ex post, efficient resource re-cycling End-game often looked at in isolation A collective debt collection agency to maximise creditors’ returns

12. In practice many regimes admit other aims Provisions to alter priority rankings of claims Chapter 11 reorganisations allow shareholders to receive new claims Increasing emphasis in administrative proceedings on survival as going concern Externalities taken into account in government interventions eg employment, regional Special treatment for banks, effect on wider economy

13. Should be assessed in wider context Affect behaviour ex ante as well as ex post Provides incentives for good and bad behaviour Broader economic efficiency – does it provide incentives for entrepreneurs to borrow and lenders to lend? Trade-off between facilitating growth but deterring fraudulent enterprise Impacts cost of credit and shareholder value for whole economy

14. Efficiency Ex ante encourage entrepreneurship? Some US evidence that activity and cost of credit related to personal bankruptcy laws Final period agency problem Managers may bet the firm Ex post Direct costs Indirect costs (management time, loss of customers, higher cost of credit) No “best” system Can try to measure economic efficiency, but different regimes may reflect different societal values

15. “Hide and Go Seek”: Bankruptcy, Governance and the Rule of Law in Ukraine INSOL Europe Annual Congress, 2010, 14-17 October 2010 Daniel Bilak, Partner, Head of Restructuring CMS Cameron McKenna LLC, Kyiv

16. Challenges and Considerations • Rule of law vs “Rule by laws” • Institutional / enforcement infrastructure weak • Insolvency / bankruptcy laws poor and inconsistently applied • Rationale for legislation is mainly political and social

17. Restoring solvency Amicable Settlement Restructuring Asset Pre - default Default Sanation Liquidation ( standstill ) management I FINANCIAL DIFFICULTIES II BANKRUPTCY Ukraine Bankruptcy Procedure

18. Issues • Corruption in court procedures • Lack of accountability • Weak restructuring regime • Weak debtor-initiated bankruptcy regime • No procedures on individuals’ bankruptcy • Abuse of moratorium rules • “Green-mail” • Stripping of assets Structural Government policy Ethics

19. “UkrPre-Pack”Bankruptcy “Hiding” the Target Co Transferring assets to SPV Liquidating the “empty” Target Co Change of name Sale of inventory via promissory notes Taking decision on liquidation “Discovering” insolvency of Target Change of address Leasing of core assets Initiating “express” insolvency liquidation Change of shareholders Transfer of employees Sale of core assets at discounted price due to lease encumbrance

20. “UkrPre-Pack”Outcome • Fake ownership • Abuse of creditors rights by the real owners • Circumvention of the law

21. Proposalsfor change • Transparency: Procedural changes re: filing for bankruptcy • Strengthening management accountability and regime against preferences • Improved court supervision • Balancing debtor’s and creditor’s positions • Improve enforceability of standstill agreements

22. Thank you!

23. Government, Ethics & Society's roles in insolvency: the case of financial institutions Professor Kern Alexander University of Zürich Law Faculty & Member of the European Parliament’s Expert Panel on Financial Services

24. UK bank resolution: General insolvency was inadequate for resolving banks: • prevented early/decisive intervention; • unsuited to ensure continuity of key banking functions; • Banks vulnerable to loss of confidence; runs may lead to contagion / financial instability; • Prompt payout to depositors was not possible under FSCS regime

25. What’s different about banks? • Debt-holders, maturity and renegotiation • Equitable insolvency v. balance sheet insolvency • Lex specialis v. Lex generalis • Characteristics of a general bankruptcy code: • (1) Fair treatment, • (2) Maximizing value to creditors • Bank specific crises – • Speedy, (2) renegotiation free, (3) Legal certainty, (4) Providing liquidity to creditors, (5) Information provision feasible • Ie., US Prompt Corrective Action, UK Banking Act, and the EU proposal

26. The social costs of financial risk-taking • Systemic risk – inter-bank, payment system, & depositors, • Protecting the macro-economic environment (broader societal stakeholders), • Limiting cross-border contagion • Aim: to integrate bankruptcy rules/ procedures into prudential regulation

27. UK Banking Act 2009 Established Special Resolution Regime Provides statutory powers to resolve a distressed bank or building society: Authorities control initiation and implementation Stakeholders’ rights subordinated to powers of authorities (subject to various safeguards) Special Resolution Regime (SRR) UK incorporated banks and building societies UK subsidiaries of foreign banks Overseas branches of UK-incorporated banks But NOT to UK branches of non-UK incorporated banks Tools apply to deposit taking entities within larger financial groups and holding companies Temporary Public Ownership (TPO) can apply to a larger group that owns a deposit-taker

28. UK Banking Act SRR Objectives: Protect UK financial stability Maintain public confidence in banking system Protect depositors Protect public funds Avoid interfering with property rights(especially shareholder rights) in contravention of Protocol 1, Art. 1, European Convention on Human Rights The objectives are not ranked, 1-3 are known as the Public Interest Objectives

29. The Tools – Partial & Whole Transfers Private Sector Purchaser (PSP): Bridge Bank* Residual company undergoes Bank Administration Procedure (BAP) Bank Insolvency Procedure (BIP) Temporary Public Ownership (TPO) Used if necessary to: Resolve or reduce serious threat to financial stability Protect public interest A last resort in the SRR *A temporary bank, owned and controlled by Bank of England, with funding and liabilities guaranteed by UK authorities if necessary.

30. Weaknesses and gaps Objectives of SRR not prioritised Yet to integrate bank insolvency regime with UK prudential regulation Does not adequately address Too-big-to-fail banks Does not address cross-border aspects of cross-border insolvency – EU & international *

31. Coffee Break Kindly sponsored by Brinkmann & Partner

32. Friday 15 October 2010 Breakout Groups – 11.15am Turnaround Session Part IMain Conference Room Employment Law in Insolvency Across EuropeSchubert Salon State Subsidies Before & After InsolvencyLehar Salon Cross Border Protocol & Co-operationMozart Salon EIR: Risks, strategies & future perspectiveFischer Salon

33. Break-out-session 1

34. In court or out of court - why both approaches are needed Steffen Koch (hww wienberg wilhelm) Wolf Waschkun (One Square Advisors) Thorsten Bieg (Brinkmann & Partner) Bryan Green (Gordon Brothers Europe - President of the Turnaround Management Association (U.K.)) Steve Wood (Mazars)

35. Case Study • Legal Entity (Ltd., GmbH, S.A., Inc. etc.) with 160 employees and a turnover of € 13 million in 2010. • Production of steelcases and rubber linings • Simple legal structure (no cash pooling, no holding company) • Customers mainly national • Need for operational and financial restructuring because of worldwide recession causing a breakdown in turnover of 30% less in 2010 • Owners are not able to bring in additional equity • Need for restructuring obvious since October 2010 • CEO intends to file for insolvency on 1 November 2010 • Company has paid its suppliers irregularly since September 2010 • Negotiations with "Hausbank", employees and suppliers started in Septemberer 2010 and failed mid October 2010 • Company has delivered additional securities to the Hausbank and some major suppliers in October • The last Suppliers stopped supplying because of unpaid invoices and loss of trust in success of restructuring during October 2010 • Customers are very nervous and are thinking of cancelling their orders • Employees are not willing to negotiate about another waiver of their open claims • Payments for the employees are due for October 2010

36. Discussion Points • Focus on out-of-court restructuring (turnaround)  and in-court restructuring (insolvency). • Restructuring should be the common approach either out-of-court or in-court. • Different approach from EU Countries • Advantages  and disadvantages of the different approaches/jurisdiction • Explore how insolvency and turnaround people may work together more efficiently.