Latham.London

Avoiding Misadventures in Venture: Considerations for European Corporates

Posted in M&A and Private Equity

European corporate venture capital teams should reflect on their rights in light of falling valuations, revised exit expectations, and other challenges.

By Richard Butterwick, Beatrice Lo, Shing Yuin Lo, Mike Turner, Jon Fox, and Catherine Campbell

This year has been challenging for venture capital (VC). Valuations of VC-backed companies listed on the public markets dropped by 74.2% in the first half of 2022, and evidence indicates private valuations are also declining. While the downturn underlines growing challenges for early and late-stage emerging companies, it also presents risks and opportunities for large corporates, who have significantly increased their presence in VC deals in recent years — with participation growing by 462.5% in the decade to 2021. In Q4 2021, corporate VC participated in 2,858 deals with an aggregate value of US$98.7 billion, a record high.

Given the significant increase in the number of corporates participating in the VC and growth equity space, many corporate VC teams will be dealing with a downturn for the first time. In our view, corporate VC teams should proactively seek to understand any downside protections they benefit from in order to position themselves to manage risk and maximise prospective opportunities.

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Cramming Down Pension Liabilities: The Final Frontier?

Posted in Restructuring

Defined benefit pension arrangements in the UK may not be immune to cross-class cramdown powers under a Part 26A restructuring plan.

By Shaun M. Thompson, Hafza Hussein, Paul R. Lawrence, and Tim Bennett

As the UK looks set to enter a new restructuring cycle, the question remains whether a restructuring plan (RP) could be used to cram down defined benefit (DB) pension liabilities in the face of opposition from UK pension plan trustees and in light of the new and wide-ranging criminal offences introduced by the Pension Schemes Act 2021. The UK Pensions Regulator (TPR) has a statutory duty to reduce the risk of DB plans entering the Pension Protection Fund (PPF), which is the UK’s “lifeboat” arrangement for DB plans whose sponsoring employers have become insolvent.

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Meaning of “Good Faith” Under English Law: Latest Clarification

Posted in Litigation

The Court of Appeal reiterates the importance of the specific context in interpreting contractual good-faith duties.

By Oliver E. Browne and Alex Cox

English law does not include a general implied duty of good faith. However, the English courts are willing to enforce contractual duties of good faith. In Mark Faulkner & Ors v. Vollin Holdings Limited & Ors[1], the Court of Appeal provided important clarification on the approach to such contractual good-faith duties.

Background

The case related to an unfair prejudice petition under section 994 of the Companies Act 2006, brought by the minority shareholders (the Minorities) in Compound Photonics Group Limited (CPGL) against the majority investors (the Investors) in CPGL.

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E-Money, Payment Services, and Insolvency

Posted in Restructuring

Consumers and service providers should take note of some of the enhanced risks upon an e-money institution’s insolvency.

By Hongbei Li

Technology is rapidly changing the way customers and businesses interact with financial systems. Fintech companies are a driving force behind the disruption of traditional banking and payment services, with regulatory innovation close behind.

In the 12 months to June 2021, electronic money institutions (EMIs) in the UK processed more than £500 billion of transactions, according to Financial Conduct Authority (FCA) data. In 2019, UK EMIs held £10 billion in customer funds, the UK government estimates. By 2025, more than seven in 10 smartphone owners will be mobile P2P payment users. As a major remittance source country, the UK has seen a 30% growth in its digital remittance market in 2021. According to Statista, this market is predicted to grow to more than $4.6 billion by 2025. These trends are fuelling the UK’s ambition to become a world leader in payments innovation.

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StaRUG in Practice: German Scheme Expands Restructuring Options for Debtors

Posted in Restructuring

The scheme offers a credible implementation alternative, but no “one size fits all” solution exists for German credits.

By Daniel Splittgerber

German credits in sectors such as real estate, automotive, and energy face a worsening macro backdrop. At the same time, the available toolkit for financial restructurings has expanded, offering multiple options without the need for recourse to insolvency proceedings.

