R3 INSOL Europe VALUATION DISPUTES AND MECHANISMS FOR RESOLVING THEM Jacques Henrot

1. R3 INSOL Europe VALUATION DISPUTES AND MECHANISMS FOR RESOLVING THEM Jacques Henrot London - June 17, 2011

2. The French Perspective • Q.When do valuation issues typically arise in France? • A. Depends on the type of restructuring process If process at an early stage (totally out of court process or lightly court monitored mandat ad hoc or conciliation), valuation can be key (in case there are several layers of debt of course) to know where value breaks. If process is already at the bankruptcy court stage (sauvegarde or redressementjudiciaire), valuation an issue only in case creditors are ready to convert (and the shareholder’s willing to be diluted). Otherwise, as seems to be the case in the Netherlands, valuation is an issue in case of foreclosure by the senior lenders on collateral : • if such foreclosure is by way of private sale, or • if the senior lender petition the Court for an appropriation of the collateral, which in practice are two available routes in France only in case of liquidation. R3/INSOL Europe – London – June 17, 2011

3. The French Perspective • A recent statutory improvement to the mechanism of private sale : The valuation of the pledged asset can be initiated early on in the process without having to wait for the Court being actually petitioned to allow a private sale/an appropriation of the collateral. R3/INSOL Europe – London – June 17, 2011

4. The French Perspective Valuation issues can be important in case of a redressementjudiciaire (rehabilitation) of holdcos. Indeed, French law provides for a technique to document share pledges known as nantissement de compted’instruments financiers or nantissement de CIF, which technique gives to the pledgee a retention right on the pledged shares. And this retention right can be opposed in all circumstances, including to the bankruptcy trustee of the pledgor/grantor. • As a result, any reorganization plan calling for the sale of the subsidiary concerned or implying a change of ownership of those shares requires the consent of the pledgor. And the pledgor can condition its consent to either the full repayment of its claim whatever the value of the pledged subsidiary’s shares is, or alternatively ask to be paid at least the full « value » of the pledged shares before releasing its pledge (for a recent precedent : the FinancièreHélios case). R3/INSOL Europe – London – June 17, 2011

5. The French Perspective In a standard redressementjudiciaire(rehabilitation) of an industrial or service company, valuation issues are not central since the French rule is that creditors vote in the finance creditors’ committee with the same weight irrespective of their rank. In other words, even if value breaks in the senior, lower ranking creditors - if they do represent more than 2/3 of the total outstanding amount of admitted claims - can impose their rule. NB : Bondholders - which for the moment vote separately of the suppliers’ and creditors’ classes - might, by legislative amendment, be made part of the finance creditors class. As a result, in some cases, bondholders could join forces with lower ranking finance creditors in order to out-number (in terms of voting rights) the seniors : an approach which is clearly the opposite of the system applicable in the UK and which will require remedies : one of them could precisely be to have recourse to a valuation to know where value breaks before giving the right to majority junior creditors to out-vote the seniors. NB : the problem is all the more serious than equity contributions made in the form of shareholders’ loans are deemed debt (with no equitable subordination). As a result, shareholders might participate to the vote in the creditors’ committee and also join forces with junior lenders and bondholders as the case may be, an unacceptable result when the company is not worth even its senior debt. R3/INSOL Europe – London – June 17, 2011