96 Search Results

September 11, 2018 |
Transfer Restrictions – A Delicate Balance?

Click for PDF Following the global financial crisis, the restrictions on a lender’s ability to transfer its voting participations in the European leveraged acquisition finance space (assuming an English-law governed facility agreement) became reasonably standard, albeit they were slightly more favourable towards the lender than the borrower. In summary, it became customary for a lender to be able to freely transfer its voting participations if the transfer: (i) was made to an existing lender or to an affiliate or related fund of the lender; (ii) was made to an entity specified on a “white list” pre-approved by the lender and the borrower; or (iii) was made whilst an event of default was continuing. Further, typically a borrower could not “unreasonably withhold” consent to a lender’s request to transfer, and often a borrower’s consent was “deemed” to be given (typically, within five business days) should consent not be forthcoming. Whilst negotiated around the edges, this general position became accepted by both borrowers and lenders. The balance as between the interests of the lender and the borrower made sense in the context of the post-financial crisis when lenders had a greater bargaining position generally at the negotiation table and therefore were able to better control debt terms, including transferability. Then, with the increase in cov-lite loans and the corresponding dilution in certain lender protections, the ability to transfer with relative ease was an important tool in a lender’s armoury and a price borrowers had to pay for the flexibility afforded by the documentation more generally. The transformation of transfers Fast forward to today’s market and borrowers have re-gained control on documentation terms, including influencing transferability provisions. Borrowers now have much greater control over the identity of their lenders and the make-up of their syndicate more generally. We consider a number of recent trends in the market below. 1.   The white list (and now also, the black list) As set out above, the white list concept allows a lender to transfer its interest in a loan to any entity that is named on the pre-approved, negotiated “white list” without requiring borrower consent. Borrowers could often amend a white list by removing (or perhaps adding) an agreed number of names (typically up to five on an annual basis). Recently, however, we have seen borrowers placing additional restrictions on the white list concept. By way of example, borrowers have: (i) argued that there should be no overall cap on the number of entity names that can be removed from a white list over the life of the loan; (ii) resisted agreeing or attempting to agree to replacement lenders to a white list; (iii) pushed for blanket carve-outs of certain entities already specified on a white list, such as vulture funds, industry competitors and/or loan-to-own investors (see further below); and/or (iv) requested to be notified prior to a transfer being effective, even if the proposed transferee is an entity on the pre-approved white list. In addition (although not directly linked to the white list), borrowers have also negotiated restrictions on the size of permitted transfers to new lenders / affiliates of existing lenders – in some examples, restricting transfers of interests which amount to ten per cent. or more of the total commitments – so as to try and mitigate a single entity acquiring a blocking stake (although this does not prohibit a number of related funds acquiring multiple stakes, all of which in essence are controlled by the same institution). Borrowers have also attempted to introduce the US-concept of a “black list” – traditionally only seen in the US-market. Unlike a white list, entities named on a black list are “disqualified” entities to whom a lender is unable to transfer its loan participation. Black lists typically prohibit transfers to difficult or predatory entities, such as vulture funds, industry competitors and other non-traditional lenders, and therefore are conceptually different to the European white list. 2.   Major Events of Default Transfer restrictions typically fell away upon an event of default, such that borrower consent (as set out above) to a transfer was no longer required. The basic rationale was that lenders should not be reliant on borrower consent to a transfer when the borrower itself has either incorrectly undertaken or failed to undertake an action pursuant to the terms of the loan agreement (often an indication of a distressed borrower). However, borrowers across the market have successfully negotiated the position whereby the restrictions on a lender’s right to transfer remain in place unless one of the following “major” events of default have occurred: (i) non-payment of the principal loan amount and/or interest; (ii) insolvency; or (iii) breach of a financial covenant. In other words, notwithstanding the occurrence of an event of default (provided not a “major” event of default), the borrower still has a degree of control over transferability. Of course, where the event of default arises from breach of a financial covenant, the limited nature of the financial covenant testing in a cov-lite loan means that this event of default and the lender’s freedom to transfer will likely arise even later. 3.   Reasonableness and deemed consent Borrowers have been pushing back on the need to act “reasonably” in withholding consent to any transfer request from a lender, and have also been extending the time period within which consent is deemed to have been given. Certain top-tier sponsors have removed the concept of deemed consent completely; in other instances the time period has been increased from the previously widely accepted five business days to either ten or fifteen business days. It is worth noting, however, that lenders continue to push for the concept of deemed consent and this has been successfully flexed back in during syndication in a number of deals during 2018. 4.   Industry competitors, loan-to-own investors and vulture funds In the last few years, particularly following the increasing role and prevalence of sponsor debt funds, borrowers have looked to regulate the business activities of potential transferees by placing blanket restrictions on transfers to certain types of entities unless the borrower, parent and/or the sponsor provides the required consent. By way of example, borrowers have successfully negotiated absolute restrictions on transfers to competitors of the borrower and/or the borrower group – typically known as, “industry competitors”, and this term is often very broadly defined. More recently, and seen particularly throughout 2017 / 2018, borrowers have also looked to restrict transfers to entities which customarily acquire distressed debt with a view to potentially converting the debt into equity and acquiring a stake in the company, i.e. “loan-to-own” investors. These restrictions capture a broad class of potential transferees. Borrowers have also sought for restrictions on transfers of loan participations to so-called “vulture funds”, being distressed debt funds, private equity funds and hedge funds that are in the business of investing in poorly performing debt. Whilst the rationale for a borrower restricting transfers to institutions of this nature are fairly well-rehearsed – i.e. as a generalisation, these institutions are traditionally regarded as enforcing their rights in a distressed scenario in a potentially more aggressive manner than traditional conventional bank lenders – borrowers also need to be wary of not overly prohibiting transfers in such a distressed scenario when it may in fact be advantageous to them to move the debt away from conventional bank lenders (see further below). 5.   Notification rights A further trend observed during 2018 has been the inclusion by borrowers of notification rights prior to a transfer. Such provisions require a lender to notify a borrower of all transfers, assignments and voting sub-participations (typically, between five to seven business days) ahead of such transfer, assignment or sub-participation occurring. This not only results in an (easily tripped) timing and administrative burden on the transferring lender but also, if the notification is not provided in time, it could (depending on the drafting within the loan agreement) result in the transferring lender being disenfranchised. 6.   Sub-participation Historically, restrictions on transfers only applied to absolute transfers and not sub-participations (whether voting or otherwise). However, borrowers have pushed for controls on transfers of voting sub-participations, and this is now very much the market norm. This is understandable from a borrower perspective as a transfer of voting rights is in many respects akin to an absolute transfer when it comes to assessing the nature of the lender syndicate for a waiver / consent or for other voting purposes. In addition, borrowers have more recently requested information on all (not just voting) sub-participation arrangements and copies of registers containing details on each sub-participant. The next likely step, in our view, will be for borrowers to strengthen this position further and request restrictions on non-voting as well as voting sub-participations. Where does this leave us – present and future? What was once perhaps considered a boiler-plate, “back-end-of-a-loan-agreement” provision has morphed into a heavily contested and negotiated mechanic seeking to balance the desire of the sponsor / borrower to be able to control the composition of, and its relationship with, its lending syndicate against the desire of the lenders wishing to retain maximum flexibility to transfer their interests in the underlying debt. Whilst this tension exists in most lending relationships throughout the term of the loan, it is likely to be at its most precarious in the period leading up to and during an event of default or distressed cycle. On one hand, it is understandable why a borrower wants to continue to control the identity of its lenders during such a period – a vulnerable and sensitive point in time for any borrower. On the other hand, if a lender is only able to transfer the debt after the occurrence of a specified major event of default or is unable to transfer to distressed debt funds and/or industry competitors even after an event of default, the lender has very limited flexibility at a potentially crucial time in a credit cycle. Unrestricted transferability following an event of default increases a lender’s options by opening up a pool of potential buyers – e.g. to those entities which may not be listed on the white list or entities to whom transfers would otherwise have required borrower consent. If the more recent, borrower-friendly provisions described above are adopted more widely, a lender essentially has to wait right up until the very end of a borrower’s distressed period (this is particularly so in a cov-lite loan where the incurrence nature of the financial covenant testing can result in a late invitation to the lenders to the negotiation table). By this time, the underlying asset will arguably have lost significant value, with the lenders experiencing a significant hair-cut in the par value of the debt before being able to freely trade it. This could result in the lender facing internal pressure from its credit and trading desks (such as realising value, de-risking, portfolio management and compliance with regulatory capital requirements), and an all-round “loss of interest” which could ultimately jeopardise the lender’s relationship with the borrower and its opportunity to secure future mandates from that borrower / sponsor. Similarly, by prohibiting loan transfers to vulture funds, loan-to-own investors and/or industry competitors, borrowers could be penalising themselves: borrowers are ousting the very entities that are most likely going to be interested in acquiring the debt and trying to help turn around the business after an event of default, and they could instead find themselves in an acceleration / enforcement scenario. Whilst the trend towards a dilution of a lender’s rights and increased restrictions on transferability seems (at least at this point in time) to be continuing, lenders (and borrowers) should perhaps be cautious of overly restricting transferability and liquidity in the loan market. Whilst current conditions favour sponsors and borrowers, these conditions may of course change. The possibility that a lack of liquidity will return should be a concern for borrowers and lenders alike. Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding these issues. Please contact the Gibson Dunn lawyer with whom you usually work, any member of the firm’s Global Finance practice group, or the authors: Amy Kennedy – London (+44 (0)20 7071 4283, akennedy@gibsondunn.com) Kathryn Shierson – London (+44 (0)20 7071 4260, kshierson@gibsondunn.com) Nisha Dulabdas – London (+44 (0)20 7071 4210, ndulabdas@gibsondunn.com) Please also feel free to contact the following leaders and members of the Global Finance group: Thomas M. Budd – London (+44 (0)20 7071 4234, tbudd@gibsondunn.com) Gregory A. Campbell – London (+44 (0)20 7071 4236, gcampbell@gibsondunn.com) Richard Ernest – Dubai (+971 (0)4 318 4639, rernest@gibsondunn.com) Jamie Thomas – Singapore (+65 6507 3609, jthomas@gibsondunn.com) Michael Nicklin – Hong Kong (+852 2214 3809, mnicklin@gibsondunn.com) Linda L. Curtis – Los Angeles (+1 213 229 7582, lcurtis@gibsondunn.com) Aaron F. Adams – New York (+1 212 351 2494, afadams@gibsondunn.com) © 2018 Gibson, Dunn & Crutcher LLP Attorney Advertising: The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

July 12, 2018 |
The Politics of Brexit for those Outside the UK

Click for PDF Following the widely reported Cabinet meeting at Chequers, the Prime Minister’s country residence, on Friday 6 June 2018, the UK Government has now published its “White Paper” setting out its negotiating position with the EU.  A copy of the White Paper can be found here. The long-delayed White Paper centres around a free trade area for goods, based on a common rulebook.  The ancillary customs arrangement plan, in which the UK would collects tariffs on behalf of the EU, would then “enable the UK to control its own tariffs for trade with the rest of the world”.  However, the Government’s previous “mutual recognition plan” for financial services has been abandoned; instead the White Paper proposes a looser partnership under the framework of the EU’s existing equivalence regime. The responses to the White Paper encapsulate the difficulties of this process.  Eurosceptics remain unhappy that the Government’s position is far too close to a “Soft Brexit” and have threatened to rebel against the proposed customs scheme; Remainers are upset that services (which represent 79% of the UK’s GDP) are excluded. The full detail of the 98-page White Paper is less important at this stage than the negotiating dynamics.  Assuming both the UK and the EU want a deal, which is likely to be the case, M&A practitioners will be familiar with the concept that the stronger party, here the EU, will want to push the weaker party, the UK, as close to the edge as possible without tipping them over.  In that sense the UK has, perhaps inadvertently, somewhat strengthened its negotiating position – albeit in a fragile way. The rules of the UK political game In the UK the principle of separation of powers is strong as far as the independence of the judiciary is concerned.  In January 2017 the UK Supreme Court decided that the Prime Minister could not trigger the Brexit process without the authority of an express Act of Parliament. However, unlike the United States and other presidential systems, there is virtually no separation of powers between legislature and executive.  Government ministers are always also members of Parliament (both upper and lower houses).  The government of the day is dependent on maintaining the confidence of the House of Commons – and will normally be drawn from the political party with the largest number of seats in the House of Commons.  The Prime Minister will be the person who is the leader of that party. The governing Conservative Party today holds the largest number of seats in the House of Commons, but does not have an overall majority.  The Conservative Government is reliant on a “confidence and supply” agreement with the Northern Ireland Democratic Unionist Party (“DUP”) to give it a working majority. Maintaining an open land border between Northern Ireland and the Republic of Ireland is crucial to maintaining the Good Friday Agreement – which underpins the Irish peace process.  Maintaining an open border between Northern Ireland and the rest of the UK is of fundamental importance to the unionist parties in Northern Ireland – not least the DUP.  Thus, the management of the flow of goods and people across the Irish land border, and between Northern Ireland and the UK, have become critical issues in the Brexit debate and negotiations.  The White Paper’s proposed free trade area for goods would avoid friction at the border. Parliament will have a vote on the final Brexit deal, but if the Government loses that vote then it will almost certainly fall and a General Election will follow – more on this below. In addition, if the Prime Minister does not continue to have the support of her party, she would cease to be leader and be replaced.  Providing the Conservative Party continued to maintain its effective majority in the House of Commons, there would not necessarily be a general election on a change in prime minister (as happened when Margaret Thatcher was replaced by John Major in 1990) The position of the UK Government The UK Cabinet had four prominent campaigners for Brexit: David Davis (Secretary for Exiting the EU), Boris Johnson (Foreign Secretary), Michael Gove (Environment and Agriculture Secretary) and Liam Fox (Secretary for International Trade).  David Davis and Boris Johnson have both resigned in protest after the Chequers meeting but, so far, Michael Gove and Liam Fox have stayed in the Cabinet.  To that extent, at least for the moment, the Brexit camp has been split and although the Leave activists are unhappy, they are now weaker and more divided for the reasons described below. The Prime Minister can face a personal vote of confidence if 48 Conservative MPs demand such a vote.  However, she can only be removed if at least 159 of the 316 Conservative MPs then vote against her.  It is currently unlikely that this will happen (although the balance may well change once Brexit has happened – and in the lead up to a general election).  Although more than 48 Conservative MPs would in principle be willing to call a vote of confidence, it is believed that they would not win the subsequent vote to remove her.  If by chance that did happen, then Conservative MPs would select two of their members, who would be put to a vote of Conservative activists.  It is likely that at least one of them would be a strong Leaver, and would win the activists’ vote. The position in Parliament The current view on the maths is as follows: The Conservatives and DUP have 326 MPs out of a total of 650.  It is thought that somewhere between 60 and 80 Conservative MPs might vote against a “Soft Brexit” as currently proposed – and one has to assume it will become softer as negotiations with the EU continue.  The opposition Labour party is equally split.  The Labour leadership of Jeremy Corbyn and John McDonnell are likely to vote against any Brexit deal in order to bring the Government down, irrespective of whether that would lead to the UK crashing out of the EU with no deal.  However it is thought that sufficient opposition MPs would side with the Government in order to vote a “Soft Brexit” through the House of Commons. Once the final position is resolved, whether a “Soft Brexit” or no deal, it is likely that there will be a leadership challenge against Mrs May from within the Conservative Party. The position of the EU So far the EU have been relatively restrained in their public comments, on the basis that they have been waiting to see the detail of the White Paper. The EU has stated on many occasions that the UK cannot “pick and choose” between those parts of the EU Single Market that it likes, and those it does not.  For this reason, the proposals in the White Paper (which do not embrace all of the requirements of the Single Market), are unlikely to be welcomed by the EU.  It is highly likely that the EU will push back on the UK position to some degree, but it is a dangerous game for all sides to risk a “no deal” outcome.  Absent agreement on an extension the UK will leave the EU at 11 pm on 29 March 2019, but any deal will need to be agreed by late autumn 2018 so national parliaments in the EU and UK have time to vote on it. Finally Whatever happens with the EU the further political risk is the possibility that the Conservatives will be punished in any future General Election – allowing the left wing Jeremy Corbyn into power. It is very hard to quantify this risk.  In a recent poll Jeremy Corbyn edged slightly ahead of Theresa May as a preferred Prime Minister, although “Don’t Knows” had a clear majority. This client alert was prepared by London partners Charlie Geffen and Nicholas Aleksander and of counsel Anne MacPherson. We have a working group in London (led by Nicholas Aleksander, Patrick Doris, Charlie Geffen, Ali Nikpay and Selina Sagayam) addressing Brexit related issues.  Please feel free to contact any member of the working group or any of the other lawyers mentioned below. Ali Nikpay – Antitrust ANikpay@gibsondunn.com Tel: 020 7071 4273 Charlie Geffen – Corporate CGeffen@gibsondunn.com Tel: 020 7071 4225 Nicholas Aleksander – Tax NAleksander@gibsondunn.com Tel: 020 7071 4232 Philip Rocher – Litigation PRocher@gibsondunn.com Tel: 020 7071 4202 Jeffrey M. Trinklein – Tax JTrinklein@gibsondunn.com Tel: 020 7071 4224 Patrick Doris – Litigation; Data Protection PDoris@gibsondunn.com Tel:  020 7071 4276 Alan Samson – Real Estate ASamson@gibsondunn.com Tel:  020 7071 4222 Penny Madden QC – Arbitration PMadden@gibsondunn.com Tel:  020 7071 4226 Selina Sagayam – Corporate SSagayam@gibsondunn.com Tel:  020 7071 4263 Thomas M. Budd – Finance TBudd@gibsondunn.com Tel:  020 7071 4234 James A. Cox – Employment; Data Protection JCox@gibsondunn.com Tel: 020 7071 4250 Gregory A. Campbell – Restructuring GCampbell@gibsondunn.com Tel:  020 7071 4236 © 2018 Gibson, Dunn & Crutcher LLP, 333 South Grand Avenue, Los Angeles, CA 90071 Attorney Advertising:  The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

