Europe

ESOP – the latest craze

ESOP (Employee Share Ownership Programme) entities have been springing up like mushrooms in Hungary since last year, and the acronym itself has become something of a buzzword. And this is hardly surprising, as ESOP entities can be a tax efficient vehicle for paying out work incomes. Caution is advised, however: alongside the many advantages, the regulations also conceal a number of pitfalls.

What is an ESOP?

An ESOP is an entity created by an employer to hold securities issued by it or by its parent company, for the benefit of employees. So rather than awarding shares directly to employees, the employer or its owner sets up an ESOP entity, and transfers the shares to that entity instead. The company’s employees each receive a membership share in the ESOP entity, and in this way they gain access to the yield on the securities transferred to the ESOP.

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Alitalia (update 3): the call for the collection of non-binding expressions of interest has been published

Alitalia (update 3): the call for the collection of non-binding expressions of interest has been published
Authors: Antonello Corrado, Silvia Viceconte As announced in our newsletter of May 12, the call…
Antonello Corrado
Silvia Viceconte

Here below, the most relevant points of the call:

  • The expressions of interest, submitted on a non-binding basis, are aimed at the definition of the content of the extraordinary administration procedure, given that, according to the received proposals, the Commissioners will elaborate the strategic-industrial program referred to in art. 54 of Legislative Decree no. 270/1999.
  • For this reason, the expressions of interest shall contain, in addition to all the identification data of the subject in question – and appropriate corporate and accounting documentation – the guidelines that the interested subject will follow in the formulation of the subsequent binding proposals, to be elaborated according to the following indications and possible solutions to the crisis:
    • unitary transfer of the business complexes, through continuation of business activity;
    • economic and financial restructuring of the company on the basis of a rebalancing program;
    • transfer of sets of goods and contracts, through continuation of business activity.
  • Individual or corporate enterprises, of any nationality, constituted both singularly and jointly (so-called “Consortiums”) are allowed to submit the relevant expressions of interest, with the exception of companies in liquidation in the twelve months prior to the date of publication of the call, or subject to insolvency proceedings and interdictive sanctions limiting the collaboration with the public administration, or whose managers have been subject of some criminal convictions.
  • The expressions of interest, accompanied by the necessary documents and any other useful documentation attesting the type of activity carried out by the applicant, the experience gained in the sector and/or the compliance with the financial requirements, shall be drafted in Italian (or in another language, with sworn translation attached) and submitted within June 5, 2017.

Consequently to the collection of the expressions of interest, the Commissioners shall send, to the persons they consider to be eligible, a so-called “Procedure letter”, which will provide the interested parties with the terms, modalities and contents of the non-binding proposals to be submitted in order to take part in the call.

The same communication will provide details of the subsequent steps of the procedure (submission of binding proposals), to be concluded – according to the tender – within six months from the issuance of the loan already allocated by the Italian Government for the management of the extraordinary business activity.

Ultimately, the call seems to confirm the expectations and anticipations already issued to the press by the extraordinary Commissioners, who have their mind set on the end of October as the latest deadline for the submission of binding proposals for the acquisition or the restructuring of the Italian airline company.

In the meanwhile, in order to make the company even more attractive, the board of commissioners has already began to make some cuts: from the renegotiation of the aircraft leasing to the new fueling hedging conditions, to the meetings with trade unions for the new employment agreement, expected for the first week of June.

The race has been announced, who will show up at the starting grid?

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Rekonstruktionsbehandling uden fortrydelsesret

Højesteret har nu slået fast, at det ikke er muligt at tilbagekalde en begæring om rekonstruktion – heller ikke som led i en efterfølgende konkursbehandling.

Den 1. april 2011 blev der indført regler om rekonstruktion og samtidig ophørte de tidligere kendte regler om betalingsstandsning.

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Großer Erfolg für KÜBLER: Dr. Breitenbücher beim 17. deutsch-chinesischen Rechtsstaatssymposium in China

Durch das Bundesjustizministerium wurde Dr. Bettina E. Breitenbücher eingeladen, beim 17. Symposium im Rahmen des deutsch-chinesischen Rechtsstaatsdialogs in China ein Impulsreferat zum deutschen Insolvenzrecht zu halten. Das hochkarätig besetzte Symposium diente dem Austausch zur Rechtsfortentwicklung in beiden Staaten.

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Appointment of Receiver by way of Equitable Execution over Single Farm Payment Funds

A particular execution remedy available to lending institutions with specific reference to situations involving periodic or lump sum payments such as Single Farm Payment funds (“SFP”), has come before the Commercial Court recently, with surprising results.

In respect of the entitlement to access the SFP, there are essentially two options available to a creditor or receiver. First, such funds may be amenable to attachment by garnishee order, as would be the case with any funds coming to the debtor via a third party. A garnishee order operates to direct the third party to pay a specific sum of money to a creditor. It effectively allows a creditor to collect funds owed by a debtor by accessing the debtor’s property when it is in the hands of a third party. In such circumstances, where a garnishee order is secured, the funds sought would be paid directly by the third party to the creditor.

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Protecting personal representatives: interim estate distributions

How should a personal representative (PR) deal with a request from a beneficiary for an interim distribution before the estate is finalised?  Estates can take many months to conclude but a beneficiary may be in need of some of their inheritance sooner.  Can an executor help out without putting him or herself on the line?
Any PR (be they an executor of a Will or an administrator of an intestate estate) facing a request for an early distribution should consider their own position as well as the beneficiary’s.  A PR owns a duty to the court, both to gather in the assets of the deceased and also to ensure that sufficient estate assets are retained to meet all liabilities and pay creditors.  Not all liabilities may be evident at the time of death.  Failure to retain sufficient funds to pay these may result in creditors pursuing the PR personally, so a PR must exercise caution in the face of such requests.


