Why Jurisdictions Matter

[Music] thank you everybody Welcome to our panel we're going to be talking about why jurisdiction matters we've just had brief introductions so I I won't repeat those um safe to say welcome to to Richard our room who's who's not Robert um okay so um I I'll give I'll give you a little little Lowdown on another one actually because because I've I've prepared So Okay so we've got kareim at the end kareim is a senior managing director and co-leads the Middle East turnaround and restructuring team anura he's he has extensive experience supporting clients navigate underperformance and driving turnaround and restructuring agendas kareim specializes in managing corporate turnaround situations developing strategic business plans performing Independent Business reviews on behalf of creditors and Advising on complex Financial restructuring and insolvency situations so thanks Kim for being here thank you Richard is a senior partner at Quinn Emanuel Richard's based in Quinn's London office which he founded and co-managed for over 11 years so Richard is a solicitor Advocate with more than two decades of experience in litigation and arbitration and he's received numerous accolades throughout his career um and and commentary in the in the legal director directories my favorite quote is that he is a terrifying opponent so I'm I'm glad he's on my team today and then we have rahan so rahan is a former lawyer who then spent 10 years at hedge fund King Street Capital he's the founder of Swinton advisors and he acts for hedge funds and family offices as a restructuring advisor or takes on active board restructuring committee and cro roles rahan is the chair of the restructuring committee nmc Healthcare he's on ahab's cocom and is advisor to Davidson Kempner on jbf so welcome very much to my panel I'm Nicola Jackson I'm a legal director at Clyde and Co and I'm a General commercial literator and I co-lead Clyde and CO's insolvency and restructuring disputes practice so today we're going to talk about why jurisdiction matters and it's a particularly pertinent Topic in the UAE because we have jurisdictions within a jurisdiction um so we have what we would term is the onshore jurisdiction which is regulated by federal law in the UAE and then we have the DFC and the adgm where we sit today which are jurisdictions of their own and have courts of their own so it's a very interesting landscape within the context of that landscape there are therefore differing laws and regulations relating to insolvency and restructuring so we have DFC insolvency law we have the adgm insolvency law and regs and then we have the eagerly awaited new onshore UAE federal bankruptcy law so let's start with Richard so you're a legal advisor to corporates can I get your view on how laws and regulations in the UAE play a key role in successful restructurings and any success stories you have yeah for sure so um I know many many people ' already spoken about nmc uh but I suppose I have a a unique uh perspective on this one because I was the lawyer that was uh behind the planning around the continuance of the nmc companies into the adgm and the eventual Administration filing and the raising of Finance in that Administration and so I suppose I've got a a very unique perspective on that process I've probably done something like 50 50 odd hearings in the ad GM so I think um I may be one of the most experienced lawyers in that particular jurisdiction uh but that was I mean obviously a very interesting case it was uh a bankruptcy of a major um hospitals and health company right in the middle of the pandemic so couldn't really get any worse uh than that situation and although I think one of the prior speakers mentioned the original uh bankruptcy started off in the UK um nmc was a listed um footy 100 company and we petitioned for on behalf of ADCB which was the largest single creditor in the uh in the company for the administration of that company in the UK uh but that really didn't solve any of the problems of the group because the uh really that was the tip of the iceberg the ice the real part of the iceberg was in uh the UA AE um over 30 companies trading in the UAE who um were under constant attack litigation attachments uh I think the previous speaker also mentioned you know the problems with kbbo where the company literally couldn't operate because running out of money subject to attachments all its licenses were subject to attachments so there was a real question as to how um we could protect that group um in the UAE became very uh apparent very quickly that neither UK Administration or chapter 11 were either available to us or would have any impact in the region because the local advice was that neither of those bankruptcy regimes would be properly recognized meaning there would be a huge expensive waste of time so then the question came the big question came what are we going to do in the UAE and obviously there were a number of regimes available to to us uh the DC I have to be honest I'd never heard of the adgm at this point uh being a London lawyer it was completely new to me um and of course there was the onshore regimes um but unless we could move the companies from the onshore market into the adgm for example the DFC those regimes weren't available for us so the first real test of our approach was to achieve the continues of 36 onshore companies from three different Emirates into what we then selected the adgm or come into why the adgm was selected over the DFC but I have to be honest that was the hardest part of the entire process it had never been done before it was in the middle of the pandemic I was having remote conversations with various uh government agencies who didn't know what the hell I was doing talking to them or even what I was talking about and the attach ments that over aund Banks had obtained against the company over all of their assets including all their licenses actually prevented the movement out of the companies the the adgm was sitting there