Cross-border resolution of banking groups: old demons, current progress, future challenges

Ilias Pnevmonidis, Luc Thévenoz
2014
The Cour d'Appel de Bruxelles on 12 th December 2008, however, entirely reversed this ruling. The initial Share Purchase Agreement entered into between the Belgian government and Fortis, as well as the Protocole d'Accord with BNP was suspended: according to the Court's decision, BNP's acquisition had to be reviewed and approved by the general assembly of shareholders. 17 The Belgian state's acquisition of Fortis via the SFPI/FPIM was subsequently suspended for sixty-five days, and the
more » ... could in no way dispose of its shares in Fortis. 18 Hence, the closing of the agreements with BNP was aborted. The Court also appointed a Committee of five Belgian Experts in order to review the transactions and propose a course of action for the shareholders. The Committee advised the shareholders to vote in favour of the acquisition, since the group was in a critical financial situation and there was no viable alternative solution in the immediate term. Based on this report negotiations between the principal actors recommenced at the beginning of January 2009 in order to review the Protocole d'Accord. The parties entered into a final stage of negotiations after February 2009. The revised and final agreement was reached between Fortis, the Belgian government and BNP on the 12 th of March 2009. 19 73% of the shareholders present at the meeting of shareholders held on 28 th April 2009 approved the aforementioned agreement. The sale to BNP Paribas was officially made final on 12 th May 2009, following the EC Commission's decision that the involvement of the Benelux states in the Fortis crisis did not violate any EC Regulations. 20 Today, those parts of the Fortis group that the Dutch government nationalised remain part of ABN AMRO, and the remaining insurance activities of the Fortis group that had not been acquired by BNP Paribas now operate under the new name of Ageas. rules would be set aside by article 2:8 of the Dutch Civil Code if justified by reasonableness and fairness taking account of specific and pressing circumstances", FORTIS, 2008, p.25. 17 The Court considered that in casu there was no reasonable justification in order to put aside the national rules regarding shareholders ' approval, FORTIS, 2009a, p.13. 18 Otherwise, it would risk a fine of € 5 bn. 19 The final agreement provided for the following: a) the transfer of 74.94% of Fortis Bank SA/NV shares by the Belgian state to BNP Paribas in exchange for 11.6% of the BNP shares (as provided in the first Protocole d'Accord), b) the acquisition by Fortis Bank SA/NV (through funding from its now majority shareholder BNP Paribas) of 25% + 1 share of Fortis Insurance Belgium SA/NV, and, finally, c) the creation of a special purpose vehicle (incorporated on the 20 th of November 2008 under the name 'Royal Park Investments SA/NV') funded by Fortis (44.7%), the Belgian state (43.5%) and BNP Paribas (11.8%) in order to purchase the portfolio of Fortis' structured products, FORTIS, 2009b, pp.4-6. 2 BNP PARIBAS, 2009. Litigation regarding the sale to Barclays The frantic negotiations of the US authorities to hastily conclude the transfer of LBI's business to Barclays and to ensure the orderly winding-up of the remaining parts of the broker dealer led to contentious debates. The litigation before the New York Bankruptcy Court between the debtors, the SIPA trustee and Barclays is an illustrative example that the sale of LBI cannot be considered an outright success. Given the short time frame within which the agreements with Barclays were drafted, and the ongoing bankruptcy process for LBHI, important mistakes occured. As a result, the Valukas Report mentioned explicitly that limited assets belonging to specific LBHI's subsidiaries and not to LBI were swept up in the transfer to Barclays. 60 Given that the management of clients' assets was organised along complex business and corporate structure lines, it was simply not possible, even for Lehman Brothers, to identify and separate its subsidiaries' assets at such short notice. The principal ongoing legal conflicts between LBI and Barclays focus, however, on the assets that had been transferred under the 'Clarification Letter', as well as the compensations due to certain LBI employees. In effect, Lehman was requesting that the Court force Barclays to hand over "the immediate, undisclosed, multi-billion dollar windfall gain" -a total of $ 13 bn, which the British group had received under the 'Clarification Letter" Agreement'. 61 It was Lehman's view that it had sold its assets to Barclays at a severely discounted rate, well below their fair value. Moreover, the content of this 'Clarification Letter' had never been submitted to the Court for approval, thus, Barclays could not impose any alterations to the initial APA. The Court proceeded to examine Lehman's claims regarding Barclays' windfall gain from the sale. 62 It accepted that "errors, omissions and miscommunications were bound to occur" 60 Valukas, 2010, p.1963-64. 6 DEMOS, 2010 62 As mentioned above, when Barclays stepped in FRBNY's shoes concerning LBI's liquidity financing, the British bank achieved an agreement so as to take out LBI's liabilities from the FRBNY. Under this 'Repurchase Agreement' Barclays secured a $ 5 bn 'buffer' gain, between the $ 45 bn of LBI's liabilities to the FRBNY and the $ 50 bn of collateral it asked LBI to pledge. 29 and that "it was impossible to precisely determine the fair value of all of the assets that were being transferred". 63 Furthermore, despite the fact that the 'Clarification Letter' had never been brought before to the Court for formal approval, Judge Peck concluded that since "the parties have relied on the Clarification Letter as a binding and enforceable transaction document, and so despite the lack of formal approval, the Court is willing to do the same". 64 All in all, LBI's motion for Barclays to pay back the $ 13 bn in assets was rejected. On 6 th June 2011, the New York Bankruptcy Court issued a new ruling with regard to the aforementioned matters, further clarifying its February 2011 judgment: Barclays was ordered to return a total of $ 2 bn in assets to the SIPA trustee, and also pay a 5% annual interest on this sum. 65 Barclays immediately initiated an appeal to this decision. 66 In June 2012, Judge Forrest of the US District Court for the Southern District of New York ruled on Barclays' appeal. Although she rejected Barclays' claims regarding LBI's customer reserve accounts, she overturned Judge Peck's judgement relating to approximately $ 3.5 bn in margin and other assets, as well as the previous ruling with regard to the sum of approximately $ 2 bn that Barclays had been condemned to pay back to the SIPA trustee. 67 The SIPA trustee filed a notice of appeal regarding this latest ruling. The US Court of Appeals for the Second Circuit, however, rejected this appeal in August 2014, thereby affirming the US District Court's ruling. 68 63 UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK, 2011, p.17. 64 Ibid, p.27. He went on to clarify that "reliance is not, and ordinarily should not be, a substitute for actual approval, but the combination of circumstances surrounding the execution of the Clarification Letter leads to the conclusion that it is appropriate to treat this document as if it had been approved".
doi:10.13097/archive-ouverte/unige:48362 fatcat:hloekmuqanfrflp3i3q6ai7zwy