Unless the PR was very familiar with the deceased’s finances, or the beneficiaries can be entirely trusted to return estate assets if necessary, a PR should consider taking advantage of the protection offered by s.27 of the Trustee Act 1925 and advertise for creditors in the London Gazette (and elsewhere if appropriate, depending upon the deceased’s circumstances).  Once the two month notice period has expired and if the PR has still received no notification of a claim prior to distribution, any creditor who appears after distribution has to pursue the recipient of the estate funds, rather than the PR.


Section 44 of the Administration of Estates Act 1925 provides that ‘a personal representative is not bound to distribute the estate of the deceased before the expiration of one year from the death’.  Accordingly PR’s cannot be forced to distribute sooner but could consider doing so if they are confident that all liabilities and creditors have been ascertained. 


For deceased UK domiciliaries, PRs should be aware that claims under the Inheritance (Provision for Family and Dependents) Act 1975 can be issued up to 6 months after the Grant of Probate is itself issued and the claimant then has a further four months in which to serve the claim.  Therefore 1975 Act claimants can appear up to ten months after the Grant has issued.


If an interim distribution is needed sooner, a PR should consider insisting on a form of indemnity from the beneficiary to confirm that, should a claim be made against the PR in connection with the estate, the beneficiary will indemnify the PR for that claim out of the funds distributed.  The PR will need to consider whether that beneficiary will be good for the money if the indemnity needs to be relied upon.  Ideally the PR will also obtain confirmation from the beneficiary that the beneficiary accepts the sums distributed at least in partial satisfaction of their interest in the estate.  It may be appropriate to provide a set of draft estate accounts at this point.


Alternatively, depending upon the assets comprising the estate and their administrative powers, the PR may be able to offer to loan a beneficiary a portion of their share of the estate, in return for a suitable indemnity.  This is likely to be more satisfactory for a PR, as the PR still retains ownership of the estate assets, albeit in the form of an IOU.  The creditworthiness of the beneficiary will need to be considered once again.
  
Lay PRs, in particular, can often feel under pressure from family member beneficiaries to make early distributions.  However, creditors need make no exceptions for lay PRs!  The law allows PRs to protect themselves and a prudent PR will do just that.

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Alitalia (update 2): the benefits of acquiring a Company under extraordinary administration

Alitalia (update 2): the benefits of acquiring a Company under extraordinary administration
Authors: Antonello Corrado, Silvia Viceconte As outlined in our previous newsletter dated May 3, the…
Antonello Corrado
Silvia Viceconte

In addition to certain obligations charged to the buyer, due to the strategic national importance of the sold company, the legislation provides some undeniable advantages when purchasing part or the entire business perimeter within the context of the public procedure.

Let’s define some of them.

  • The principle that the buyer must ensure the business continuity for at least two years and maintain for the same period the employment levels laid down in the sale agreement is balanced by the faculty to agree, during the mandatory labor consultations provided for in art. 47 Law 428/1990, on the partial transfer of employees to the buyer. Likewise, further changes to the working conditions may also be agreed within the limits permitted by the applicable regulations.
  • Personnel transfers, even partial, to the buyer can also be made upon the placement in the extraordinary redundancy fund or, alternatively, through the termination of the existing relationship and the hiring by the buyer.
  • According to art. 4, paragraph 4-sexies, Legislative Decree 347/2003, the admission to the extraordinary administration procedure does not involve the loss of authorizations, certifications, licenses, concessions or other securities for the exercise of the business of the insolvent company; such titles are, therefore, automatically transferred to the buyer in case of purchase under the extraordinary administration procedure.
  • Art. 63, paragraph 5, Legislative Decree 270/1999 provides the general principle which excludes the buyer’s liability for the debts relating to the business of the transferred company prior to the date of the transfer.
  • Following the transfer, the cancellation of the registrations relating to pre-emption rights and the transcripts of foreclosures and seizures that may be present on the transferred business assets is ordered by ministerial decree.

The normative provisions briefly described above appear to be appropriate to ensure a fair compromise between the need to protect the general interests such as safeguarding the company’s employment and business continuity and the economic freedom of the buyer interested in the purchase of the company.

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Cyber Security: Computer Says “No”

A trail of disruption has been left by the “WannaCry” ransomware attack which reportedly affected 100 countries, 200,000 individuals and brought organisations such as the NHS and Fedex Renault to a standstill. This gave us pause to reflect on the practical steps organisations can take to minimise litigation risks arising from a breach of cyber security measures.

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IDA Ireland Event, London

Harry Fehily, Managing Partner, and George Kennedy, Partner, were pleased to attend the IDA Ireland Event, Right Place. Right Time in The Leadenhall Building in London on Wednesday, 10th May 2017.

It was an opportunity for UK based companies in the Financial Services, Technology, Bio-Pharmaceuticals & MedTech sectors to network and learn more about the different aspects of Ireland, from finding a home; finding the right office space; recruiting staff to getting the best business advice.

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Harder times ahead for participants to cartels

It is becoming a practice that companies involved in cartels are being sued by market players who have suffered losses as a consequence of a cartel and now want to recover the extra costs they have incurred. The new provisions based on an EU directive and adopted in Hungarian legislation early this year to help the effectiveness of claims for damages are slowly achieving their objective.

While cartel agreements distort the market and, as a result, may entail severe fines from the competition authority, they also cause damage to other market players and even consumers, who may have to pay higher prices for certain goods and services. Several companies participating in cartels were sued for damages on these grounds in the past, but enforcing claims proved rather cumbersome and complicated. In the last few years it was mainly the victims of public procurement cartels who tried to be compensated for the losses they sustained, but in most cases these proceedings were not a complete success.

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