saying we will'll let you in despite the fact you're insolvent but the the outward process was the much harder I mean for those of you who don't know continuance is a is a fancy word for redom redomiciliation of the companies so the company disappears in the offshore world and reappears in the onshore world in the adgm and that was the hardest process I I commented a number of times that it wasn't the despair that was going to kill me it was the hope um in the end um there was an executive order which was the only thing that saved the company it provided that for all hospit Hospital companies that were in distress of course uh the nmc was the the only real Hospital company at that point that was in major distress that there would be a lifting of the attachments so all the attachments were suspended or stayed and this allowed uh the companies to release their licenses their health licenses their DED licenses and to move into the aggm so that was the hardest process it took from June to September to achieve that so that was um obviously a very unusual situation it was absolutely clear it was made absolutely clear to me that the the company had to survive in the pandemic it was one of the principal operations that was dealing with uh covid and the response to covid uh so it's very difficult so in the end um we managed to achieve the continues the companies emerged in the adgm and on emergence we immediately filed for administration and sought approval in the same hearing of priority funding uh for those administrations which without which the administrations couldn't have traded or operated so we needed that cat sorry I'm not sure if that answered I think it actually leads me into another question which were the key factors which led to the decision to continue or redomicile into the adgm and then put the The Entity into Administration within that jurisdiction what were your key factors uh key factors were moratorium so we needed a stay on all the litigations needed an effective moratorium that prevented any kind of enforcement that was one key thing the second key thing was that we needed to keep the group trading because otherwise it would just have ended up in a uncontrolled liquidation so how did we do that the problem with the onshore system is that we figured out because the companies spread across three different Emirates it would require three different bankruptcies in three different Emirates so the coordination of that bankruptcy would have been very very difficult indeed also you don't know the identity of your trustee in those different bankruptcies so you don't know how they're going to to react that was a that was a key factor we needed the priority fund fing that was available in the adgm um we needed to get into the adgm and they had a discretion that allowed insolvency companies um to get in um also because the adgm is very similar to the UK Administration regime we thought also that we could create what English lawers sometimes refer to as a light touch Administration it means that the administrators take over but they allow and devolve their powers to the existing management because there was no way that the joint administrators were going to be able to run the insolvency and run the business um in the way that the managers who were managing the business knew how to manage the business that was a key was a key factor and of course probably the most controversial point at the time was recognition so bearing in mind we've got all these creditor actions going on in the three Emirates how will the adgm moratorium be effective and be recognized in the Emirates that was absolutely critical and in theory I said I mention like stress that in theory the local lawyers were telling us that the abgm order and the moratorium would be recognized in Abu Dhabi and there on from Abu Dhabi in duai into Sha but at the at that point it was it was it was really Theory um and it did in fact take us I think six months to have all of the actions closed down and stayed but after a six Monon period time we managed to give effect to the moratorium across those uh three emirats just checking my notes to see if there's anything else um I mentioned the fact that we kept um the group together and that 36 entities continued to trade on uh in that Administration and what about the the main positives uh main positives are that um we turn the theory into practice the the moratorium was recognized it did work we got the priority funding order we very quickly moved to the daa company Arrangement uh which is an Australian um device but has been replicated the adgm very quickly got to the the whole point of the administration which was to restructure the six and a half billion debt uh that the company was uh was weighed down by uh and the daa company was given a very very high level of approval over 95% I believe and the deed of company Arrangement got done and the company emerged um orbe it with some historic disputes with which my friend on the left here has been dealing with but the company survived I'd say that is the main the main positive Pati managed to keep the hospital open six hospitals survive Co it's remarkable yeah in those circumstances a new piece of jurisdiction yeah and and talking about the recognition actually because it's it's one close to my heart as well because I act for a creditor and the the recognition of the administration order between the adgm and the DFC courts was I mean it would have been seamless we actually looked at it and said look you know the other side asked us to consent and we were like yeah it's going to go through so let's save some time and cost and consent ultimately and then and then you know the Dockers are implemented yeah so some weird some weird things and recognition so from moving from ad GM to DC you would have thought that would have been a simple process but in fact the DFC which is incorporated um the rules on kind of in international recognition of insolvency um we couldn't get adgm to fit within that because