July 1, 2018 |
A World of Convergence?

London partner Greg Campbell, of counsel Anne MacPherson; and Hong Kong partner Michael Nicklin are the authors of “A World of Convergence?” [PDF] published in the July/August 2018 issue of IFLR.

June 8, 2018 |
Linda Curtis and Barbara Becker Named IFLR1000 Women Leaders

Los Angeles partner Linda Curtis and New York partner Barbara Becker were recognized as part of the IFLR1000 Women Leaders. This guide recognized 300 female attorneys that are “among the best transactional specialists in their markets and practice areas.” This guide was published June 8, 2018.  

May 17, 2018 |
IFLR Americas Recognizes Gibson Dunn Deal

International Financial Law Review has named HBC/WeWork/Rhône Global Strategic Partnerships as the Private Equity Deal of the Year at the IFLR Americas Awards. Gibson Dunn served as US counsel to WeWork Property Advisors and Rhône. The awards were held on May 17, 2018.

April 17, 2018 |
Mezzanine Financing – Payment Subordination Agreements

New York partner J. Eric Wise and New York of counsel Yair Galil are the authors of “Mezzanine Financing – Payment Subordination Agreements,” [PDF] published by Bloomberg Law on April 17, 2018.

March 1, 2018 |
Intra-group Asset Transfers: In the Net, or Out?

London partners Gregory A. Campbell and Amy Kennedy and London associate Nisha Dulabdas are the authors of “Intra-group Asset Transfers: In the Net, or Out?” [PDF] published in the Butterworths Journal of International Banking and Financial Law in March 2018.  

April 13, 2018 |
The Indonesian PSC: the end of an era

In early 2017, Indonesia established a new form of production sharing contract (‘PSC’), the Gross-Split PSC, which abolished the cost recovery system first pioneered by Indonesia in 1966. Our article explores the history of the production sharing contract and some of the tensions associated with the traditional cost recovery system which contributed to the development of the Gross-Split PSC. We analyse the provisions of the new Gross-Split PSC and the issues that need to be considered by investors as a result of its introduction. To access a copy of our article, please click here: Our article was published in the Journal of World Energy Law and Business (JWELB) by Oxford University Press on behalf of the Association of International Petroleum Negotiators (AIPN) (Journal of World Energy Law and Business, 2018, 11, 116-135), which can be accessed at the following link: https://academic.oup.com/jwelb/article/11/2/116/4958804?guestAccessKey=a1fc1de5-422e-4abc-98bc-9e2f22303c2a Gibson, Dunn & Crutcher’s lawyers are available to assist in addressing any questions you may have regarding these issues. For further details, please contact the Gibson Dunn lawyer with whom you usually work or the authors in the firm’s Singapore office: Brad Roach Partner +65 6507 3685 broach@gibsondunn.com Alistair Dunstan Senior Associate +65 6507 3635 adunstan@gibsondunn.com

April 13, 2018 |
“Crossover” or “Split Collateral” Lien Subordination

New York partner J. Eric Wise and New York of counsel Yair Galil are the authors of “‘Crossover’ or ‘Split Collateral’ Lien Subordination,” [PDF] published by Bloomberg Law on April 13, 2018.

March 21, 2018 |
IJGlobal Names PT Medco Energi Internasional Project Financing as 2017 Asia Pacific Oil & Gas Deal of the Year

IJGlobal has named PT Medco Energi Internasional Tbk.’s Aceh Block A Project Financing as the 2017 Asia Pacific Oil & Gas Deal of the Year at its IJGlobal Awards, held on March 21, 2018. Gibson Dunn represented PT Medco E&P Malaka as operator and PT Medco Energi Internasional Tbk. as sponsor in a US$360 million pre-production reserves-based loan (RBL) project financing arranged by the mandated lead arrangers and bookrunners Australia and New Zealand Banking Group, ING Bank and Société Générale CIB for the development of Aceh Block A PSC gas fields in Indonesia. The Gibson Dunn team was led by Singapore partner Jamie Thomas and assisted by Singapore associate U-Shaun Lim.

March 12, 2018 |
Brexit – converting the political deal into a legal deal and the end state

Click for PDF In our client alert of 8 December 2017 we summarised the political deal relating to the terms of withdrawal of the UK from the EU with a two year transition.  It is important to remember that this “Phase 1” deal only relates to the separation terms and not to the future relationship between the UK and the EU post Brexit. In her Mansion House speech on 2 March 2018 UK Prime Minister Theresa May set out Britain’s vision for a future relationship.  The full text of her speech can be found here.  It continues to make it clear that the UK will remain outside the Single Market and Customs Union. On the critical issue of the Irish border, the UK Government’s position remains that a technological solution is available to ensure that there is neither a hard border within Ireland nor a border in the Irish Sea which would divide the UK.  Neither the EU nor Ireland itself accept that a technological solution is workable, and there remain doubts whether such a solution is possible if the UK is outside the EU Customs Union (or something equivalent to a customs union).  The terms of the political deal in December make it clear that, in the absence of an agreed solution on this issue, the UK will maintain full alignment with the rules of the Single Market and Customs Union. The UK’s main opposition party, The Labour Party, has now shifted its position to support the UK remaining in a customs union. The Government is proposing a “customs partnership” which would mirror the EU’s requirements for imports and rules of origin. Theresa May has acknowledged both that access to the markets of the UK and EU will be less than it is today and that the decisions of the CJEU will continue to affect the UK after Brexit. On a future trade agreement, the UK’s position is that it will not accept the rights of Canada and the obligations of Norway and that a “bespoke model” is not the only solution. There is, however, an acknowledgement that, if the UK wants access to the EU’s market, it will need to commit to some areas of regulation such as state aid and anti-trust. Prime Minister May has confirmed that the UK will not engage in a “race to the bottom” in its standards in areas such as worker’s rights and environmental protections, and that there should be a comprehensive system of mutual recognition of regulatory standards. She has also said that there will need to be an independent arbitration mechanism to deal with any disagreements in relation to any future trade agreement. Theresa May has also said that financial services should be part of a deep and comprehensive partnership. The UK will also pay to remain in the European Medicines Agency, the European Chemicals Agency and the European Aviation Safety Agency but will not remain part of the EU’s Digital Single Market. Donald Tusk, the European Council President, has rejected much of the substance of the UK’s position, stating that the only possible arrangement is a free trade agreement excluding the mutual recognition model at the heart of the UK’s proposals.  Crucially, however, he has said that there would be more room for negotiation should the UK’s red lines on the Customs Union and Single Market “evolve”. It is clear that this is an opening position for the two sides in the negotiations and that there is a long history of EU negotiations being settled at the very last minute.  The current timetable envisages clarity on the final terms of the transition and the “end state” by the European Council meeting on 18/19 October 2018. This client alert was prepared by London partners Charlie Geffen and Nicholas Aleksander and of counsel Anne MacPherson. We have a working group in London (led by Nicholas Aleksander, Patrick Doris, Charlie Geffen, Ali Nikpay and Selina Sagayam) that has been considering these issues for many months.  Please feel free to contact any member of the working group or any of the other lawyers mentioned below. Ali Nikpay – Antitrust ANikpay@gibsondunn.com Tel: 020 7071 4273 Charlie Geffen – Corporate CGeffen@gibsondunn.com Tel: 020 7071 4225 Nicholas Aleksander – Tax NAleksander@gibsondunn.com Tel: 020 7071 4232 Philip Rocher – Litigation PRocher@gibsondunn.com Tel: 020 7071 4202 Jeffrey M. Trinklein – Tax JTrinklein@gibsondunn.com Tel: 020 7071 4224 Patrick Doris – Litigation; Data Protection PDoris@gibsondunn.com Tel:  020 7071 4276 Alan Samson – Real Estate ASamson@gibsondunn.com Tel:  020 7071 4222 Penny Madden QC – Arbitration PMadden@gibsondunn.com Tel:  020 7071 4226 Selina Sagayam – Corporate SSagayam@gibsondunn.com Tel:  020 7071 4263 Thomas M. Budd – Finance TBudd@gibsondunn.com Tel:  020 7071 4234 James A. Cox – Employment; Data Protection JCox@gibsondunn.com Tel: 020 7071 4250 Gregory A. Campbell – Restructuring GCampbell@gibsondunn.com Tel:  020 7071 4236 © 2018 Gibson, Dunn & Crutcher LLP Attorney Advertising:  The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

March 7, 2018 |
“All Assets” First-Lien/Second-Lien Intercreditor Agreements

New York partner J. Eric Wise and New York of counsel Yair Galil are the authors of “‘All Assets’ First-Lien/Second-Lien Intercreditor Agreements,” [PDF] published by Bloomberg Law on March 7, 2018.

January 31, 2018 |
Navigating Loan Documentation in Pre-Distressed or Distressed Scenarios

