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Enhancing Security Rights: Article 5 of EIR & Proposed Reforms

Explore key issues & reforms in security rights protection under Article 5 of the EIR, impact on secured debt, and proposed changes to lex situs rules. Specific examples highlight location rules & compromise provisions.

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Enhancing Security Rights: Article 5 of EIR & Proposed Reforms

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  1. Session 3 – Protection of Security Rights under Article 5 of the EIR and Possible Reforms Chair: Professor Ian Fletcher (University College London) Speakers: Professor Michael Veder (Radboud University, the Netherlands / RESOR, Amsterdam) Jennifer Marshall (Allen & Overy LLP) *

  2. Simplified structure diagram Sponsor Security Luxembourg Holdco “LuxCo” €2b Unsecured Subordinated bonds senior debt junior debt €1b English Holdco “EngCo” €2b receivables Greek Opco “Opco” Customers Greek law bank account Greek branch, Barclays telecoms equipment in Greece and England *

  3. Article 5 of the EIR *

  4. Key issues with Article 5 What? • What is a right in rem for the purposes of Art 5? • What does “shall not affect” mean (and impact of moratoria)? Where? • Where are secured assets located (and why does it matter)? • Which law determines the priority of the security? How? • Does Art 5 protect the secured debt ? • What impact does Art 5 have on intercreditor provisions? When? • How does Art 5 relate to the provisions regarding the applicability in time of the EIR under Art 43? *

  5. How have these issues been dealt with? What and How? • No changes to Art 5 (now Art 8) Where? • Some changes to lex situs definition in Art 2(g) (now 2(9)): • registered shares: issuer’s registered office • book entry securities: place of register or account • bank accounts: place of IBAN • registered property: place of register • tangible property: place where situated • claims: CoMI of debtor When? • Transitional provisions become even more complex! *

  6. Lex situs rules: who cares? • Why do these rules matter? • Secondary proceedings only apply to assets in relevant Member State • Art 5 only protects assets outside Member State where insolvency proceedings commenced • Problems with existing rules • Is art 2(g) an exhaustive list? • What if fall into more than one category? • What if asset is outside EU? • What about shares, bank accounts and claims? *

  7. The location rule under article 2(g): example 1 Greek borrower US bank, London branch Assignment by way of security Euro deposit English bank, Athens branch *

  8. The location rule under article 2(g): example 2 Greek borrower, English CoMI US bank, London branch Assignment by way of security Sterling deposit Greek bank, London branch, *

  9. Article 5: ability to compromise secured debt? *

  10. Article 5: turnover trust provisions *

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