it was treated as a domestic insolvency so we relied on common law recognition rather than through the crossb regulations in in the DC that's really interesting another weird thing which I've made I've made a point to the CEO the edgm it was easier getting recognition of the adgm administration in England than it was in Dubai um so so there is some real work to be done here in terms of making sure that there is inter Emirate recognition of insolvencies wherever they may start um and the other point of course is that um the continuances that were achieved were only achieved because of uh government intervention effectively there needs to be an easier for example if one needs to move to a jurisdiction to affect a more efficient uh restructuring in Europe we're very familiar with the concept of center of main interest the Comey test well that can be done by moving certain things from one jurisdiction to another provided they're objectively verifiable by the Creditor class again you cannot have the continues being as difficult you need to be able to move jurisdictions to get the best bankruptcy protection for the company whatever the formulation of the company is and then you need to have that recognition across Emirates for it to be the most efficient process that it can be and finally the one thing that I think um is is missing um and to be frank it's only been available in the UK for just over a year is the ability to have a cram down of creditor classes that out of the money that's only really been existed in the UK for can't remember when the restructuring plans came in maybe 24 months and it's new in the UK um but the adgm is the sort jurisdiction that can grab these new things and make them work and so that would be my other recommendation to the adgm powers of B well one of the someone was saying earlier that they they asked um the adjm asked well what what what's causing you trouble in other jurisdictions so maybe we could say well this is what works really well in other jurisdictions why don't you consider changing your regulations or allowing for this so there we go that's a suggestion for for you guys at the adgm um so moving on to you Rohan so you act for hedge funds you advised creditors so we're talking about different different stakeholder perspectives here and you sit on Boards of companies undergoing re rest structurings or cooms in respect of companies so can I get your view on how laws and regulations in the UA play a key role in successful restructurings and your success stories sure I think Richard said it all but I'll try um I think it's a philosophical approach right you have to understand where you want to go with the investment do you want to go into a liquidation and sell down underpriced assets or do you want to have a going concern restructuring and if you want to have a going concern ing how does that business survive can you put new money in how do you put new money and for me the biggest question and you know sitting in the adgm the biggest you know flag here is that you can prime new creditors as someone you know said earlier you can just put new money in straight away I don't think dip financing works as well here and anywhere else right I mean works best here outside chapter 11 you certainly can't do it in the UK um and you can under an RP but not as effici and so I think the adgm has a fantastic ecosystem that's built out of that I think having lived in breathed nmc with Richard for the last few years I think we spent most of the Year from April to September in this building um you know I can speak to other clients and investors and say the ecosystem works the courts work they're very modern you have actual experienced judges some we like some we don't like like anywhere else in the world I won't name names but the system does truly work and you have a system that you can actually see precedence to with and you're starting to see people push the envelope I think when you have a concentration of advisers coming in um seeking business and seeking to develop the restructuring rules that's when you start to have Innovation and I think you know I'm interested in what Kareem thinks but you're starting to see that um on Shore as well um with other restructuring is going on ehg has set the example jbf R will get there there's a few now that are developing in where we're having businesses survive and I think that's really important if you're going to invest in restructuring in the region so for me that's a key issue compare and contrast that maybe you know with Saudi and we'll talk about that later I mean Saudi has a fantastic you know system Ahab is Testament to that but can you really put in new money without getting consensual deal my view is you can't but you probably need people to push the envelope a little bit more you know and test the system and I think that's when things develop and and we were discussing it earlier right I think the law itself does have provision that allows for priority funding and so on but the devil is in the detail so it does need someone to actually push the envelope and understand those vague closes within the LW how can you actually use them to get the trustee approval and the court approval more difficult if you need the existing lenders approval but uh or prominent questions yeah it's about blazing that trail I guess yeah and and that's what happened in hgm right I don't think it was very clear in the law itself and I think in the prior panel they were talking about it I think it required some interpretation some Brave movement to be taken and discussion to be had with the court to be able to get there yeah I think I think actually what was clear is that you you shouldn't have been able to do it actually in those circumstances but you know then you but then you know you're right you open up the conversation and you say look there's a there's a public policy issue here um in in times of Co Etc so so so Kim tell us tell us a bit about um your view from sort of the Saudi aspect like