Click for PDF As some sectors of the UK economy continue to falter and feel the negative impact of various macro-economic events (including depressed oil and commodity prices, low interest rates and the uncertainty caused by the Brexit referendum decision and ensuing withdrawal process), it is inevitable that a number of borrowers will find themselves in pre-distressed or distressed scenarios. The vast majority of loan documentation governing live credits has either been entered into since the financial crisis in 2008 or reflects refinancings that have taken place since then.  Far from being more lender-friendly, however, it is generally acknowledged that there has been a gradual erosion of traditional lender protections – e.g. a watering down of financial covenant protections with the emergence of covenant-loose or covenant-lite loans – together with an influx of pro-sponsor/borrower provisions, often imported from the US market. Whilst on the one hand this is great news for borrowers – their loan documentation is, often, inherently more flexible than it once would have been and there are arguably fewer so-called early warning signs or hair triggers for lenders – it is clear that there are still a number of provisions within loan documentation that may present challenges to borrowers in pre-distressed or distressed situations.  This article looks to identify and navigate through a number of these. Material Adverse Effect, and Default or Event of Default In analyzing loan documentation from the perspective of a pre-distressed or distressed credit, it is key to have an understanding as to the scope of the Material Adverse Effect definition,  and the application of the Default or Event of Default definitions.  This is because the drafting of these seemingly innocuous defined terms can have a key bearing on whether a distressed or pre-distressed borrower is able to continue to utilize its debt facilities and/or avoid having to make premature disclosure of possible financial difficulties to its lenders. The definition of Material Adverse Effect typically acts as a qualifier for representations and/or positive covenants.  In addition, an immediate Event of Default typically arises if any event or circumstance occurs which has, or is reasonably likely to have, a Material Adverse Effect, giving lenders the ability to exercise their acceleration rights. There are customarily three limbs included within a Loan Market Association (“LMA”) form of Material Adverse Effect definition, as set out below: “an event or circumstance which has (or is reasonably likely to have) a material adverse effect on: (a) the business, assets or financial condition of the Group (taken as a whole); (b) the ability of the [Obligors] (taken as a whole) to perform their payment obligations under the Finance Documents; and (c) the validity or enforceability of or the effectiveness or ranking of transaction security.” Of course, top-tier sponsors successfully negotiate significantly more borrower-friendly Material Adverse Effect definitions.  However, it would be wrong to assume that in all instances the definition is well negotiated from the perspective of the borrower and, despite both its importance and prevalence, there are a number of recent examples of loan agreements which include one or more of the following lender-friendly concepts: (i) the inclusion of a subjective test such that the question whether the relevant event or circumstance has a material adverse effect is determined in the opinion, or reasonable opinion, of the lenders, (ii) the reach to any event or circumstance that has an effect not only on the assets or financial condition of the Group but also the prospects of that Group, and (iii) the material adverse effect bites on the ability of the relevant entities to perform their obligations in relation to financial covenant testing. A subjective test should always be avoided (as is the general rule of thumb for any determination to be made by a lender or agent throughout loan documentation) as it is much more difficult to challenge a subjective determination rather than an objective one, but often the significance of either a reference to “prospects” or to the ability of the relevant entities to perform their financial covenant obligations only becomes apparent when considering a distressed or pre-distressed scenario. Let’s consider a practical example: If a company delivers to its lenders monthly financial statements that show in all likelihood that the financial covenants, which are tested by reference to the quarterly financial statements delivered at the end of the following month, will be breached, does that give the company’s lenders grounds to conclude that there has been a material adverse effect on either the prospects of the Group or the ability of the relevant entities to perform their financial covenant obligations? No two situations are the same and so, to some extent, the answer will turn on the unique facts. If a situation like this were to arise, a court would look to determine whether a reasonable person, having the same knowledge and skill as the lenders, would determine that, on those facts, an event had occurred which had, or was reasonably likely to have, a material adverse effect on the prospects of the group or the ability of the relevant entity to comply with the financial covenants.  This is not a question of law but, rather, one of judgment – whilst declaring a material adverse effect in this instance would not be without risk for the lenders, it is something which they could consider.  There have been very few instances where lenders have relied solely on the occurrence of a material adverse effect to call an Event of Default and exercise their rights and remedies, particularly as lenders will generally err on the side of caution, but it is not unheard of or theoretically impossible. In addition to Material Adverse Effect, the concepts of Default and Event of Default are also key.  Typically, a Default is an event or circumstance which would, “with the expiry of a grace period, the giving of notice, the making of any determination under the Finance Documents or any combination of any of the foregoing“, be an Event of Default. As we noted with the Material Adverse Effect definition above, it is the occurrence of Defaults and Events of Default which trigger certain key rights and remedies for lenders under the underlying finance documentation – including putting the underlying debt on demand, declaring all or some of the debt immediately due and payable, or taking steps to enforce security.  Even if lenders choose not to exercise any of these rights following the occurrence of a Default or an Event of Default, the fact that they could do so is likely to underpin their stance towards the relevant borrower, and there may also be further consequences for that borrower as well (some of which we explore in some detail below). Possible Default Triggers Having regard to the above hypothetical fact pattern again, it is worth considering whether a Default or Event of Default may be deemed to have occurred following delivery of the monthly financial statements/management accounts.  Let’s suppose that the borrower/group is approaching impending financial distress, and the monthly financial statements suggest that some or all of the company’s financial covenants may not be complied with on the next test date. In that scenario, it is unlikely that delivery of such monthly financial statements would of itself be a Default (and therefore, also unlikely that the Borrower would be obliged to notify the agent of the occurrence of Default or an Event of Default, see further below).  This view is based on a legal analysis of the typical definition of “Default” and the fact that that definition does not (as is sometimes the case) include or refer to events that “with the passage of time” would become Events of Default.  It would of course be open to a company to choose to notify the lenders in any event, and/or the lenders may (incorrectly from a strictly legal point of view) consider delivery of such financials to have given rise to a “Default”.  Of course, if the relevant compliance certificate eventually delivered with the underlying financial statements does show a breach of all or certain financial covenants, this will give rise to an Event of Default on the date on which the covenants are tested.   The key point here is to be very clear about what the definition of “Default” says in analysing whether events or circumstances that may inexorably lead to an Event of Default necessarily constitute a Default. In a distressed, or soon-to-be distressed scenario, there are three other common events which may or may not trigger a Default or Event of Default. First, it is often an Event of Default if the auditors of the relevant borrower or borrower group qualify the audited annual consolidated financial statements of the group, and, e.g. the grounds giving rise to the qualification would be material in the context of the financing documents, or the qualification would be adverse (or materially adverse) to the interests of the finance parties.  The permutations of this Event of Default are important – rather like the Material Adverse Effect definition, there are a range of different provisions throughout the market and it is important for a borrower to understand whether any qualification is expected, and, if so, what the documentary and practical consequences of it may be – early-stage discussions and dialogue with the auditors and accountants of the group are key. Second, will the fact that an entity is balance sheet insolvent i.e. that its assets are less than its actual and contingent liabilities, result in the occurrence of a Default?  Often, the existence of a balance sheet insolvency test will be included as a Default – and usually, on an individual-company (rather than consolidated) basis. This creates the opportunity for an individual company within the group to trip a Default, notwithstanding that the company is not actually in financial difficulty, can meet its liabilities as they fall due and is not presumed insolvent under English law. Borrowers should, therefore, resist inclusion of a standalone balance sheet solvency Event of Default and should point to separate, customary lender protections e.g. an Event of Default that is triggered upon actual commencement of informal or formal insolvency proceedings, as providing sufficient lender comfort. Third, the LMA form of insolvency Event of Default captures the commencement of informal measures (such as negotiations with creditors) in relation to actual or anticipated financial difficulty, as set out below: (a)     A member of the Group: is unable or admits inability to pay its debts as they fall due; [is deemed to, or is declared to, be unable to pay its debts under applicable law]; suspends or threatens to suspend making payments on any of its debts; or by reason of actual or anticipated financial difficulties, commences negotiations with one or more of its creditors (excluding any Finance Party in its capacity as such) with a view to rescheduling any of its indebtedness. On its face, limb (iv) of the standard LMA formulation covers rescheduling of any indebtedness with any single creditor, including a company’s bank lenders, its landlords and trade creditors, irrespective of the quantum of those liabilities. The extent to which any particular approach or negotiations with a single or class of creditors might trip this Event of Default will invariably turn on the factual matrix; however, it should be noted that the High Court[1] has previously held that the term “rescheduling” implies a degree of formality and relates to the formal deferment of debt-service payments and the application of new and extended maturities to the deferred debt. It is not, therefore, concerned with an informal telephone conversation with or email to a relationship or credit manager requesting “a bit more time to pay”, which would be commercially unfeasible (particularly for highly leveraged entities which might have such conversations on a daily basis). Furthermore, the High Court has stated that the lead-in wording, which requires that informal negotiations be commenced by reason of “actual or anticipated financial difficulties”, in the context of a clause dealing with insolvency, envisages “difficulties” of a substantial nature. Notwithstanding the foregoing, however, a court will (subject to the particular facts) find that an event of default has occurred where negotiations are or the proposed rescheduling is beyond the ordinary course of a borrower’s business or is not simply a case of rolling-over existing indebtedness into new indebtedness. Prudent borrowers might try to limit the ambit of the above Event of Default to exclude negotiations with trade creditors; require that negotiations be with a “class” rather than single creditor; or specify that the Event of Default is triggered only on the occurrence of formal legal proceedings. Given the fact-sensitive nature of this provision, it is also important that borrowers and their advisers are alert to and carefully consider the potential to trigger a Default at the outset of a stressed or soon-to-be distressed scenario upon commencement of informal discussions with a single creditor or class of creditors. Finally, it is always important for a company to have one eye on its repeating representations – many borrowers will be unaware that a number of representations will be given automatically (including those buried in side letters or ancillary agreements such as security documents) – e.g. on each interest payment date.  Whilst a number of these representations are often technical or legal in nature, a number also extend to factual scenarios and, in some cases, to a representation that there is no Default. Consequences of the Occurrence of a Default or Event of Default At this juncture, it is worth noting – again perhaps obviously – that whilst as a commercial matter a distinction is sometimes drawn between a payment or “money” default and other so-called “technical” defaults (e.g. breach of undertaking, failure to deliver financial statements, etc.), as a legal matter, there is no such distinction, and there is no qualitative difference in terms of consequences between a payment or money Event of Default and any other Event of Default – the occurrence of any of them entitles the lenders to exercise the rights and remedies available to them under the relevant finance documents.  Although there are a handful of exceptions, it is best practice to assume that a technical default is the same as any other default and therefore the consequences of any such default are the same. Borrowers should ensure that all Events of Default, technical or otherwise, are waived in writing and confirmed as no longer “continuing”. As to the practical consequences of a Default or Event of Default, typically in many facilities, a drawstop to funding will be the occurrence of a Default in respect of new loans, and an actual Event of Default in relation to the rollover of existing loans (although, in some documents, even the occurrence of a potential Event of Default is a drawstop to rollover loans).  Clearly, if the trigger in either case is a Default, both the risk of the drawstop occurring is increased but, more practically, the company needs to be more attuned to when a Default may or may not arise.  As above, this drawstop would apply equally to so-called “technical” Defaults.  In some cases a funding drawstop (particularly in relation to existing or rollover loans) may be the beginning of a company’s downfall – if a company requires an on-going revolving facility / working capital line such that it cannot continue trading without these facilities, if existing borrowings are draw stopped, this may signal the end.  It is, therefore, particularly important to be aware of the triggers for funding draw stops, whether there is any advantage to a premature drawing of a revolving credit line (noting that this may not necessarily glean favour with the lending group) and how vital any undrawn facilities (particularly working capital facilities) are to the going concern nature of the group. It is also worth noting that any such drawstop may also apply to any overdraft facility (or equivalent) provided by way of ancillary facility. By way of reminder, customary loan documentation will typically require a borrower to provide the following information: (at any time) a certificate signed by certain senior officers of the company certifying that no Default is continuing (or, if a Default is continuing, specifying the Default and steps taken to remedy the same). This is a seemingly innocuous but potentially very important tool in the lenders’ armory and may be relied upon as the lenders become aware of potential financial difficulties (e.g. upon receipt of financial statements and/or compliance certificates) as a means of procuring an acknowledgment from the company that a Default has occurred and triggering the protections that arise on a Default. Borrowers and their advisers should ensure that provisions and the potential tripwires noted above are read with care to avoid responding to the lenders acknowledging a Default where, legally, and on an interpretation of the finance documents, there is no Default; and (promptly upon request) such further information regarding the financial condition, assets and operations of the group and/or any member of the group as any finance party may reasonably request. It is not uncommon for lenders to invoke this information request right in a stressed scenario as a means to obtaining further information; requests and responses to the lenders should be carefully considered by borrowers and their advisers, particularly to ensure that the response, if any, does not of itself constitute or give rise to a Default or Event of Default. In addition to the information undertakings/rights referred to above, loan agreements will usually also include a general undertaking requiring the group, in the event that a Default is continuing or the agent reasonably suspects such, to permit the agent and its professional advisers free access at all reasonable times and on reasonable notice (at the borrower’s cost) to the premises, assets, books and accounts of each group company, and to meet and discuss matters with members of senior management. Since this undertaking extends to a situation where the agent reasonably suspects a Default may have occurred, it may be invoked by the lender group ahead of an actual Default and upon receipt of financial information which is sufficiently concerning to the lenders. It is, typically, this right which permits the lenders to commission an independent business review (or so-called “IBR”) whereby a firm of accountants will be appointed to investigate and report on the financial condition of the group and which is invariably a preliminary condition to implementing a restructuring plan. Other In a stressed or distressed scenario, it is also helpful for a company to have one eye on the transfer provisions contained within the finance documents. Typically, where lenders are subject to restrictions on transferability – e.g. to affiliates and entities on a white/permitted list – these will fall away following an Event of Default which is continuing.  In essence, this means that following an Event of Default, lenders would have the ability to transfer to distressed investors and/or so-called “vulture” or other credit funds (assuming, of course, that such entities are not already included on the White List).   As result, the complexion and disposition of the relevant lender group towards the underlying credit group could change quite radically following the occurrence of an Event of Default in circumstances where one or more of the existing lenders decided to trade out of the credit and sell to “loan-to-own” or “distressed-for-control” investors whose approach and motivations may be different. In light of recent aggressive, sponsor-driven documentation, however, some borrowers may find transfers to “loan-to-own” lenders are actually prohibited or that consent to trading is still required during an Event of Default (save in relation to non-payment or insolvency Events of Default only). Borrowers should also keep in mind the amendment and/or waiver provisions contained in the finance documents, particularly in the context of a lending syndicate where relationships with the borrower and/or treatment of the credit diverges between lenders. The traditional LMA construct provides that the vast majority of amendments and/or waivers to the finance documents require majority lender consent (typically lenders whose commitments aggregate more than 662/3 per cent. of the total commitments). Loan documentation will usually also include customary “yank the bank”, “snooze you lose” and “structural adjustment” provisions which may be used to the borrower’s advantage; for example, in a scenario where the revolving facility provider is less amenable to a restructuring plan than the other lenders, subject to the ongoing working capital needs of the group, undrawn revolving commitments and amounts that are committed by way of ancillaries such as overdrafts but not actually drawn  may be cancelled to adjust lender hold levels to the company’s advantage. Other facilities provided by favourable lenders, e.g. capex and acquisition facilities may also be drawn to adjust lender commitment levels. Again, it may be the case that in more recent documentation, the majority lender threshold is lower (for example, 50 per cent.) or that the scope of amendments requiring only affected/participating lender consent is greater, allowing more flexibility for borrowers. Refinancing Borrowers should also be alive to the inclusion of potential hair triggers when undertaking a refinancing or amendment to loan documentation in a non-distressed context; often, the terms of a refinancing will provide that documentation is amended to include updates to the most recent LMA form of loan agreement, to the extent required. Borrowers should resist wholesale acceptance of such amendments, however, and take care to ensure that these are purely mechanical. For example, a recent LMA update provides that a hedging agreement shall be deemed to be a “Finance Document” for the purposes of the definition of “Default”. Borrowers will, usually, have less control over and scope to negotiate hedging arrangements, and the inclusion of hedging agreements as a “Finance Document” for the purposes of the definition of “Default” will give the lenders a far earlier trigger on which to act than they otherwise had; instead, Borrowers should point to the protections built into separate ISDA documentation and to other events of default – e.g.  MAE – as providing sufficient comfort for the lenders. The inclusion of new “LMA” undertakings and representations should also be closely analysed to determine any risk that the borrower might trip these. Conclusion Whilst it is hoped that the above provides some food for thought, the overriding message is that borrowers (and sponsors) must look to understand their financing documents – not only to regularly review compliance with repeating representations and on-going covenants, but also to ensure they know their obligations should a Default or Event of Default arise, and to understand the consequences of any such Default or Event of Default.  Even if lenders do not look to accelerate the underlying debt or enforce security following a Default or Event of Default, they are more likely to use it as leverage as against the borrower, and could look to force an upward re-pricing, payment of a one-off fee or, just generally, be less amenable to agree to any required waiver or amendment. [1] Grupo Hotelero Urvasco SA v Carey Value Added SL and another [2013] EWHC 1039 (Comm) (26 April 2013). Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding these issues. Please contact the Gibson Dunn lawyer with whom you usually work, any member of the firm’s Global Finance practice group, or the authors: Amy Kennedy – London (+44 (0)20 7071 4283, akennedy@gibsondunn.com) Alex Hillback – London (+44 (0)20 7071 4248, ahillback@gibsondunn.com) Please also feel free to contact the following leaders and members of the Global Finance group: Thomas M. Budd – London (+44 (0)20 7071 4234, tbudd@gibsondunn.com) Gregory A. Campbell – London (+44 (0)20 7071 4236, gcampbell@gibsondunn.com) Richard Ernest – Dubai (+971 (0)4 318 4639, rernest@gibsondunn.com) Jamie Thomas – Singapore (+65 6507.3609, jthomas@gibsondunn.com) Michael Nicklin – Hong Kong (+852 2214 3809, mnicklin@gibsondunn.com) © 2018 Gibson, Dunn & Crutcher LLP Attorney Advertising:  The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