Since Germany implemented the EU Preventive Restructuring Directive and introduced its national scheme (the Corporate Stabilisation and Restructuring Act, or StaRUG) in early 2021, the StaRUG has become a credible implementation alternative, and one of the key options for non-consensual implementation planning. In 2021, only a few dozen German schemes were implemented for small and medium-size enterprises (SMEs), a testament to Germany’s economic strength and hot capital markets. This allowed debtors to refinance but often at a high cost. As the last quarter of 2022 and 2023 foreshadow a bleaker outlook from both a macro and an interest-rate perspective, next year is likely to bring a significant uptick in restructuring activity for German credits and a heightened focus on the StaRUG.

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Cross-Border Recognition: Hong Kong Schemes and the Compromise of Foreign Law-Governed Debt

Posted in Restructuring

Judicial comments cast doubt on the ability to compromise US law-governed debt effectively based on Chapter 15 recognition alone.

By Bruce Bell, Adam J. Goldberg, Howard Lam, Flora Innes, and Tim Bennett

A recent first instance decision in Hong Kong has highlighted an important conflict-of-laws issue that will inform where debtor groups with a Hong Kong presence choose to promote a restructuring. Re Rare Earth[1] relied on the rule in Gibbs to cast doubt on the ability of an offshore scheme of arrangement to compromise New York law-governed debt.

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Action Needed as PE Faces Evolving Web of Digital Economy Regulation

Posted in M&A and Private Equity

Navigating evolving digital economy regulation requires a sophisticated and proactive approach from dealmakers.

By Tom D. Evans, Deborah Kirk, David J. Walker, Alice Drayton, Catherine Campbell, and Amy Smyth

Amid the ongoing global proliferation of regulation governing the digital economy, EU and UK legislators are taking significant strides toward creating a fairer and safer digital trading environment for consumer and business users. Much of this incoming regulation is applicable to a wide range of actors, impacting the tech sector and beyond, with a particular focus on large platform providers. From the giant-tech focused EU Digital Markets Act to the far-reaching UK Online Safety Bill, the European regulatory landscape is maturing, and regulatory expectations on businesses operating in the digital space are increasing. As a result, sponsors and portfolio companies should begin their assessments of the legal, regulatory, and commercial implications of this changing landscape. Continue Reading

European Scrutiny of Foreign Subsidies to Impact PE Deals

Posted in M&A and Private Equity

A new regulation to control foreign subsidies could entail more complex, costly, and time-consuming deal clearances.

By Carles Esteva Mosso, Tom D. Evans, Elisabetta Righini, David J. Walker, Gillian Bourke, Natália Solárová, Werner Berg, France-Helene Boret, and Catherine Campbell

European M&A is set to become more complex after the entry into force of the Foreign Subsidies Regulation (FSR), a new regime introduced to control foreign subsidies that distort the EU internal market. This unprecedented new regulatory layer will apply in addition to existing merger control and foreign direct investment scrutiny, and comes at a time of heightened regulatory focus on deals across multiple jurisdictions. Continue Reading

Foreign Subsidies Regulation Presents a New Hurdle for European M&A

Posted in M&A and Private Equity

A new regulation to control foreign subsidies could result in more complex, costly, and time-consuming M&A clearance processes.

By Richard Butterwick, Carles Esteva Mosso, Beatrice Lo, Elisabetta Righini, Gillian Bourke, Natália Solárová, Werner Berg, France-Helene Boret, and Catherine Campbell

European M&A is set to become more complex after the European Parliament and European Council agreed the Foreign Subsidies Regulation (FSR), a new regime introduced to control foreign subsidies that distort the EU internal market. This new regulatory layer will apply in addition to existing merger control and foreign direct investment scrutiny of M&A, and comes at a time of heightened regulatory intervention in deals across multiple jurisdictions. Continue Reading

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