you advise corporates you advise creditors and trustees um what about laws and regs that have played key roles in successful restructurings and and success stories for you uh I I take it more from a financial commercial point of view obviously being a financial adviser I think they are playing a very important role in the sense that they are providing an additional uh platform for those corporates seeking to restructure their business as opposed to the traditional or conventional outof Court fully fully fully consensual type situation and that is becoming more and more appealing to SS businesses here in the Middle East for a number of reason if you look at for example the ability to restructure the entire liabilities as opposed to focus only on the back that that is an important feature that you can utilize within the bankruptcy laws because one of the businesses I restructured in Saudi they had 3 billion R in Bank debt and they have another three billion real in trade creditors so just restructuring the bank debt which is typically what is easier to do in a conventional type situation because you're not going to go talk to 20,000 creditors uh is difficult to do otherwise and it's easier to do within a bankruptcy type situation because then you can leverage the features with of the law around creditor classes around cramdown and you mentioned Richard cramdown around cross class cramdown as well and voting and so on which makes that appealing to a lot of the businesses and then another important factor and I Richard also you mentioned it and it's good that legal advisers and financial advisers think think think the same is that the ability of the business to operate during that period right because again if you think about it from EXP experience at least on the complex cases you're talking at least 12 months to get to to a resolution if not more I've been in situation where it took even more than 12 months so during that period of time and it's a long period of time the business need to be able to operate they need to be able to preserve whatever value is left in the business so how do you do that you leverage features in the law like claim moratorium to be able to basically uh well you leverage it in the low but then the question becomes how practical is the implementation of the claim moratorium which probably is another Factor when you're choosing those laws and jurisdiction because the claim moratorium I think is there most L for sure it is there in AGM and it is in the in Saudi but then the question become how easy it is to leverage the claim moratorium to lift an execution order to unblock a bank account and to access the fund and so on and those are prominent question that you deal with and you discuss on a daily basis at least with the trustees as well and with the businesses because they are initially some of the factors that cause them to go into the process so talking about the trustees and the businesses and the roles of different stakeholders how is that important in terms of the process it's teamwork right so always about teamwork although uh doesn't feel like they are on the same team in some instances but uh obviously very important and if you think about it take each stakeholder aside creditors uh us advisor we say in an insolvency type situation they are the real commercial owner of the business right so I think there will be a lot of expectation on the creditors in such situation to to come to the table with a open mindset and with the willingness to to really be transparent around what they are willing to accept and what they are not willing to accept and everything in between and be able to negotiate everything in between now obviously that also relies on their comfort and their confidence in the management team and the shareholder and the other side's willingness to also sit on the table with the uh with the willingness to find a solution and this is where you get to the other stakeholders so take the shareholders as well uh the shareholders yes fine they are no longer the commercial owner of the business but there are and depending on the situation we're talking if if if we're not talking about fraud and stuff like that there will be expectation from the shareholders to still show some commitment to the business to still to still show some willingness to share the pain to put something on the table and not expect the creditors to just take the hit and and and roll over basically uh and then you move to the management teams as well so the management team also have a big role to play and and I guess this is where rhan as well with what he has to offer in a lot of instances around coming as creditor advisor to add some sort of credibility to the process as a chief restructuring and that's also what we do in Anora as well because if you don't trust that the management team is able to not just do the restructuring because when we talk about restructuring the restructuring itself it's complex but I think it's also easy because ultimately when you look at most of the restructuring that are taking place they are being sold as it's better than liquidation and most often they are but than a liquidation but unless they then move from a restructuring which is the balance sheet restructuring to a turnaround situation where you are actually putting some initiative you move into implementation you're trying to change how things used to operate in order to find a PA forward then unfortunately you're going to end up in liquidation anyway even after a successful bance sheet restruction so each each each uh stakeholder do have a role to play and what about successes and challenges that you saying uh again we've talked I've seen a lot of success I've I've advised in the last four years probably 12 or 15 bankruptcy transaction 75% probably have reached success from a balance sheet perspective and this is why I was referring to like they have been able to get through a process creditors have approved it court has ratified it great but very