January 7, 2018 |
2017 Year-End German Law Update

Click for PDF “May you live in interesting times” goes the old Chinese proverb, which is not meant for a friend but for an enemy. Whoever expressed such wish, interesting times have certainly come to pass for the German economy. Germany is an economic giant focused on the export of its sophisticated manufactured goods to the world’s leading markets, but it is also, in some ways, a military dwarf in a third-tier role in the re-sketching of the new world order. Germany’s globally admired engineering know-how and reputation has been severely damaged by the Volkswagen scandal and is structurally challenged by disruptive technologies and regulatory changes that may be calling for the end of the era of internal combustion engines. The top item on Germany’s foreign policy agenda, the further integration of the EU-member states into a powerful economic and political union, has for some years now given rise to daily crisis management, first caused by the financial crisis and, since last year, by the uncertainties of BREXIT. As if this was not enough, internal politics is still handling the social integration of more than a million refugees that entered the country in 2015, who rightly expect fair and just treatment, education, medical care and a future. It has been best practice to address such manifold issues with a strong and hands-on government, but – unfortunately – this is also currently missing. While the acting government is doing its best to handle the day-to-day tasks, one should not expect any bold move or strategic initiative before a stable, yet to be negotiated parliamentary coalition majority has installed new leadership, likely again under Angela Merkel. All that will drag well into 2018 and will not make life any easier. In stark contrast to the difficult situation the EU is facing in light of BREXIT, the single most impacting piece of regulation that will come into effect in May 2018 will be a European Regulation, the General Data Protection Regulation, which will harmonize data protection law across the EU and start a new era of data protection. Because of its broad scope and its extensive extraterritorial reach, combined with onerous penalties for non-compliance, it will open a new chapter in the way companies world-wide have to treat and process personal data. In all other areas of the law, we observe the continuation of a drive towards ever more transparency, whether through the introduction of new transparency registers disclosing relevant ultimate beneficial owner information or misconduct, through obligatory disclosure regimes (in the field of tax law), or through the automatic exchange under the OECD’s Common Reporting Standard of Information that hitherto fell under the protection of bank secrecy laws. While all these initiatives are well intentioned, they present formidable challenges for companies to comply with the increased complexity and adequately respond to the increased availability and flow of sensitive information. Even more powerful than the regulatory push is the combination of cyber-attacks, investigative journalism, and social media: within a heartbeat, companies or individuals may find themselves exposed on a global scale to severe allegations or fundamental challenges to the way they did or do business. While this trend is not of a legal nature, but a consequence of how we now communicate and whom we trust (or distrust), for those affected it may have immediate legal implications that are often highly complex and difficult to control and deal with. Interesting times usually are good times for lawyers that are determined to solve problems and tackle issues. This is what we love doing and what Gibson Dunn has done best time and again in the last 125 years. We therefore remain optimistic, even in view of the rough waters ahead which we and our clients will have to navigate. We want to thank you for your trust in our services in Germany and your business that we enjoy here and world-wide. We do hope that you will gain valuable insights from our Year-End Alert of legal developments in Germany that will help you to successfully focus and resource your projects and investments in Germany in 2018 and beyond; and we promise to be at your side if you need a partner to help you with sound and hands-on legal advice for your business in and with Germany or to help manage challenging or forward looking issues in the upcoming exciting times. ________________________________ Table of Contents 1.  Corporate, M&A 2.  Tax 3.  Financing and Restructuring 4.  Labor and Employment 5.  Real Estate 6.  Data Protection 7.  Compliance 8.  Antitrust and Merger Control ________________________________ 1. Corporate, M&A 1.1       Corporate, M&A – Transparency Register – New Transparency Obligations on Beneficial Ownership As part of the implementation of the 4th European Money Laundering Directive into German law, Germany has created a new central electronic register for information about the beneficial owners of legal persons organized under German private law as well as registered partnerships incorporated within Germany. Under the restated German Money Laundering Act (Geldwäschegesetz – GWG) which took effect on June 26, 2017, legal persons of German private law (e.g. capital corporations like stock corporations (AG) or limited liability companies (GmbH), registered associations (eingetragener Verein – e.V.), incorporated foundations (rechtsfähige Stiftungen)) and all registered partnerships (e.g. offene Handelsgesellschaft (OHG), Kommanditgesellschaft (KG) and GmbH & Co. KG) are now obliged to “obtain, keep on record and keep up to date” certain information about their “beneficial owners” (namely: first and last name, date of birth, place of residence and details of the beneficial interest) and to file the respective information with the transparency register without undue delay (section 20 (1) GWG). A “beneficial owner“ in this sense is a natural person who directly or indirectly holds or controls more than 25% of the capital or voting rights, or exercises control in a similar way (section 3 (2) GWG). Special rules apply for registered associations, trusts, non-charitable unregulated associations and similar legal arrangements. “Obtaining” the information does not require the entities to carry out extensive investigations, potentially through multi-national and multi-level chains of companies. It suffices to diligently review the information on record and to have in place appropriate internal structures to enable it to make a required filing without undue delay. The duty to keep the information up to date generally requires that the company checks at least on an annual basis whether there have been any changes in their beneficial owners and files an update, if necessary. A filing to the transparency register, however, is not required if the relevant information on the beneficial owner(s) is already contained in certain electronic registers (e.g. the commercial register or the so-called “Unternehmensregister“). This exemption only applies if all relevant data about the beneficial owners is included in the respective documents and the respective registers are still up to date. This essentially requires the obliged entities to diligently review the information available in the respective electronic registers. Furthermore, as a matter of principle, companies listed on a regulated market in the European Union (“EU“) or the European Economic Area (“EEA“) (excluding listings on unregulated markets such as e.g. the Entry Standard of the Frankfurt Stock Exchange) or on a stock exchange with equivalent transparency obligations with respect to voting rights are never required to make any filings to the transparency register. In order to enable the relevant entity to comply with its obligations, shareholders who qualify as beneficial owners or who are directly controlled by a beneficial owner, irrespective of their place of residence, must provide the relevant entity with the relevant information. If a direct shareholder is only indirectly controlled by a beneficial owner, the beneficial owner himself (and not the direct shareholder) must inform the company and provide it with the necessary information (section 20 (3) sentence 4 GWG). Non-compliance with these filing and information obligations may result in administrative fines of up to EUR 100,000. Serious, repeated or systematic breaches may even trigger sanctions up to the higher fine threshold of EUR 1 million or twice the economic benefit of the breach. The information submitted to the transparency register is not generally freely accessible. There are staggered access rights with only certain public authorities, including the Financial Intelligence Unit, law enforcement and tax authorities, having full access rights. Persons subject to know-your-customer (“KYC“) obligations under the Money Laundering Act such as e.g. financial institutions are only given access to the extent the information is required for them to fulfil their own KYC obligations. Other persons or the general public may only gain access if they can demonstrate a legitimate interest in such information. Going forward, every entity subject to the Money Laundering Act should verify whether it is beneficially owned within the aforementioned sense, and, if so, make the respective filing to the transparency register unless the relevant information is already contained in a public electronic register. Furthermore, relevant entities should check (at least) annually whether the information on their beneficial owner(s) as filed with the transparency or other public register is still correct. Also, appropriate internal procedures need to be set up to ensure that any relevant information is received by a person in charge of making filings to the registers. Back to Top 1.2       Corporate, M&A – New CSR Disclosure Obligations for German Public Interest Companies  Effective for fiscal years commencing on or after January 1, 2017, large companies with more than 500 employees are required to include certain non-financial information regarding their management of social and environmental challenges in their annual reporting (“CSR Information“). The new corporate social responsibility reporting rules (“CSR Reporting Rules“) implement the European CSR Directive into German law and are intended to help investors, consumers, policy makers and other stakeholders to evaluate the non-financial performance of large companies and encourage companies to develop a responsible and sustainable approach to business. The CSR Reporting Rules apply to companies with a balance sheet sum in excess of EUR 20 million and an annual turnover in excess of EUR 40 million, whose securities (stock or bonds etc.) are listed on a regulated market in the EU or the EEA as well as large banks and large insurance companies. It is estimated that approximately 550 companies in Germany are covered. Exemptions apply to consolidated subsidiaries if the parent company publishes the CSR Information in the group reporting. The CSR Reporting Rules require the relevant companies to inform on the policies they implemented, the results of such policies and the business risks in relation to (i) environmental protection, (ii) treatment of employees, (iii) social responsibility, (iv) respect for human rights and (v) anti-corruption and bribery. In addition, listed stock corporations are also obliged to inform with regard to diversity on their company boards. If a company has not implemented any such policy, an explicit and justified disclosure is required (“comply or explain”). Companies must further include significant non-financial performance indicators and must also include information on the amounts reported in this respect in their financial statements. The CSR Information can either be included in the annual report or by way of a separate CSR report, to be published on the company’s website or together with its regular annual report with the German Federal Gazette (Bundesanzeiger). The CSR Reporting Rules will certainly increase the administrative burden placed on companies when preparing their annual reporting documentation. It remains to be seen if the new rules will actually meet the expectations of the European legislator and foster and create a more sustainable approach of large companies to doing business in the future . Back to Top 1.3       Corporate, M&A – Corporate Governance Code Refines Standards for Compliance, Transparency and Supervisory Board Composition Since its first publication in 2002, the German Corporate Governance Code (Deutscher Corporate Governance Kodex – DCGK) which contains standards for good and responsible governance for German listed companies, has been revised nearly annually. Even though the DCGK contains only soft law (“comply or explain”) framed in the form of recommendations and suggestions, its regular updates can serve as barometer for trends in the public discussion and sometimes are also a forerunner for more binding legislative measures in the near future. The main changes in the most recent revision of the DCGK in February 2017 deal with aspects of compliance, transparency and supervisory board composition. Compliance The general concept of “compliance” was introduced by the DCGK in 2007. In this respect, the recent revision of the DCGK brought along two noteworthy new aspects. On the one hand, the DCGK now stresses in its preamble that good governance and management does not only require compliance with the law and internal policies but also ethically sound and responsive behavior (the “reputable businessperson concept”). On the other hand, the DCGK now recommends the introduction of a compliance management system (“CMS“). In keeping with the common principle of individually tailored compliance management systems that take into account the company’s specific risk situation, the DCGK now recommends appropriate measures reflecting the company’s risk situation and disclosing the main features of the CMS publically, thus enabling investors to make an informed decision on whether the CMS meets their expectations. It is further expressly recommended to provide employees with the opportunity to blow the whistle and also suggested to open up such whistle-blowing programs to third parties. Supervisory Board In line with the ongoing international trend of focusing on supervisory board composition, the DCGK now also recommends that the supervisory board not only should determine concrete objectives for its composition, but also develop a tailored skills and expertise profile for the entire board and to disclose in the corporate governance report to which extent such benchmarks and targets have been implemented in practice. In addition, the significance of having sufficient independent members on the supervisory board is emphasized by a new recommendation pursuant to which the supervisory board should disclose the appropriate number of independent supervisory board members as well as the members which meet the “independence” criteria in the corporate governance report. In accordance with international best practice, it is now also recommended to provide CVs for candidates for the supervisory board including inter alia relevant knowledge, skills and experience and to publish this information on the company’s website. With regard to supervisory board transparency, the DCGK now also recommends that the chairman of the supervisory board should be prepared, within an appropriate framework, to discuss topics relevant to the supervisory board with investors (please see in this regard our 2016-Year-End Alert, section 1.2). These new 2017 recommendations further highlight the significance of compliance and the role of the supervisory board not only for legislators but also for investors and other stakeholders. As soon as the annual declarations of non-conformity (“comply or explain”) are published over the coming weeks and months, it will be possible to assess how well these new recommendations will be received as well as what responses there will be to the planned additional supervisory board transparency (including, in particular, by family-controlled companies with employee co-determination on the supervisory board). Back to Top 1.4       Corporate, M&A – Employee Co-Determination: No European Extension As set out in greater detail in past alerts (please see in this regard our 2016 Year-End Alert, section 1.3 with further references), the scope and geographic reach of the German co-determination rules (as set out in the German Co-Determination Act; Mitbestimmungsgesetz – MitbestG and in the One-Third-Participation Act; Drittelbeteiligungsgesetz – DrittelbG) were the subject of several ongoing court cases. This discussion has been put to rest in 2017 by a decision of the European Court of Justice (ECJ, C-566/15 – July 18, 2017) that held that German co-determination rules and their restriction to German-based employees as the numeric basis for the relevant employee thresholds and as populace entitled to vote for such co-determined supervisory boards do not infringe against EU law principles of anti-discrimination and freedom of movement. The judgment has been received positively by both German trade unions and corporate players because it preserves the existing German co-determination regime and its traditional, local values against what many commentators would have perceived to be an undue pan-Europeanization of the thresholds and the right to vote for such bodies. In particular, the judgment averts the risk that many supervisory boards would have had to be re-elected based on a pan-European rather than solely German employee base. Back to Top 1.5       Corporate, M&A – Germany Tightens Rules on Foreign Takeovers On July 18, 2017, the amended provisions on foreign direct investments under the Foreign Trade and Payments Ordinance (Außenwirtschaftsverordnung – AWV), expanding and specifying the right of the Federal Ministry for Economic Affairs and Energy (“Ministry“) to review whether the takeover of domestic companies by investors outside the EU or the European Free Trade Area poses a danger to the public order or security of the Federal Republic of Germany came into force. The amendment has the following five main effects which will have a considerable impact on the M&A practice: (i) (non-exclusive) standard categories of companies and industries which are relevant to the public order or security for cross-sector review are introduced, (ii) the stricter sector-specific rules for industries of essential security interest (such as defense and IT-security) are expanded and specified, (iii) there is a reporting requirement for all takeovers within the relevant categories, (iv) the time periods for the review process are extended, and (v) there are stricter and more specific restrictions to prevent possible circumventions. Under the new rules, a special review by the German government is possible in cases of foreign takeovers of domestic companies which operate particularly in the following sectors: (i) critical infrastructure amenities, such as the energy, IT and telecommunications, transport, health, water, food and finance/insurance sectors (to the extent they are very important for the functioning of the community), (ii) sector-specific software for the operation of these critical infrastructure amenities, (iii) telecom carriers and surveillance technology and equipment, (iv) cloud computing services and (v) telematics services and components. The stricter sector-specific rules for foreign takeovers within the defense and IT-security industry are also expanded and now also apply to the manufacturers of defense equipment for reconnaissance and support. Furthermore, the reporting requirement no longer applies only to transactions within the defense and IT-security sectors, but also to all foreign takeovers that fall within the newly introduced cross-sector standard categories described above. The time periods allowed for the Ministry to intervene have been extended throughout. In particular, if an application for a clearance certificate is filed, the clearance certificate will be deemed granted in the absence of a formal review two months following receipt of the application rather than one month as in the past, and the review periods are suspended if the Ministry conducts negotiations with the parties involved. Further, a review may be commenced until five years after the signing of the purchase agreement, which in practice will likely result in an increase of applications for a clearance certificate in order to obtain more transaction certainty. Finally, the new rules provide for stricter and more specific restrictions of possible circumventions by, for example, the use of so-called “front companies” domiciled in the EU or the European Free Trade Area and will trigger the Ministry’s right to review if there are indications that an improper structuring or evasive transaction was at least partly chosen to circumvent the review by the Ministry. Although the scope of the German government’s ability to intervene in M&A processes has been expanded where critical industries are concerned, it is not clear yet to what extent stronger interference or more prohibitions or restrictions will actually occur in practice. And even though the new law provides further guidance, there are still areas of legal uncertainty which can have an impact on valuations and third party financing unless a clearance certificate is obtained. Due to the suspension of the review period in the case of negotiations with the Ministry, the review procedure has, at least in theory, no firm time limit. As a result, the M&A advisory practice has to be prepared for a more time-consuming and onerous process for transactions in the critical industries and may thus be forced to allow for more time between signing and closing. In addition, appropriate termination clauses (and possibly break fees) must be considered for purposes of the share purchase agreement in case a prohibition or restriction of the transaction on the basis of the amended AWV cannot be excluded. Back to Top 2. Tax 2.1       Tax – Unconstitutionality of German Change-of-Control Rules Tax loss carry forwards are an important asset in every M&A transaction. Over the past ten years the German change-of-control rules, which limit the use of losses and loss carry forwards (“Losses“) of a German target company, have undergone fundamental legislative changes. The current change-of-control rules may now face another significant revision as – according to the German Federal Constitutional Court (Bundesverfassungsgericht – BVerfG) and the Lower Tax Court of Hamburg – the current tax regime of the change-of-control rules violates the constitution. Under the current change-of-control rules, Losses of a German corporation will be forfeited on a pro rata basis if within a period of five years more than 25% but not more than 50% of the shares in the German loss-making corporation are transferred (directly or indirectly) to a new shareholder or group of shareholders with aligned interests. If more than 50% are transferred, Losses will be forfeited in total. There are exceptions to this rule for certain intragroup restructurings, built-in gains and – since 2016 – for business continuations, especially in the venture capital industry. On March 29, 2017, the German Federal Constitutional Court ruled that the pro rata forfeiture of Losses (share transfer of more than 25% but not more than 50%) is not in line with the constitution. The BVerfG held that the provision leads to unequal treatment of companies. The aim of avoiding legal but undesired tax optimizations does not justify the broad and general scope of the provision. The BVerfG has asked the German legislator to amend the change-of-control rules retroactively for the period from January 1, 2008 until December 31, 2015 and bring them in line with the constitution. The legislative changes need to be finalized by December 31, 2018. Furthermore, in another case on August 29, 2017, the Lower Tax Court of Hamburg held that the change-of-control rules, which result in a full forfeiture of Losses after a transfer of more than 50% of the shares in a German corporation, are also incompatible with the constitution. The ruling is based on the 2008 wording of the change-of-control rules but the wording of these rules is similar to that of the current forfeiture rules. In view of the March 2017 ruling of the Federal Constitutional Court on the pro-rata forfeiture, the Lower Tax Court referred this case also to the Federal Constitutional Court to rule on this issue as well. If the Federal Constitutional Court decides in favor of the taxpayer the German tax legislator may completely revise the current tax loss limitation regime and limit its scope to, for