Before Medici Bank collapsed in 1494, Florence was a finance centre for Europe. The bank's failure stranded far-flung assets and crystallised local and foreign creditor claims.
In those days, national legal systems had little concept of comity or pari passu treatment between onshore and offshore creditors. The laws favoured local creditors over non-Florentines. Into this mix stepped the Catholic Church, as a central authority capable of fashioning circumstances to a collective will. It monetised assets and, after reasonable deduction of costs, made distributions according to a fairish system. Europe had experienced its first serious centrally controlled cross-border insolvency.
Since then, UNCITRAL model laws and an internationalist approach by turnaround thinkers have recognised centres of main interest, seen comity applied through common law, spurred U.S. Chapter 15 jurisprudence, engaged proformas for bilateral trading treaties, and encouraged universalism as best practice. We have also seen the slow erosion of re Gibbs as an inviolable rule and welcomed judicial appreciation of other legal systems in resolving modern Medicis.
To identify measures that might help promote successful turnarounds in our own jurisdictions, I asked authors across different civil and common law legal systems the following: In your country and region, what are the structural, cultural, and experiential changes favouring enterprise rescue outcomes, and what more needs to be done?
James Sprayregen, former co-head of Goldman Sachs’ restructuring group and now Kirkland & Ellis global head of restructuring, writes about U.S. restructuring techniques and cultural drivers for successful turnaround assignments. Culture embraces some inefficiency for the opportunity of serendipity.
Serendipity and its close cousin, opportunity, belie many of the more successful German restructures. Lead author Eva Ringelspacher, president of TMA Europe, explains how the court-supervised StaRUG encourages extend and amends, upsizing, asset dropdowns, retracings, and share pledges that underpin solid turnaround business plans.
The ever-present danger of an imposed system drives better restructuring behaviours in Turkey. This comes through in the article by Önder Yilmaz, chair of TMA Turkey, and Dr. Fatih Aydoğan. Turkey’s concordat facilitates both informal and court-driven financial restructurings.
Karim Mahmoud guides us around the user-friendly DIFC rehabilitation system of the United Arab Emirates (Dubai, to many of us). The system borrows the best from both common law and civil codes, encouraging early intervention to protect value.
As the UAE stands wayfarer between Eastern and Western culture, the UK common law system proudly proclaims a different way to approach restructuring. Tyrone Courtman and Anna Nolan say this creditor-friendly system favours the pre-packaging of pre-administration sales and cross class cram downs under CIGA restructuring plans.
In contrast, Neil McDonald, probably the most influential restructuring advisor in Asia, and Mavis Sun accept that Hong Kong has not really introduced any recent restructuring mechanics into its laws. Instead, practitioners use tools not dissimilar to those in debtor-driven places to facilitate amend and extends, term out solicitations, exchange offers, discounted cash tenders, and other restructuring outcomes.
Australia has recently introduced safe harbour reforms to encourage directors of enterprises to focus on a saving rather than liquidation mentality. Jennifer Ball, Maria O'Brien, and Melisa Ferreira outline proposed reforms, including DIP funding priorities, accessibility of tax deductions for equity-led restructurings, and facilitation of debt for equity swaps and accelerated capital raising rules.
I commend these articles to you. Uniformity of thinking, sharing of emerging ideas, and working together makes TMA such a strong thinking organisation, its members acting as the architects and participants in further turnaround outcomes.
After all, the modern Medici is Credit Suisse.