rarely do you have then see that business actually continuing on the path of an actual turnaround installing the right governance in place putting a cro in place getting an actual change in business and I think probably for me the Lessons Learned in that is uh you need to move from just paper restructuring to implementation and 100% you need financing and this is why the IP financing and and all the funds that are now happening in in the Middle East and we've had on the first panel obviously talk around the opportunity in the Middle East versus the opportunity in Europe and so on but definitely there is a need for new money in the Middle East to help that move from balance sheet restructure to actual turnaround how does that money come in how do you push the envelope as we said to try to use the law to get a priority and so on definitely prominent question but there is a need for it it's a philosophical thing there right is is it's a concept that's come from chapter 11 do you punish the company and put it into liquidation or do you give it a second chance with its management because sometimes there things a company don't do wrong it's it's the markets it's macro it's other reasons that cause the company to fail but there's a massively good underlying business that works and so is there a format that allows that business to emerge and do you give it a second chance in an entrepreneurial spirit and that's why the legislation and jurisdiction is key to that will it function especially the cu the challenge I'm seeing is most of these company when they get to that stage they've already used all of these assets they don't really have any asset to spare right and you talk to the funds and you tell them are you willing to put money in sure secured lending what's my security right so if the law doesn't allow you to give them priority over the secured asset or the secured creditor as well it becomes very difficult so circling back around to a point that we were talking about earlier um and the difficulties in terms of recognition within a single jurisdiction let's say um I guess that was probably the the main downside that you saw in nmc right yeah it what it was uh yeah it was the I'd say after the continuances it was the it was the second major uh issue we had in taking so in the UK I mean for anyone from the UK you get an Administration order it's a three-page order it says the company or the companies are hereby uh in administration full stop that's it take that order it has effect here we decided that because most people didn't even understand what an Administration was we laid out the powers of the administrators and the consequences of the administration in a schedule to the order so the order instead of being three pages was 33 pages I can't remember the precise number number uh and then obviously we had that translated and then our local lawyers GA um spent a lot of time educating the judges in Abu Dhabi and Dubai sha as to what this meant and what it was and I think because the executive order which was had had a time period attached to it so we knew that we had to get the administration order have it recognized before the effect of the executive order expired I think because the executive order had been granted it was easier to explain that this order was effectively a follow on from that and was aiming to prevent you know the the collapse of the of the business so but as I say it took six months I think for all of the litigations and proceedings that had been commencing there were over a hundred um across the three different Emirates to have them all stayed um as rahan will know the next challenge bigger challenge is to have the courts recognize the effect of the deed of company Arrangement because the effect of that is is the claims are extinguished so it's one thing to get recognition of a stay it's an entirely different thing to have it recognize well actually this proceeding needs to be extinguished because the underlying liability no longer exists and that and that is still ongoing yeah but we we've had some big fights in this building with some big institutions and it has the rule of law has worked in the adgm yeah um and it ha here has worked in Dubai the docker got recognized against a couple of Institutions we went up against yeah and I think it's Alan Howard that even used that as an example this morning you know in his talk as to why he's in the ADM because the rule of law works yeah but you know it's taken us a lot longer I don't think that's the adm's fall it's the fact that the adgm is so far ahead of the local courts you speak to a trustee here it's very different than speaking to a trustee in Dubai where you know you got to explain a subpart versus an assignment and you're going to vote on the plan for a proxy it's it's just a different language and that takes time yeah right course yeah me the one I think one of the key advantages the ADM had over the DFC is the adgm is technically a court within the abuav court system whereas I believe the DC it's not it's hermetically sealed so when you have an adgm order it's stamped with the same stamp that you get from an onshore Abu Dhabi court so it has that ability to at least be recognized Within in Abu Dhabi uh and then you obviously what we what we did was Ed the recognition of the Abu Dhabi and then for Abu Dhabi to make requests to other Emirates to have an Abu Dhabi order recognized so that was the process that we went through which eventually worked but it as as ran says it it took a lot of time because this is all new and all novel so yeah and I guess from my perspective I would really welcome something that aligned the jurisdictions within the jurisdictions you know we've got yeah the we've got the DC the adgm Saudi Bahrain all adopted the onal model law on cross border I mean interesting point about the fact that he had to go through common law and not the UN trial between adgm and DC so even that recognition between two offshore jurisdictions which have have both