example, abusive cases. A decision by the Federal Constitutional Court is expected in the course of 2018. Affected market participants are therefore well advised to closely monitor further developments and consider the impact of potential changes on past and future M&A deals with German entities. Appeals against tax assessments should be filed and stays of proceedings applied for by reference to the case before the Federal Constitutional Court in order to benefit from a potential retroactive amendment of the change-of-control rules. Back to Top 2.2       Tax – New German Tax Disclosure Rules for Tax Planning Schemes In light of the Panama and Paradise leaks, the respective Finance Ministers of the German federal states (Bundesländer) created a working group in November 2017 to establish how the new EU Disclosure Rules for advisers and taxpayers as published by the European Commission (“Commission“) on July 25, 2017 can be implemented into German law. Within the member states of the EU, mandatory tax disclosure rules for tax planning schemes already exist in the UK, Ireland and Portugal. Under the new EU disclosure rules certain tax planners and advisers (intermediaries) or certain tax payers themselves must disclose potentially aggressive cross-border tax planning arrangements to the tax authorities in their jurisdiction. This new requirement is a result of the disclosure rules as proposed by the OECD in its Base Erosion and Profit Shifting (BEPS) Action 12 report, among others. The proposal requires tax authorities in the EU to automatically exchange reported information with other tax authorities in the EU. Pursuant to the Commission’s proposal, an “intermediary” is the party responsible for designing, marketing, organizing or managing the implementation of a tax payer´s reportable cross border arrangement, while also providing that taxpayer with tax related services. If there is no intermediary, the proposal requires the taxpayer to report the arrangement directly. This is, for example, the case if the taxpayer designs and implements an arrangement in-house, if the intermediary in question does not have a presence within the EU or in case the intermediary cannot disclose the information because of legal professional privilege. The proposal does not define what “arrangement” or “aggressive” tax planning means but lists characteristics (so-called “hallmarks“) of cross-border tax planning schemes that would strongly indicate whether tax avoidance or abuse occurred. These hallmarks can either be generic or specific. Generic hallmarks include arrangements where the tax payer has complied with a confidentiality provision not to disclose how the arrangement could secure a tax advantage or where the intermediary is entitled to receive a fee with reference to the amount of the tax advantage derived from the arrangement. Specific hallmarks include arrangements that create hybrid mismatches or involve deductible cross border payments between related parties with a preferential tax regime in the recipient’s tax resident jurisdiction. The information to be exchanged includes the identities of the tax payer and the intermediary, details about the hallmarks, the date of the arrangement, the value of the transactions and the EU member states involved. The implementation of such mandatory disclosure rules on tax planning schemes are heavily discussed in Germany especially among the respective bar associations. Elements of the Commission’s proposal are regarded as a disproportionate burden for intermediaries and taxpayers in relation to the objective. Further clarity is needed to align the proposal with the general principle of legal certainty. Certain elements of the proposal may contravene EU law or even the German constitution. And the interaction with the duty of professional secrecy for lawyers and tax advisors is also still unclear. Major efforts are therefore needed for the German legislator to make such a disclosure regime workable both for taxpayers/intermediaries and the tax administrations. It remains to be seen how the Commission proposal will be implemented into German law in 2018 and how tax structuring will be affected. Back to Top 2.3       Tax – Voluntary Self-Disclosure to German Tax Authorities Becomes More Challenging German tax law allows voluntary self-disclosure to correct or supplement an incorrect or incomplete tax return. Valid self-disclosure precludes criminal liability for tax evasion. Such exemption from criminal prosecution, however, does not apply if the tax evasion has already been “detected” at the time of the self-disclosure and this is at least foreseeable for the tax payer. On May 5, 2017 the German Federal Supreme Court (Bundesgerichtshof – BGH) further specified the criteria for voluntary self-disclosure to secure an exemption from criminal prosecution (BGH, 1 StR 265/16 – May 9, 2017). The BGH ruled that exemption from criminal liability might not apply if a foreign authority had already discovered the non- or underreported tax amounts prior to such self-disclosure. Underlying the decision of the BGH was the case of a German employee of a German defense company, who had received payments from a Greek business partner, but declared neither the received payments nor the resulting income in his tax declaration. The payment was a reward for his contribution in selling weapons to the Greek government. The Greek authorities learned of the payment to the German employee early in 2004 in the course of an anti-bribery investigation and obtained account statements proving the payment through intermediary companies and foreign banks. On January 6, 2014, the German employee filed a voluntary self-disclosure to the German tax authorities declaring the previously omitted payments. The respective German tax authority found that this self-disclosure was not submitted in time to exempt the employee from criminal liability. The issue in this case was by whom and at what moment in time the tax evasion needed to be detected in order to render self-disclosure invalid. The BGH ruled that the voluntary self-disclosure by the German employee was futile due to the fact that the payment at issue had already been detected by the Greek authorities at the time of the self-disclosure. In this context, the BGH emphasized that it was not necessary for the competent tax authorities to have detected the tax evasion, but it was sufficient if any other authority was aware of the tax evasion. The BGH made clear that this included foreign authorities. Thus, a prior detection is relevant if on the basis of a preliminary assessment of the facts a conviction is ultimately likely to occur. This requirement is for example met if it can be expected that the foreign authority that detected the incorrect, incomplete or omitted fact will forward this information to the German tax authorities as in the case before the BGH. In particular, there was an international assistance procedure in place between German and Greek tax authorities and the way the payments were made by using intermediaries and foreign banks made it obvious to the Greek authorities that the relevant amounts had not been declared in Germany. Due to the media coverage of the case, this was also at least foreseeable for the German employee. This case is yet another cautionary tale for tax payers not to underestimate the effects of increased international cooperation of tax authorities. Back to Top 3. Financing and Restructuring 3.1       Financing and Restructuring – Upfront Banking Fees Held Void by German Federal Supreme Court On July 4, 2017, the German Federal Supreme Court (Bundesgerichtshof – BGH) handed down two important rulings on the permissibility of upfront banking fees in German law governed loan agreements. According to the BGH, boilerplate clauses imposing handling, processing or arrangement fees on borrowers are void if included in standard terms and conditions (Allgemeine Geschäftsbedingungen). With this case, the court extended its prior rulings on consumer loans to commercial loans. The BGH argued that clauses imposing a bank’s upfront fee on a borrower fundamentally contradict the German statutory law concept that the consideration for granting a loan is the payment of interest. If ancillary pricing arrangements (Preisnebenabreden) pass further costs and expenses on to the borrower, the borrower is unreasonably disadvantaged by the user (Verwender) of standard business terms, unless the additional consideration is agreed for specific services that go beyond the mere granting of the loan and the handling, processing or arrangement thereof. In the cases at hand, the borrowers were thus awarded repayment of the relevant fee. The implications of these rulings for the German loan market are far-reaching. The rulings affect all types of upfront fees for a lender’s services which are routinely passed on to borrowers even though they would otherwise be owed by the lender pursuant to statutory law, a regulatory regime or under a contract or which are conducted in the lender’s own interest. Consequently, this covers fees imposed on the borrower for the risk assessment (Bonitätsprüfung), the valuation of collateral, expenses for the collection of information on the assessment of a borrower’s financing requirements and the like. At this stage, it is not yet certain if, for example, agency fees or syndication fees could also be covered by the decision. There are, however, good arguments to reason that services rendered in connection with a syndication are not otherwise legally or contractually owed by a lender. Upfront fees paid in the past, i.e. in 2015 or later, can be reclaimed by borrowers. The BGH applied the general statutory three year limitation period and argued that the limitation period commenced at the end of 2011 after Higher District Courts (Oberlandesgerichte) had held upfront banking fees void in deviation from previous rulings. As of such time, borrowers should have been aware that a repayment claim of such fees was possible and could have filed a court action even though the enforcement of the repayment was not risk-free. Going forward, it can be expected that lenders will need to modify their approach as a result of the rulings: Choosing a foreign (i.e. non-German) law for a separate fee agreement could be an option for lenders, at least, if either the lender or the borrower is domiciled in the relevant jurisdiction or if there is a certain other connection to the jurisdiction of the chosen law. If the loan is granted by a German lender to a German borrower, the choice of foreign law would also be generally recognized, but under EU conflict of law provisions mandatory domestic law (such as the German law on standard terms) would likely still continue to apply. In response to the ruling, lenders are also currently considering alternative fee structures: Firstly, the relevant costs and expenses underlying such fees are being factored into the calculation of the interest and the borrower is then given the option to choose an upfront fee or a (higher) margin. This may, however, not always turn out to be practical, in particular given that a loan may be refinanced prior to generating the equivalent interest income. Secondly, a fee could be agreed in a separate fee letter which specifically sets out services which go beyond the typical services a bank renders in its own interest. It may, however be difficult to determine services which actually justify a fee. Finally, a lender might charge typical upfront fees following genuine individual negotiations. This requires that the lender not only shows that it was willing to negotiate the amount of the relevant fee, but also that it was generally willing to forego the typical upfront fee entirely. However, if the borrower rejects the upfront fee, the lender still needs to rely on alternative fee arrangements. Further elaboration by the courts and market practice should be closely monitored by lenders and borrowers alike. Back to Top 3.2       Financing and Restructuring – Lingering Uncertainty about Tax Relief for Restructuring Profits Ever since the German Federal Ministry of Finance issued an administrative order in 2003 (“Restructuring Order“) the restructuring of distressed companies has benefited from tax relief for income tax on “restructuring profits”. In Germany, restructuring profits arise as a consequence of debt to equity swaps or debt waivers with regard to the portion of such debt that is unsustainable. Debtors and creditors typically ensured the application of the Restructuring Order by way of a binding advance tax ruling by the tax authorities thus providing for legal certainty in distressed debt scenarios for the parties involved. However, in November 2016, the German Federal Tax Court (Bundesfinanzhof – BFH) put an end to such preferential treatment of restructuring profits. The BFH held the Restructuring Order to be void arguing that the Federal Ministry of Finance had lacked the authority to issue the Restructuring Order. It held that such a measure would need to be adopted by the German legislator instead. The Ministry of Finance and the German restructuring market reacted with concern. As an immediate response to the ruling the Ministry of Finance issued a further order on April 27, 2017 (“Continuation Order”) to the effect that the Restructuring Order continued to apply in all cases in which creditors finally and with binding effect waived claims on or before February 8, 2017 (the date on which the ruling of the Federal Tax Court was published). But the battle continued. In August 2017, the Federal Tax Court also set aside this order for lack of authority by the Federal Ministry of Finance. In the meantime, the German Bundestag and the Bundesrat have passed legislation on tax relief for restructuring profits, but the German tax relief legislation will only enter into force once the European Commission issues a certificate of non-objection confirming the new German statutory tax relief’s compliance with EU restrictions on state aid. This leaves uncertainty as to whether the new law will enter into force in its current wording and when. Also, the new legislation will only cover debt waivers/restructuring profits arising after February 8, 2017 but at this stage does not provide for the treatment of cases before such time. In the absence of the 2003 Restructuring Order and the 2017 Continuation Order, tax relief would only be possible on the basis of equitable relief in exceptional circumstances. It appears obvious that no reliable restructuring concept can be based on potential equitable relief. Thus, it is advisable to look out for alternative structuring options in the interim: Subordination of debt: while this may eliminate an insolvency filing requirement for illiquidity or over indebtedness, the debt continues to exist. This may make it difficult for the debtor to obtain financing in the future. In certain circumstances, a carve-out of the assets together with a sustainable portion of the debt into a new vehicle while leaving behind and subordinating the remainder of the unsustainable portion of the debt, could be a feasible option. As the debt subsists, a silent liquidation of the debtor may not be possible considering the lingering tax burden on restructuring profits. Also, any such carve-out measures by which the debtor is stripped of assets may be challenged in case of a later insolvency of the debtor. A debt hive up without recourse may be a possible option, but a shareholder or its affiliates are not always willing to assume the debt. Also, as tax authorities have not issued any guidelines on the tax treatment of debt hive ups, a binding advance tax ruling from the tax authorities should be obtained before the debt hive up is executed. Still, a debt hive up could be an option if the replacement debtor is domiciled in a jurisdiction which does not impose detrimental tax consequences on the waiver of unsustainable debt. Converting the debt into a hybrid instrument which constitutes debt for German tax purposes and equity from a German GAAP perspective is no longer feasible. Pursuant to a tax decree from May 2016, the tax authorities argue that the creation of a hybrid instrument amounts to a taxable waiver of debt on the basis that tax accounting follows commercial accounting. It follows that irrespective of potential alternative structures which may suit a specific set of facts and circumstances, restructuring transactions in Germany continue to be challenging pending the entry into force of the new tax relief legislation. Back to Top 4. Labor and Employment 4.1       Labor and Employment – Defined Contribution Schemes Now Allowed In an effort to promote company pension schemes and to allow more flexible investments, the German Company Pension Act (Betriebsrentengesetz – BetrAVG) was amended considerably with effect as of January 1, 2018. The most salient novelty is the introduction of a purely defined contribution pension scheme, which had not been permitted in the past. Until now, the employer would always be ultimately liable for any kind of company pension scheme irrespective of the vehicle it was administered through. This is no longer the case with the newly introduced defined contribution scheme. The defined contribution scheme also entails considerable other easements for employers, e.g. pension adjustment obligations or the requirement of insolvency insurance no longer apply. As a consequence, a company offering a defined contribution pension scheme does not have to deal with the intricacies of providing a suitable investment to fulfil its pension promise, but will have met its duty in relation to the pension simply by paying the promised contribution (“pay and forget”). However, the introduction of such defined contribution schemes requires a legal basis either in a collective bargaining agreement (with a trade union) or in a works council agreement, if the union agreement so allows. If these requirements are met though, the new legal situation brings relief not only for employers offering company pension schemes but also for potential investors into German businesses for whom the German-specific defined benefit schemes have always been a great burden. Back to Top 4.2     Labor and Employment – Federal Labor Court Facilitates Compliance Investigations In a decision much acclaimed by the business community, the German Federal Labor Court (Bundesarbeitsgericht – BAG) held that intrusive investigative measures by companies against their employees do not necessarily require a suspicion of a criminal act by an employee; rather, less severe forms of misconduct can also trigger compliance investigations against employees (BAG, 2 AZR 597/16 – June 29, 2017). In the case at hand, an employee had taken sick leave, but during his sick leave proceeded to work for the company owned by his sons who happened to be competing against his current employer. After customers had dropped corresponding hints, the company assigned a detective to ascertain the employee’s violation of his contractual duties and subsequently fired the employee based on the detective’s findings. In the dismissal protection trial, the employee argued that German law only allowed such intrusive investigation measures if criminal acts were suspected. This restriction was, however, rejected by the BAG. This judgment ends a heated debate about the permissibility of internal investigation measures in the case of compliance violations. However, employers should always adhere to a last-resort principle when investigating possible violations. For instance, employees must not be seamlessly monitored at their workplace by way of a so-called “key logger” as the Federal Labor Court held in a different decision (BAG, 2 AZR 681/16 – July 27, 2017). Also, employers should keep in mind a recent ruling of the European Court of Human Rights of September 5, 2017 (ECHR, 61496/08). Accordingly, the workforce should be informed in advance that and how their email correspondence at the workplace can be monitored. Back to Top 5. Real Estate Real Estate – Invalidity of Written Form Remediation Clauses for Long-term Lease Agreements On September 27, 2017, the German Federal Supreme Court (Bundesgerichtshof – BGH) ruled that so-called “written form remediation clauses” (Schriftformheilungsklauseln) in lease agreements are invalid because they are incompatible with the mandatory provisions of section 550 of the German Civil Code (Bürgerliches Gesetzbuch – BGB; BGH, XII ZR 114/16 – September 27, 2017). The written form for lease agreements requires that all material agreements concerning the lease, in particular the lease term, identification of the leased premises and the rent amount, must be made in writing. If a lease agreement entered into for a period of more than one year does not comply with this written form requirement, mandatory German law allows either lease party to terminate the lease agreement with the statutory notice period irrespective of whether or not a fixed lease term was agreed upon. The statutory notice period for commercial lease agreements is six months (less three business days) to the end of any calendar quarter. To avoid the risk of termination for non-compliance with the written form requirement, German commercial lease agreements regularly contain a general written form remediation clause. Pursuant to such clause, the parties of the lease agreement undertake to remediate any defect in the written form upon request of one of the parties. While such general written form remediation clauses were upheld in several decisions by various Higher District Courts (Oberlandesgerichte) in the past, the BGH had already rejected the validity of such clauses vis-à-vis the purchasers of real property in 2014. With this new decision, the BGH has gone one step further and denied the validity of general written form remediation clauses altogether. Only in exceptional circumstances, the lease parties are not entitled to invoke the non-compliance with the written form requirement on account of a breach of the good faith principle. Such exceptional circumstances may exist, for example, if the other party faced insolvency if the lease were terminated early as a result of the non-compliance or if the lease parties had agreed in the lease agreement to remediate such specific written form defect. This new decision of the BGH forces the parties to long-term commercial lease agreements to put even greater emphasis on ensuring that their lease agreements comply with the written form requirement at all times because remediation clauses as potential second lines of defense no longer apply. Likewise, the due diligence process of German real estate transactions will have to focus even more on the compliance of lease agreements with the written form requirement. Back to Top 6.  