LEGAL CHALLENGES DURING
AN ECONOMIC DOWNTURN
12 FEBRUARY 2009
CRISIS – GLOBALLY
Causes
Impact
• softened lending
standards & regulations
• low interests rates
• undervaluation
• accounting standards
• credit rating agencies
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decreased liquidity
decreased lending
higher borrowing costs
higher need of
regulations
• disclosure &
transparency
requirements
• remuneration structure
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CRISIS – ROMANIAN REALITY
Credit market – almost blocked
Few new transactions on the market (M&A, real estate,
financing)
Options
• Restructurings / Work-outs
• Foreclosures
• Insolvency
3
THE REVIEW
Scope: radiography of existing status / compliance with obligations
Involved parties: contracting parties, consultants (independent third parties)
CLIENT
Financial advisors
Legal advisors
Insurance brokers
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Real estate brokers
Marketing advisors
“TO DO” LIST
Serious analysis of existing operations & contracts
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corporate governance
commercial arrangements (customers & suppliers)
human resources
financing arrangements
5
CORPORATE GOVERNANCE
“Back to fundamentals”
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decision making process – dilution of liability
regularity of meetings
compliance with internal procedures & applicable laws
act in the “best interest” of the company and its creditors
• avoid conflicts of interest
6
AUDITORS
Early and constant communication
• legal requirements
• contractual requirements
Disclosure & transparency
• information & documentation
• personal “support”
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HUMAN RESOURCES (I)
Managing & safeguarding employee’s rights
• compensation
• unions
• collective labor agreements
Restructuring employees
Labor conflicts
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HUMAN RESOURCES (II)
Focus: talent management
• key employees
• ban on recruitment (exception: qualified personnel with
competitive background)
• training and development opportunities (professional
reconversion)
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FINANCING: WORK – OUT - A SOLUTION?
Classic solutions – unlikely options
• Foreclosure (enforcement of security)
• Insolvency reorganization
• Insolvency bankruptcy and liquidation
Work - out: a “win-win” solution
• Preventive actions
• Cooperative
• Avoid foreclosure threat
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WORK – OUT: LEGAL FRAMEWORK
Work Out governed by the Contracts Laws (i.e. Civil Code
and Commercial Code)
Specifics:
• Form contract governed by the general rules (contract
nenumit)
• Mixed contract (aspects of settlement agreement, loan
agreement or contract nenumit)
Cancellation risk (fraudulent conveyance)
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DUE DILIGENCE
Re-assessment of the case
• covenants (financial & legal)
• representations and warranties
• conditions precedent & subsequent
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ACTION PLAN
Distressed areas
Realistic approach
Uncertainties – market driven
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NEW INSTRUMENTS
Tighter covenants
Higher returns
High interest rates
Increased monitoring / control rights
Prepayment
Material adverse change clauses
Additional security
Additional equity
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NEW SOURCES
Cost cutting
• ease pressure on cash flow requirements
• renegotiate terms (temporary & permanent relaxation of payment
terms)
Equity investment
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existing shareholders & new investors
due diligence comfort
tighter management terms
clear exit strategy
Restructuring existing debt
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INSOLVENCY - LAST RESORT
Commencement of insolvency
proceedings
Observation Period
Reorganization of
Debtor’s activity
Bankruptcy Procedure
Repayments of creditors
Closure of procedure
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SALANS BUCHAREST
12 years of experience in Romania and CEE region
Unique loan work-out expertise in CEE region generating from US loan
market crack of 1980s and related practice led by best recognized
lawyers
Constantly selected by independent prestigious directories such as Legal
500, Chambers & Partners and PLC Which Lawyer? as leading and
recommended practices and practitioners in Romania
Euromoney / Liquid Real Estate Award for the Best Legal Services in
Romania in 2007 and 2008
CEE Quality Award as Top Real Estate Legal & Consulting Firm of the
Year 2008 by Imagine Events in association with Financial Times and
Estates News
Elected SUPERBRAND 2007/2008, by the Superbrands, the international
independent authority and arbiter on branding present in over 81
countries
Eastern Europe Law Firm of the Year 2004 by Chambers & Partners
Global Guide for the World’s Leading Lawyers
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CONTACT
Magdalena Raducanu, Managing Counsel
Email: [email protected]
Tel: + 40 21 312 4950
Fax: + 40 21 312 4951
Str. Gen. C. Budisteanu Nr. 28-C
Sector 1, Bucharest
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