recognized crossb you know regulations we couldn't use it from adgm to the IFC you've also got the Civil versus you got the Anglo-Saxon method Philosophy of Law versus Napoleonic Code and Islamic school yeah it's a it's a complete headbut right so you're trying to explain one way of thinking to one system to another Court where they think a complete different concept right so but it's it's going to work it just takes time but again I think kareim said it's the devil's in the detail isn't it if you spend a bit of time actually putting something together that that brings it together and works across the board you know like the European yeah you know the E recast I think Latin America is quite good for for collaborating in terms of bankruptcy restructuring insolvency situations so I think with a bit of time and effort and actually thought about how it it can all be put together as a jigsaw puzzle I I honestly don't think that it's it's impossible I think and I think that it would really assist in but but but also it's not just the law itself right it's the supporting regulation and the regulation being the other court so Commercial Court versus execution court and also the other regulations so for example the Central Bank regulation how they are treating the claim moratorium and whether they are accepting that and letting the banks know that they should respect these things so it's not just the law itself and the law is getting there but it's also developing the infrastructure and the supporting regulation that comes with the law so then you can have a proper working ecosystem I think I think you will that's an inherent problem isn't it of what you would probably say I mean International insolvency or does that actually exist because of the laws that sit beneath ins solty laws and even even jurisdictions that have adopted model laws Etc you still got to do that deeper Dive Right and and and it's at that point then sometimes you see problems so any more comments from the panel about um Juris downsides upsides no I suppose it was just one one last example which is I thought was the most interesting that brought the tensions between the adgm and the official courts into very Stark um contrast was that we had one creditor who had obtained an attachment in the Divi courts because they had a Divi facility and they had got to a certain point in their legal process when we f for administration they continued that legal process in in the face of the administration and and ultimately the deed of company Arrangement and on the basis they their position was look we lent money to a Dubai company it was an LLC pursuant to a Dubai facility and we've started this process and we have attachments this is you know you need to pay us and continued with this uh this campaign of obtaining attachments and we were desperately trying to give effect to the moratorium to shut this down we did eventually shut down but then when um the large part of the companies came out of administration the the campaign started again and uh despite the deed of company Arrangement which had extinguished that debt so we went to the adgm court for what English lawyers refer to as an anti suit injunction so on the back of or an anti- enforcement injunction on the back of the deed of the company Arrangement because they' submitted a claim in the administration so as a matter of English law that that provided that they' submitted to the court for those purposes and this one for me was where the continues and the administrations were really um at tension with the local courts and in the end the adgm did Grant that injunction and because the Creditor continued to campaign um actually found that that creditor was in contempt so and then the credits stopped and we got a cost we got a cost but but that was quite an extraordinary situation and actually we had something go up all the way up to the the federal uh supreme court because they were arguing at the very last gasp that there was a conflict between the Ed deeded company ration Administration and their attachment and in the end we won that case in the federal Supreme Court as well so so that was the final if you will recognition of the process by the federal Supreme Court uh but yes a contempt action um and of course because the adgm is part of the Abu Dhabi system if you are in contempt then potentially it's a referral to the abadar um attorney general attorney general so they didn't take any any further steps with that no quite right yeah anyway that's my last comments I think we'll open up the floor to the audience if anybody's got any questions for myself or the panel please feel free that means we've answered everybody's questions already heard to so well thank you very much oh go on [Laughter] question yeah well it will depend on the big the big problem with the proceedings and the continuances was the many creditors have attached their trading licenses their health uh licenses their trading license the DD and we couldn't do the continues unless the DS signed off and said you're you're clear so I can only say that it would be in circumstances where a company recognized it was distressed but had not yet got into the position where it was being uh pursued attacked by proceedings with attachments so that it can in the context of its sort of anticipated filing could approach the adgm say hey can we can we come to the adgm because we want to file and I suppose that would be the circumstances in which that could be done again uh but in the absence of the executive order that we we obtained which released all of those attachments it just would not have happened in the nmc case so you going to declare your interest po any other questions in the UAE uh in a contract can you assign or determine the law and the jurisdiction are you allowed to do that yes you are yeah and it's generally recognized by all the courts sorry we've got a finished now sir you can though yes yeah you can yeah all right well thank you very much everybody thank [Applause] you