Data Protection Data Protection – Employee Data Protection Under New EU Regulation After a two-year transition period, the EU General Data Protection Regulation (“GDPR“) will enter into force on May 25, 2018. The GDPR has several implications for data protection law covering German employees, which is already very strictly regulated. For example, under the GDPR any handling of personnel data by the employer requires a legal basis. In addition to statutory laws or collective agreements, another possible legal basis is the employee’s explicit written consent. The transfer of personnel data to a country outside of the European Union (“EU“) will have to comply with the requirements prescribed by the GDPR. If the target country has not been regarded as having an adequate data protection level by the EU Commission, additional safeguards will be required to protect the personnel data upon transfer outside of the EU. Otherwise, a data transfer is generally not permitted. The most threatening consequence of the GDPR is the introduction of a new sanctions regime. It now allows fines against companies of up to 4% of the entire group’s revenue worldwide. Consequently, these new features, especially the drastic new sanction regime, call for assessments of, and adequate changes to, existing compliance management systems with regard to data protection issues. Back to Top 7. Compliance 7.1       Compliance – Misalignment of International Sanction Regimes Requires Enhanced Attention to the EU Blocking Regulation and the German Anti-Boycott Provisions The Trump administration has been very active in broadening the scope and reach of the U.S. sanctions regime, most recently with the implementation of “Countering America’s Adversaries Through Sanctions Act (H.R. 3364) (‘CAATSA‘)” on August 2, 2017 and the guidance documents that followed. CAATSA includes significant new law codifying and expanding U.S. sanctions on Russia, North Korea, and Iran. The European Union (“EU“) has not followed suit. More so, the EU and European leaders openly stated their frustration about both a perceived lack of consultation during the process and the substance of the new U.S. sanctions. Specifically, the EU and European leaders are concerned about the fact that CAATSA authorizes secondary sanctions on any person supporting a range of activities. Among these are the development of Russian energy export pipeline projects, certain transactions with the Russian intelligence or defense sectors or investing in or otherwise facilitating privatizations of Russia’s state-owned assets that unjustly benefits Russian officials or their close associates or family members. The U.S. sanctions regime differentiates between primary sanctions that apply to U.S. persons (U.S. citizens, permanent U.S. residents and companies under U.S. jurisdiction) and U.S. origin goods, and secondary sanctions that expand the reach of U.S. sanctions by penalizing non-U.S. persons for their involvement in certain targeted activities. Secondary sanctions can take many forms but generally operate by restricting or threatening to restrict non-U.S. person access to the U.S. market, including its global financial institutions. European, especially export-heavy and internationally operating German companies are thus facing a dilemma. While they have to fear possible U.S. secondary sanctions for not complying with U.S. regulations, potential penalties also loom from European member state authorities when doing so. These problems are grounded in European and German legislation aimed at protecting from and counteracting financial and economic sanctions issued by countries outside of the EU and Germany, unless such sanctions are themselves authorized under relevant UN, European, and German sanctions legislation. On the European level, Council Regulation (EC) No 2271/96 of November, 22 1996 as amended (“EU Blocking Regulation“) is aimed at protecting European persons against the effects of the extra-territorial application of laws, such as certain U.S. sanctions directed at Cuba, Iran and Libya. Furthermore, it also aims to counteract the effects of the extra-territorial application of such sanctions by prohibiting European persons from complying with any requirement or prohibition, including requests of foreign courts, based on or resulting, directly or indirectly, from such U.S. sanctions. For companies subject to German jurisdiction, section 7 of the German Foreign Trade and Payments Ordinance (Außenwirtschaftsverordnung – AWV), states that “[t]he issuing of a declaration in foreign trade and payments transactions whereby a resident participates in a boycott against another country (boycott declaration) shall be prohibited” to the extent such a declaration would be contradictory to UN, EU and German policy. With the sanctions regime on the one hand and the blocking legislation at EU and German level on the other hand, committing to full compliance with U.S. sanctions whilst falling within German jurisdiction, could be deemed a violation of the AWV.  Violating the AWV can lead to fines by the German authorities and, under German civil law, might render a relevant contractual provision invalid. For companies conducting business transactions on a global scale, the developing non-alignment of U.S. and European / German sanctions requires special attention. Specifically, covenants with respect to compliance with U.S. or other non-EU sanctions should be reviewed and carefully drafted in light of the diverging developments of U.S. and other non-EU sanctions on the one hand and European / German sanctions on the other hand. Back to Top 7.2       Compliance – Restated (Anti-) Money Laundering Act – Significant New Requirements for the Non-Financial Sector and Good Traders On June 26, 2017, the restated German Money Laundering Act (Geldwäschegesetz – GWG), which transposes the 4th European Anti-Money Laundering Directive (Directive (EU 2015/849 of the European Parliament and of the Council) into German law, became effective. While the scope of businesses that are required to conduct anti-money laundering procedures remains generally unchanged, the GWG introduced a number of new requirements, in particular for non-financial businesses, and significantly increases the sanctions for non-compliance with these obligations. The GWG now extends anti money laundering (“AML“) risk management concepts previously known from the financial sector also to non-financial businesses including good traders. As a matter of principle, all obliged businesses are now required to undertake a written risk analysis for their business and have in place internal risk management procedures proportionate to the type and scope of the business and the risks involved in order to effectively mitigate and manage the risks of money laundering and terrorist financing. In case the obliged business is the parent company of a group, a group-wide risk analysis and group-wide risk management procedures are required covering subsidiaries worldwide who also engage in relevant businesses. The risk analysis must be reviewed regularly, updated if required and submitted to the supervisory authority upon request. Internal risk management procedures include, in particular, client due diligence (“know-your customer”), which requires the identification and verification of customers, persons acting on behalf of customers as well as of beneficial owners of the customer (see also section 1.1 above on the Transparency Register). In addition, staff must be monitored for their reliability and trained regularly on methods and types of money laundering and terrorist financing and the applicable legal obligations under the GWG as well as data protection law, and whistle-blowing systems must be implemented. Furthermore, businesses of the financial and insurance sector as well as providers of gambling services must appoint a money laundering officer (“MLO“) at senior management level as well as a deputy, who are responsible for ensuring compliance with AML rules. Other businesses may also be ordered by their supervisory authority to appoint a MLO and a deputy. Good traders including conventional industrial companies are subject to the AML requirements under the GWG, irrespective of the type of goods they are trading in. However, some of the requirements either do not apply or are significantly eased. Good traders must only conduct a risk analysis and have in place internal AML risk management procedures if they accept or make (!) cash payments of EUR 10,000 or more. Furthermore, client due diligence is only required with respect to transactions in which they make or accept cash payments of EUR 10,000 or more, or in case there is a suspicion of money laundering or terrorist financing. Suspicious transactions must be reported to the Financial Intelligence Unit (“FIU“) without undue delay. As a result, also low cash or cash free good traders are well advised to train their staff to enable them to detect suspicious transactions and to have in place appropriate documentation and reporting lines to make sure that suspicious transactions are filed with the FIU. Non-compliance with the GWG obligations can be punished with administrative fines of up to EUR 100,000. Serious, repeated or systematic breaches may even trigger sanctions up to the higher fine threshold of EUR 1 million or twice the economic benefit of the breach. For the financial sector, even higher fines of up to the higher of EUR 5 million or 10% of the total annual turnover are possible. Furthermore, offenders will be published with their names by relevant supervisory authorities (“naming and shaming”). Relevant non-financial businesses are thus well advised to review their existing AML compliance system in order to ensure that the new requirements are covered. For good traders prohibiting cash transactions of EUR 10,000 or more and implementing appropriate safeguards to ensure that the threshold is not circumvented by splitting a transaction into various smaller sums, is a first and vital step. Furthermore, holding companies businesses who mainly acquire and hold participations (e.g. certain private equity companies), must keep in mind that enterprises qualifying as “finance enterprise” within the meaning of section 1 (3) of the German Banking Act (Kreditwesengesetz – KWG) are subject to the GWG with no exemptions. Back to Top  7.3       Compliance – Protection of the Attorney Client Privilege in Germany Remains Unusual The constitutional complaint (Verfassungsbeschwerde) brought by Volkswagen AG’s external legal counsel requesting the return of work product prepared during the internal investigation for Volkswagen AG remains pending before the German Federal Constitutional Court (Bundesverfassungsgericht – BVerfG). The Munich public prosecutors had seized these documents in a dawn raid of the law firm’s offices. While the BVerfG has granted injunctive relief (BVerfG, 2 BvR 1287/17, 2 BvR 1583/17 – July 25, 2017) and ordered the authorities, pending a decision on the merits of the case, to refrain from reviewing the seized material, this case is a timely reminder that the concept of the attorney client privilege in Germany is very different to that in common law jurisdictions. In a nutshell: In-house lawyers do not enjoy legal privilege. Material that would otherwise be privileged can be seized on the client’s premises – with the exception of correspondence with and work product from / for criminal defense counsel. The German courts are divided on the question of whether corporate clients can already appoint criminal defense counsel as soon as they are concerned that they may be the target of a future criminal investigation, or only when they have been formally made the subject of such an investigation. Searches and seizures at a law firm, however, are a different matter. A couple of years ago, the German legislator changed the German Code of Criminal Procedure (Strafprozessordnung – StPO) to give attorneys in general, not only criminal defense counsel, more protection against investigative measures (section 160a StPO). Despite this legislation, the first and second instance judges involved in the matter decided in favor of the prosecutors. As noted above, the German Federal Constitutional Court has put an end to this, at least for now. According to the court, the complaints of the external legal counsel and its clients were not “obviously without any merits” and, therefore, needed to be considered in the proceedings on the merits of the case. In order not to moot these proceedings, the court ordered the prosecutors to desist from a review of the seized material, and put it under seal until a full decision on the merits is available. In the interim period, the interest of the external legal counsel and its clients to protect the privilege outweighed the public interest in a speedy criminal investigation. At this stage, it is unclear when and how the court will decide on the merits. Back to Top 7.4       Compliance – The European Public Prosecutor’s Office Will Be Established – Eventually After approximately four years of discussions, 20 out of the 28 EU member states agreed in June 2017 on the creation of a European Public Prosecutor’s Office (“EPPO“). In October, the relevant member states adopted the corresponding regulation (Regulation (EU) 2017/1939 – “Regulation“). The EPPO will be in charge of investigating, prosecuting and bringing to justice the perpetrators of offences against the EU’s financial interests. The EPPO is intended to be a decentralized authority, which operates via and on the basis of European Delegated Prosecutors located in each member state. The central office in Luxembourg will have a European Chief Prosecutor supported by 20 European Prosecutors, as well as technical and investigatory staff. While EU officials praise this Regulation as an “important step in European justice cooperation“, it remains to be seen whether this really is a measure which ensures that “criminals [who] act across borders […] are brought to justice and […] taxpayers’ money is recovered” (U. Reinsalu, Estonian Minister of Justice). It will take at least until 2020 until the EPPO is established, and criminals will certainly not restrict their activities to the territories of those 20 countries which will cooperate under the new authority (being: Austria, Belgium, Bulgaria, Croatia, Cyprus, Czech Republic, Estonia, Germany, Greece, Finland, France, Italy, Latvia, Lithuania, Luxembourg, Portugal, Romania, Slovenia, Slovakia and Spain). In addition, as the national sovereignty of the EU member states in judicial matters remains completely intact, the EPPO will not truly investigate “on the ground”, but mainly assume a coordinating role. Last but not least, its jurisdiction will be limited to “offences against the EU’s financial interests”, in particular criminal VAT evasion, subsidy fraud and corruption involving EU officials. A strong enforcement, at least prima facie, looks different. To end on a positive note, however: the new body is certainly an improvement on the status quo in which the local prosecutors from 28 member states often lack coordination and team spirit. Back to Top 7.5       Compliance – Court Allows for Reduced Fines in Compliance Defense Case The German Federal Supreme Court (Bundesgerichtshof – BGH) handed down a decision recognizing for the first time that a company’s implementation of a compliance management system (“CMS“) constitutes a mitigating factor for the assessment of fines imposed on such company where violations committed by its employees are imputed to the company (BGH 1 StR 265/16 – May 9, 2017). According to the BGH, not only the implementation of a compliance management system at the time of the detection of the offense should be considered, but the court may also take into account subsequent efforts of a company to enhance its respective internal processes that were found deficient. The BGH held that such remediation measures can be considered as a mitigating factor when assessing the amount of fines if they are deemed suitable to “substantially prevent an equivalent violation in the future.” The BGH’s ruling has finally clarified the highest German court’s views on a long-lasting discussion about whether establishing and maintaining a CMS may limit a company’s liability for legal infringements. The recognition of a company’s efforts to establish, maintain and improve an effective CMS should encourage companies to continue working on their compliance culture, processes and systems. Similarly, management’s efforts to establish, maintain and enhance a CMS, and conduct timely remediation measures, upon becoming aware of deficiencies in the CMS, may become relevant factors when assessing potential civil liability exposure of corporate executives pursuant to section. 43 German Limited Liability Companies Act (Gesetz betreffend Gesellschaften mit beschränkter Haftung – GmbHG) and section 93 (German Stock Companies Act (Aktiengesetz – AktG). Consequently, the implications of this landmark decision are important both for corporations and their senior executives. Back to Top 8.  Antitrust and Merger Control In 2017, the German Federal Cartel Office (Bundeskartellamt – BKartA) examined about 1,300 merger filings, imposed fines in the amount of approximately EUR 60 million on companies for cartel agreements and conducted several infringement proceedings. On June 9, 2017, the ninth amendment to the German Act against Restraints of Competition (Gesetz gegen Wettbewerbsbeschränkungen – GWB) came into force. The most important changes concern the implementation of the European Damages Directive (Directive 2014/104/EU of the European Parliament and of the Council of November, 26 2014), but a new merger control threshold was also introduced into law. Implementation of the European Damages Directive The amendment introduced various procedural facilitations for claimants in civil cartel damage proceedings. There is now a refutable presumption in favor of cartel victims that a cartel caused damage. However, the claimant still has the burden of proof regarding the often difficult to argue fact, if it was actually affected by the cartel and the amount of damages attributable to the infringement. The implemented passing-on defense allows indirect customer claimants to prove that they suffered damages from the cartel – even if not direct customers of the cartel members – because the intermediary was presumably able to pass on the cartel overcharge to his own customers (the claimants). The underlying refutable presumption that overcharges were passed on is not available in the relationship between the cartel member and its direct customer because the passing-on defense must not benefit the cartel members. In deviation from general principles of German civil procedural law, according to which each party has to produce the relevant evidence for the facts it relies on, the GWB amendment has significantly broadened the scope for requesting disclosure of documents. The right to request disclosure from the opposing party now to a certain degree resembles discovery proceedings in Anglo-American jurisdictions and has therefore also been referred to as “discovery light”. However, the documents still need to be identified as precisely as possible and the request must be reasonable, i.e., not place an undue burden on the opposing party. Documents can also be requested from third parties. Leniency applications and settlement documents are not captured by the disclosure provisions. Furthermore, certain exceptions to the principle of joint and several liability of cartelists for damage claims in relation to (i) internal regress against small and medium-sized enterprises, (ii) leniency applicants, and (iii) settlements between cartelists and claimants were implemented. In the latter case, non-settling cartelists may not recover contribution for the remaining claim from settling cartelists. Finally, the regular limitation period for antitrust damages claims has been extended from three to five years. Cartel Enforcement and Corporate Liability Parent companies can now also be held liable for their subsidiary’s anti-competitive conduct under the GWB even if they were not party to the infringement themselves. The crucial factor – comparable to existing European practice – is the exercise of decisive control. Furthermore, legal universal successors and economic successors of the infringer can also be held liable for cartel fines. This prevents companies from escaping cartel fines by restructuring their business. Publicity The Bundeskartellamt has further been assigned the duty to inform the public about decisions on cartel fines by publishing details about such decisions on its webpage. Taking into account recent efforts to establish a competition register for public procurement procedures, companies will face increased public attention for competition law infringements, which may result in infringers being barred from public or private contracting. Whistleblower Hotline Following the example of the Bundeskartellamt and other antitrust authorities, the European Commission (“Commission“) has implemented a whistleblowing mailbox. The IT-based system operated by an external service provider allows anonymous hints to or bilateral exchanges with the Commission – in particular to strengthen its cartel enforcement activities. The hope is that the whistleblower hotline will add to the Commission’s enforcement strengths and will balance out potentially decreasing leniency applications due to companies applying for leniency increasingly facing the risk of private cartel damage litigation once the cartel has been disclosed. Merger Control Thresholds To provide for control over transactions that do not meet the current thresholds but may nevertheless have significant impact on the domestic market (in particular in the digital economy), a “size of transaction test” was implemented; mergers with a purchase price or other consideration in excess of EUR 400 million now require approval by the Bundeskartellamt if at least two parties to the transaction achieve at least EUR 25 million and EUR 5 million in domestic turnover, respectively. Likewise, in Austria a similar threshold was established (EUR 200 million consideration plus a domestic turnover of at least EUR 15 million). The concept of ministerial approval (Ministererlaubnis), i.e., an extra-judicial instrument for the Minister of Economic Affairs to exceptionally approve mergers prohibited by the Bundeskartellamt, has been reformed by accelerating and substantiating the process. In May 2017, the Bundeskartellamt published guidance on remedies in merger control making the assessment of commitments more transparent. Remedies such as the acceptance of conditions (Bedingungen) and obligations (Auflagen) can facilitate clearance of a merger even if the merger actually fulfils the requirements for a prohibition. The English version of the guidance is available at: http://www.bundeskartellamt.de/SharedDocs/Publikation/EN/Leitlinien/Guidance%20on%20Remedies%20in%20Merger%20Control.html; jsessionid=5EA81D6D85D9FD8891765A5EA9C26E68.1_cid378?nn=3600108. Case Law Finally on January 26, 2017, there has been a noteworthy decision by the Higher District Court of Düsseldorf (OLG Düsseldorf, Az. V-4 Kart 4/15 OWI – January 26, 2017; not yet final): The court confirmed a decision of the Bundeskartellamt that had imposed fines on several sweets manufacturers for exchanging competitively sensitive information and even increased the fines. This case demonstrates the different approach taken by courts in calculating cartel fines based on the group turnover instead of revenues achieved in the German market. Back to Top     The following Gibson Dunn lawyers assisted in preparing this client update:  Birgit Friedl, Marcus Geiss, Jutta Otto, Silke Beiter, Peter Decker, Ferdinand Fromholzer, Daniel Gebauer, Kai Gesing, Franziska Gruber, Johanna Hauser, Maximilian Hoffmann, Markus Nauheim, Richard Roeder, Katharina Saulich, Martin Schmid, Sebastian Schoon, Benno Schwarz, Michael Walther, Finn Zeidler, Mark Zimmer and Caroline Ziser Smith. Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding the issues discussed in this update. The two German offices of Gibson Dunn in Munich and Frankfurt bring together lawyers with extensive knowledge of corporate / M&A, financing, restructuring and bankruptcy, tax, labor, real estate, antitrust, intellectual property law and extensive compliance / white collar crime experience. The German offices are comprised of seasoned lawyers with a breadth of experience who have assisted clients in various industries and in jurisdictions around the world. Our German lawyers work closely with the firm’s practice groups in other jurisdictions to provide cutting-edge legal advice and guidance in the most complex transactions and legal matters. For further information, please contact the Gibson Dunn lawyer with whom you work or any of the following members of the German offices: General Corporate, Corporate Transactions and Capital Markets Lutz Englisch (+49 89 189 33 150), lenglisch@gibsondunn.com) Markus Nauheim (+49 89 189 33 122, mnauheim@gibsondunn.com) Ferdinand Fromholzer (+49 89 189 33 170, ffromholzer@gibsondunn.com) Dirk Oberbracht (+49 69 247 411 510, doberbracht@gibsondunn.com) Wilhelm Reinhardt (+49 69 247 411 520, wreinhardt@gibsondunn.com) Birgit Friedl (+49 89 189 33 180, bfriedl@gibsondunn.com) Silke Beiter (+49 89 189 33 170, sbeiter@gibsondunn.com) Marcus Geiss (+49 89 189 33 122, mgeiss@gibsondunn.com) Annekatrin Pelster (+49 69 247 411 521, apelster@gibsondunn.com) Finance, Restructuring and Insolvency Sebastian Schoon (+49 89 189 33 160, sschoon@gibsondunn.com) Birgit Friedl (+49 89 189 33 180, bfriedl@gibsondunn.com) Marcus Geiss (+49 89 189 33 122, mgeiss@gibsondunn.com) Tax Hans Martin Schmid (+49 89 189 33 110, mschmid@gibsondunn.com) Labor Law Mark Zimmer (+49 89 189 33 130, mzimmer@gibsondunn.com) Real Estate Peter Decker (+49 89 189 33 115, pdecker@gibsondunn.com) Daniel Gebauer (+ 49 89 189 33 115, dgebauer@gibsondunn.com) Technology Transactions / Intellectual Property / Data Privacy Michael Walther (+49 89 189 33 180, mwalther@gibsondunn.com) Kai Gesing (+49 89 189 33 180, kgesing@gibsondunn.com) Corporate Compliance / White Collar Matters Benno Schwarz (+49 89 189 33 110, bschwarz@gibsondunn.com) Michael Walther (+49 89 189 33 180, mwalther@gibsondunn.com) Mark Zimmer (+49 89 189 33 130, mzimmer@gibsondunn.com) Finn Zeidler (+49 69 247 411 530, fzeidler@gibsondunn.com) Antitrust and Merger Control Michael Walther (+49 89 189 33 180, mwalther@gibsondunn.com) Kai Gesing (+49 89 189 33 180, kgesing@gibsondunn.com) © 2018 Gibson, Dunn & Crutcher LLP, 333 South Grand Avenue, Los Angeles, CA 90071 Attorney Advertising:  The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

December 8, 2017 |
Brexit – Initial deal agreed

The UK Government and the European Commission have issued a joint report setting out the progress of the phase 1 negotiations for the Brexit divorce terms. This report is being put forward with a view to the European Council recommending the commencement of phase 2 negotiations on the future trading relationship between the UK and the EU.  It is issued with the caveat that “nothing is agreed until everything is agreed”. A copy of the text of the UK-EU report is here. The key provisions are: Citizens’ rights: All EU citizens resident in the UK and all UK citizens resident in the EU at the date of Brexit will have ongoing rights to remain together with their immediate families (and future children) subject to various restrictions. After Brexit there will be a simple registration system for EU citizens coming to live and work in the UK. Ireland and Northern Ireland: In the absence of alternative agreed solutions (i.e. a satisfactory free trade deal between the UK and the EU), the UK will maintain full alignment with the rules of the single market and the customs union which support North-South cooperation in Ireland; the UK will also ensure that no new regulatory barriers develop between Northern Ireland and the rest of the UK. Financial settlement: There is no specific figure but the broad principles of the financial settlement have been agreed.  The UK government currently estimates the bill at around £35-£40 billion. Other high-level provisions relate to ongoing EU judicial procedures, the functioning of the EU institutions, agencies and bodies and police and judicial cooperation in criminal matters. The EU has dropped its demand for the divorce settlement to come under the direct jurisdiction of the Court of Justice of the European Union (CJEU).  However, the UK will pay “due regard” to European court rulings on citizens’ rights.  For at least eight years, British courts may also refer questions on EU law to the CJEU. The European Council is expected to approve the joint report on 14/15 December 2017.  This will mean negotiations can move on to details of a transitional period and the final post-Brexit EU-UK relationship. There are reports that the UK is expected to remain within the single market and customs union for a two year transitionary period.  Whilst there is no certainty on what will follow, there is a possibility that the EU and UK concessions on Ireland and Northern Ireland may help the UK to strike a long-term deal on staying in the customs union and single market (the so-called “soft Brexit”). There is still much to be discussed.  “We all know breaking up is hard, but breaking up and building a new relationship is harder,” commented Donald Tusk, European Council president.  “The most difficult challenge is still ahead.” This client alert was prepared by London partners Stephen Gillespie, Charlie Geffen and Nicholas Aleksander and of counsel Anne MacPherson. We have a working group in London (led by Stephen Gillespie, Nicholas Aleksander, Patrick Doris, Charlie Geffen, Ali Nikpay and Selina Sagayam) that has been considering these issues for many months.  Please feel free to contact any member of the working group or any of the other lawyers mentioned below. Ali Nikpay – Antitrust ANikpay@gibsondunn.com Tel: 020 7071 4273 Charlie Geffen – Corporate CGeffen@gibsondunn.com Tel: 020 7071 4225 Stephen Gillespie – Finance SGillespie@gibsondunn.com Tel: 020 7071 4230 Philip Rocher – Litigation PRocher@gibsondunn.com Tel: 020 7071 4202 Jeffrey M. Trinklein – Tax JTrinklein@gibsondunn.com Tel: 020 7071 4224 Nicholas Aleksander – Tax NAleksander@gibsondunn.com Tel: 020 7071 4232 Alan Samson – Real Estate ASamson@gibsondunn.com Tel:  020 7071 4222 Patrick Doris – Litigation; Data Protection PDoris@gibsondunn.com Tel:  020 7071 4276 Penny Madden QC – Arbitration PMadden@gibsondunn.com Tel:  020 7071 4226 James A. Cox – Employment; Data Protection JCox@gibsondunn.com Tel: 020 7071 4250 Gregory A. Campbell – Restructuring GCampbell@gibsondunn.com Tel:  020 7071 4236 Selina Sagayam – Corporate SSagayam@gibsondunn.com Tel:  020 7071 4263 © 2017 Gibson, Dunn & Crutcher LLP Attorney Advertising:  The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

December 6, 2017 |
The EU Court of Justice rules in favour of restrictions on the use of platforms in a selective distribution system (Coty)

Brussels partners Peter Alexiadis, Jens-Olrik Murach and associate Balthasar Strunz are the co-authors of “The EU Court of Justice rules in favour of restrictions on the use of platforms in a selective distribution system (Coty),” [PDF] published in e-Competition Bulletin March 2018 – II, Art. N 86552.

September 24, 2017 |
UK Dealmakers are Finally Hearing the City’s View

​London partner Stephen Gillespie is the author of "UK Dealmakers are Finally Hearing the City’s View," [PDF] published by Gulf News on September 24, 2017.

July 20, 2017 |
French Market Update – July 2017

France is great again? Many of you have read positive articles on the new government in France and its freshly elected President, Emmanuel Macron. Is it real? First, one needs to understand the context: a quasi-unknown individual a year ago, Mr. Macron has stunned all by winning the first, then second, round of the presidential election, as an "anti-populist", pro-European, candidate. Almost as surprisingly, his party (called "Republic on the Move!"), which has been in existence for less than a year, won an absolute majority (with 350 seats over 577) in the subsequent parliamentary election, held on June 11 and 18, 2017, reducing, for example, the Socialist representatives to 28 from 280 in 2012. This, in turn, means that for the next five years, Mr. Macron has both a mandate and an ability to implement his program. France, in electing him with such latitude, rejected the extreme right (with a Frexit program) and the extreme left (with a very high taxation program). One of Mr. Macron’s key strengths has been his "extreme centrist" positioning, based on the simple concept that necessary policies are neither leftist or rightist ones; they are just common sense and should be supported by all reasonable politicians regardless of their original party. He also promoted a very large number of non-politicians to political positions, thus considerably altering the political landscape. Being an ex-Rothschild banker, Mr. Macron is guided by a resolute desire to "open the country for business" and eliminate the disincentives to investment in France, particularly at a time when Brexit causes potential issues for businesses based in the UK. He also understands the need to act fast, and intends to pass his most emblematic promises, aiming at triggering a supply-side shock and boosting confidence, before the end of 2017. What are these promises? An extensive labor reform to "move the rules of the game" aiming at lowering the unemployment rate to 7% at the end of his term in 2022. Proposed measures include caps on financial penalties for companies sued for firing employees, allowing businesses more flexibility to define internal working rules, merging the various employee representative bodies currently existing in French business organizations to improve social dialogue. To achieve this reform expeditiously, the French Government wants to use a special procedure to pass the measures this Summer without extended debate in parliament. The details of the reform are expected to be announced at the end of August. Strong workers antagonism is likely, but the climate has changed and popular support for movements has weakened.  Tax reform aimed at restoring France’s attractiveness: Among the key signals sent to the business community: a decrease of the corporate income tax (from 34.3% today to 25% in 2022), and, as from 2019, the replacement of the tax credit for competitiveness and employment (CICE) by a substantial reduction in the employers’ social contributions.     Another aspect of the proposed tax reform will be the replacement of the general wealth tax by a special wealth tax limited to real estate and the creation of a "flat tax" on capital gains and dividends at a rate of about 30%. The purpose of this proposal is to favor financial investments over real estate ones.  These long-awaited measures will kick-in as soon as 2018. A 50-billion euro investment program: Although not yet fully financed, this plan will likely rely on the existing program "Investing for the Future" launched by President Sarkozy and on a new wave of privatizations. This program embraces huge investments in training (up to €15bn), supports to the ecological transition, the digitalization of the healthcare system, investments in infrastructures (such as transports) and modernization of the State services, all of which will favor future business fluidity. A large number of these projects will be open for bidding to non-French entities. An additional 10 billion euro "innovation program" is planned to invest into Cleantech, Greentech, AI, all in order to attract and retain start-ups. A new momentum for foreign investments in France After seven years of profound economic crisis, and five years of French bashing due to the former president’s administration, his tax increases and anti-business stance, France now benefits a true shift in perception. These changes have the effect to make France a desirable investment target, especially for business and real estate. Opportunities for foreign investors are relatively cheap, especially given the quality of the administration, education, health and infrastructure and the stability of the political system. France has numerous fundamental strengths including its central location in Europe, excellent communication and transport infrastructure, significant industrial achievements in a wide range of sectors, high productivity, and a well-qualified workforce. All these strengths support opportunities for foreign investments, from the United States and elsewhere. 2017 marks Gibson Dunn’s 50th year in France.  With 45 lawyers, whose expertise covers all aspects of business law, such as corporate transactions, restructuring/insolvency, private equity, litigation, compliance, public law and regulatory, technology and innovation, and finance, as well as tax and real estate, our Paris office,  is well-positioned to assist all the Firm’s clients as their strategy shifts towards France. Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding the issues discussed in this update. For further information, please contact the Gibson Dunn lawyers with whom you usually work, or the following authors in the firm’s Paris office: Bernard Grinspan (+33 1 56 43 13 00, bgrinspan@gibsondunn.com) Judith Raoul-Bardy (+33 1 56 43 13 00, jraoulbardy@gibsondunn.com) © 2017 Gibson, Dunn & Crutcher LLP Attorney Advertising:  The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

June 9, 2017 |
What the UK Election Result Means for Brexit

Theresa May’s decision to call a snap[1] UK general election has backfired.  The Conservatives emerged as the biggest party in yesterday’s UK general election but lost their overall majority.  Theresa May’s authority and leadership have been greatly weakened, perhaps even fatally damaged, by the shock result.  The Conservatives won 319[2] (down from 331) seats in the House of Commons.  A governing party needs 326 seats out of 650 seats for a majority.   The Labour party gained 29 seats, enjoying their biggest increase in the share of the vote since 1945.  A so-called "progressive alliance" between them and such of the minority parties as have indicated a willingness to work in coalition with Labour would not be sufficient to command an outright majority in the House of Commons. As leader of the largest party in Parliament, Theresa May has been asked by Queen Elizabeth (as head of state) to form a government, relying on Northern Ireland’s Democratic Unionist Party (DUP) for support.  The DUP have won 10 of the 18 Westminster seats contested in Northern Ireland whilst the nationalist  Sinn Féin party have won seven.  Given that Sinn Féin MPs do not take their seats in the House of Commons, the Conservatives and the DUP should together have 326 out of 643 MPs, giving the two parties a combined majority of nine. Theresa May has vowed to offer a "period of stability" and has said she has no plans to resign.  Arlene Foster, leader of the DUP, has confirmed her party’s in principle support for a Conservative-led administration and has committed her party to preserving the Union and bringing stability to the UK.  Detailed discussions of the terms of the Conservative-DUP understanding will begin shortly. When Theresa May called the election on 18 April she had a majority of 17 MPs in the House of Commons and was 20 percentage points ahead of Labour in the polls.  She called the snap election in the hope of increasing her majority and strengthening her hand in Brexit talks with the EU.  But her position has been severely weakened.  Her wafer thin majority (taking DUP support into account) will make it even more difficult for her to make the awkward compromises that will be needed to reach a Brexit deal with the other EU member states. It is possible that her leadership position will be challenged by Conservative MPs once an administration has been formed and the new session of Parliament has been opened.  Many MPs feel that this was an unnecessary election which has drastically weakened the strength of the Conservative government, and they hold Mrs. May and her closest advisers directly responsible for that.  It is possible that a new Conservative Prime Minster could seek a fresh mandate through another general election or that the Conservative-DUP pact could break down such that no government can be formed and a second general election has to be held. Formal Brexit discussions between the UK and the EU are due to begin on 19 June 2017 (which is also the date for the opening of the next UK Parliament).  Delays in forming a new UK government, or even a second general election in 2017, could impede these Brexit talks, squeezing an already tight negotiation timetable.  The UK government triggered Article 50 (the official legal notification to the EU that the UK is going to leave the bloc) on 29 March 2017.  It means that, unless otherwise agreed with the EU member states, the UK will be out of the EU by the end of March 2019 – even if no withdrawal agreement is in place.  It is unclear whether Article 50 can be withdrawn once invoked. It is not clear if the UK will stick to the Brexit policy mapped out before the election when Theresa May said the UK would leave Europe’s single market and customs union.  There is a possibility that the hung parliament could result in the UK stepping back from the "hard Brexit" stance taken by Theresa May and/or in the EU imposing a softer Brexit on the UK by virtue of the UK’s weaker negotiating position.  The provisions in the UK Finance Bill which were deferred because of the election are likely to be enacted later this year. These include the corporate interest restriction rules, the shareholding exemption reforms and the reformed inheritance tax rules for non-UK domiciliaries with interests in UK residential property.    [1]   The Fixed-term Parliaments Act 2011 introduced fixed-term elections to the UK Parliament.  Under the Act, Parliamentary elections must be held every five years, beginning on the first Thursday in May 2015, then 2020 and so on.  However, the Act provides that a snap election can be called when the government loses a confidence motion or when a two-thirds majority of MPs vote in favour.    [2]   Subject to final confirmation following Kensington seat recount.   This client alert was prepared by London partners Stephen Gillespie, Charlie Geffen and Nicholas Aleksander and of counsel Anne MacPherson.   We have a working group in London (led by Stephen Gillespie, Nicholas Aleksander, Patrick Doris, Charlie Geffen, Ali Nikpay and Selina Sagayam) that has been considering these issues for many months.  Please feel free to contact any member of the working group or any of the other lawyers mentioned below. Ali Nikpay – AntitrustANikpay@gibsondunn.comTel: 020 7071 4273 Charlie Geffen – CorporateCGeffen@gibsondunn.comTel: 020 7071 4225 Stephen Gillespie – FinanceSGillespie@gibsondunn.com Tel: 020 7071 4230 Philip Rocher – LitigationPRocher@gibsondunn.com Tel: 020 7071 4202 Jeffrey M. Trinklein – TaxJTrinklein@gibsondunn.com Tel: 020 7071 4224 Nicholas Aleksander – TaxNAleksander@gibsondunn.com Tel: 020 7071 4232 Alan Samson – Real EstateASamson@gibsondunn.comTel:  020 7071 4222 Patrick Doris – Litigation; Data ProtectionPDoris@gibsondunn.comTel:  020 7071 4276 Penny Madden QC – ArbitrationPMadden@gibsondunn.comTel:  020 7071 4226 James A. Cox – Employment; Data ProtectionJCox@gibsondunn.com Tel: 020 7071 4250   Gregory A. Campbell – RestructuringGCampbell@gibsondunn.com Tel:  020 7071 4236 Selina Sagayam – Corporate SSagayam@gibsondunn.comTel:  020 7071 4263 © 2017 Gibson, Dunn & Crutcher LLP Attorney Advertising:  The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

June 5, 2017 |
ECB Leveraged Lending Guidance – Too Late to (the) Party?

The European Central Bank (the "ECB") published its final Guidance on Leveraged Lending Transactions (the "ECB Leveraged Lending Guidance") on May 16, 2017.  The ECB first published draft guidelines in November 2016, and the publication of the final ECB Leveraged Lending Guidance followed a period of public consultation, including input from key industry players including credit institutions and market associations.  There is a six-month implementation window before the ECB Leveraged Lending Guidance comes into force and will apply in practice. Both the ECB Leveraged Lending Guidance, and the similar guidance that was issued by the US federal bank regulatory agencies in March 2013 (the "US Leveraged Lending Guidance"), have the backdrop of the financial crisis, and the surprisingly strong recovery of both the European and US leveraged finance markets since that time, at their core.  The US Leveraged Lending Guidance applies to federally regulated financial institutions in the US only.  As competition between credit institutions for leveraged lending business has increased, and more borrower-friendly lending conditions have emerged in Europe – often coming from directly across the pond e.g. the introduction of "covenant-lite" loans – the ECB has been keen to mitigate risk and curtail the exposure of credit institutions within the European leveraged lending market. The ECB Leveraged Lending Guidance has emerged against this backdrop, and outlines the criteria by which the ECB expects banks to assess the credit quality of their so-called "leveraged" transactions, and to monitor any underling risks to their balance sheet.  These principles are very similar to those established by the US Leveraged Lending Guidance.  In short, the  ECB specifies that the underwriting of transactions with a leverage, or Total Debt to EBITDA, ratio (see below) of more than 6.00 times should only be undertaken in exceptional and justifiable circumstances, and that credit institutions should ensure leveraged borrowers have the capacity to fully amortize their debt, or repay at least 50% of the total amount, over a period of five to seven years. Commentary suggests that the ECB expects the ECB Leveraged Lending Guidance to be implemented consistently with the size and risk profile of institutions’ leveraged transactions relative to their assets, earnings and capital. Application and Scope The ECB Leveraged Lending Guidance applies to all "significant" credit institutions supervised by the ECB, each of which is expected to adopt the ECB Leveraged Lending Guidance as an integral part of its internal policies.  Whether an institution is "significant" is determined by reference to a number of criteria, but particular  attention will be paid to its size, importance to the economy of the European Union or any European Member State, and also the extent of its cross-border activities.  This emphasis on "significant" does mean that a disconnect could develop between large-volume arrangers and smaller banks. In addition, the ECB Leveraged Lending Guidance does not apply to non-bank institutions, e.g. direct lenders, and therefore a further divergence between these two sets of institutions is inevitable. To be treated as "leveraged", a transaction must meet at least one of the following tests: (i) where the borrower’s post-debt incurrence leverage exceeds a Total Debt to EBITDA ratio of 4.0 times; or (ii) where the loan or other credit exposure, regardless of the actual "leverage" of the transaction, is advanced to a borrower which is owned or controlled by one or more financial sponsors. Whilst the leverage test aligns closely to the US Leveraged Lending Guidance, the so-called "sponsor test" is not only not quantitative but also inconsistent with the approach taken in the US where an equivalent test does not apply.  The two tests above apply strictly to all leveraged transactions — including best efforts deals, club deals, and bilateral lending – although credit institutions are encouraged to apply the ECB Leveraged Lending Guidance to all (i.e. including non-leveraged) transactions. For the purposes of satisfying the leveraged test above, the calculations of Total Debt and EBITDA are key.  By way of example, Total Debt applies to total committed debt (both drawn and undrawn), and also any "additional" debt that the underlying loan documentation permits, whether or not such additional debt is ever tapped.  This latter point is particularly relevant given the flexibility included within recent leveraged loan documentation to incur additional debt, whether by way of incremental or "accordion" debt, or "side-car" facilities.  Ambiguity remains as to whether the ECB Leveraged Lending Guidance applies also to permitted debt baskets.  In relation to EBITDA, following the consultation process on the draft ECB Leveraged Lending Guidance (referred to above),  certain pro forma adjustments and add-backs to EBTIDA are now permitted to be made.  However, such adjustments must be duly justified and reviewed by an independent function within the credit institution – whilst the principle of the adjustments is in line with the US Leveraged Lending Guidance, the independent review is an additional criteria unique to Europe. The ECB has reserved the right to re-assess its position on EBITDA adjustments if it feels that there is a consistent over-zealous application of pro forma "future synergies" or "future earnings", which goes against the mitigation of risk that the ECB Leveraged Lending Guidance is designed to achieve. Consequences The ECB Leveraged Lending Guidance does not apply to credit institutions that do not participate in the Single Supervisory Mechanism Regulation (i.e. the United Kingdom and Switzerland), and there are also a number of exempted transactions.  Thus, for example, loans to investment grade borrowers, and project finance, real estate and asset and commodities financing are classified as "specialized lending" and remain outside the scope of the ECB Leveraged Lending Guidance.  In addition, the ECB Leveraged Lending Guidance is not legally binding, although the ECB have confirmed that compliance will be enforced through the ongoing supervision of credit institutions.  It is difficult to see how a relevant credit institution can avoid incorporating the various parameters into its internal policies, and we expect that most institutions will follow the ECB Leveraged Lending Guidance as a matter of good practice.   We will have to wait to see whether or not the Bank of England – possibly post-BREXIT – will follow in the ECB’s footsteps and formalize any UK-specific guidance.  In practice, deal statistics in the US show that the leverage constraints following on from the implementation of the US Leveraged Lending Guidance have led to sponsors increasing the size of their equity contributions in leveraged buyouts, although there has been little "improvement" in lending terms (i.e. terms are no more "bank friendly").  In the last couple of weeks since the ECB Leveraged Lending Guidance was published, there has been chatter within the European sponsor community that arrangers now only have a few months to squeeze through highly leveraged deals.  Whilst deals of around 6.00 times leverage may still be possible, arrangers have been warned that these instances should remain exceptional, and that any potential exception should be duly justified.  It will also be interesting to monitor how the flexibility around a borrower’s ability to incur additional debt is curtailed (or not, as the case may be).  In any event, it is inevitable that the second half of 2017 will see leverage multiples again become an increasing focus within the European leveraged finance markets, and it is likely that there will be a fall in the number of buyouts where highly leveraged financing packages are offered – at least from the outset.  We may also see an increase in asset-backed and commodities financings, as these financings are likely to be able to offer the same documentation flexibilities as more traditional leverage lending, but will be exempt from any constraints on leverage. Of course, as we note above, the ECB Leveraged Lending Guidance only applies to a portion of institutions active in the European leveraged finance markets, whether by size or geography, and only to bank lenders (rather than non-bank or so-called "direct" lenders).  This means there will still not be a level playing field across the market.  In addition, the guidance impacts only those deals with "high" leverage – which, whilst headline-hitting for the European leveraged finance press, in reality relates only to a limited percentage of deals by volume.  The irony is that now the European market has finally caught up with the US by implementing such ECB Leveraged Lending Guidance, the markets may be about to fall out of regulatory sync again: as part of the review of financial regulation by President Trump, the US Leveraged Lending Guidance could be cast aside… Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding these issues.  Please contact the Gibson Dunn lawyer with whom you usually work, any member of the firm’s Global Finance practice group, or the authors:  Stephen Gillespie – London (+44 (0)20 7071 4230, sgillespie@gibsondunn.com)Amy Kennedy – London (+44 (0)20 7071 4283, akennedy@gibsondunn.com) Please also feel free to contact the following leaders and members of the Global Finance group: Thomas M. Budd – London (+44 (0)20 7071 4234, tbudd@gibsondunn.com) Linda L. Curtis – Los Angeles (+1 213-229-7582, lcurtis@gibsondunn.com) Aaron F. Adams – New York (+1 212-351-2494, afadams@gibsondunn.com) Gregory A. Campbell – London (+44 (0)20 7071 4236,gcampbell@gibsondunn.com) Andrew W. Cheng – Los Angeles (+1 213-229-7684, acheng@gibsondunn.com) Darius Mehraban – New York (+1 212-351-2428, dmehraban@gibsondunn.com) © 2017 Gibson, Dunn & Crutcher LLP Attorney Advertising:  The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.