EUROPEAN UNION
Finding Opportunity in Crisis
Europe’s leading law firms are on alert as the currency crisis threatens to plunge the continent back into recession. With the euro’s
malaise quickly spreading from one country to the next, firms are preparing for a
new wave of bankruptcy, restructuring,
litigation, and other finance-related work.
In Greece, for example, lawyers have
been advising clients on contingency
planning, such as putting provisions into
commercial contracts should the country leave the euro. German travel operator Tui AG is one of the few companies
to publicly acknowledge that it has asked
its Greek counterparties to sign new contracts that would oblige them to honor
existing financial obligations in the event
of a currency change. Tui has previously
been advised on transactional matters by
Allen & Overy, Freshfields Bruckhaus
Deringer, and Herbert Smith. All three
firms declined to comment on whether
they were involved in the Greek contract
negotiations. (Indeed, given the sensitivity of the situation, no firm would comment on the record about crisis-related
representations.)
The crisis has also highlighted the
need for regulatory reform to reduce
risk and increase stability among fi-
nancial institutions. “Everyone is fo-
cused on the eurozone, and rightly so,
but underneath that, you have some
huge regulatory changes in progress
that will totally transform the mar-
ket,” says Michael Bray, a finance
partner at Clifford Chance. His firm
has been in the center of the bailouts
as lead counsel to the European Fi-
nancial Stability Facility, the euro-
zone stability fund.
“There is a huge amount of change
going on, but that’s a good thing,” Bray
adds. “For law firms, it’s when there’s
complete stagnation that things start
getting difficult.”
In one of the biggest reforms, Eu-
ropean governments have accelerated
plans to increase tier-one capital re-
quirements for banks—essentially the
ratio of shareholder capital as a propor-
tion of risk-bearing assets. This change,
originally set out under the Basel III
standards, is likely to result in a glut of
write-downs and asset disposals as in-
stitutions look to deleverage and reduce
their loan books. Royal Bank of Scotland
Group Plc—which uses the majority of
top U.K. firms through its 18-strong legal panel—is among a number of banks
to have made significant portfolio disposals in the past 12 months. It recently
joined Barclays PLC, BNP Paribas, and
ING Groep N.V. in dumping Italian
bonds. (RBS is an investor in the parent
company of Focus Europe.)
Banks would also be able to increase
their tier-one ratios by raising new capi-
PASCAL LE SEGRETAIN/GETTY IMAGES
EUROPEAN UNION
Workers of the Continent, Unite
A new European Union directive has beefed up workers’ rights to be informed
and consulted in mass layoffs, mergers, or
other restructurings that cross national borders. And multinationals risk significant penalties if they don’t comply.
The regulation took effect this summer. It
gives teeth to a 1994 directive that requires
a company to establish a European Works
Council if it has 1,000 or more workers, and
if at least 150 employees in each of at least
two E.U. nations request an EWC. The revised
directive imposes new mandates on the con-
tent of the information that multinationals
must provide to EWCs when major changes
are afoot, as well as the way that the councils
must be consulted on such changes. The
lengthy list of triggering events includes “sub-
stantial changes” in organization, production
processes, and “transfers of production, merg-
ers, cutbacks or closures of undertakings, es-
tablishments, and collective redundancies.”
An EWC cannot prevent management from
taking a planned action. But if management
does not give a reasoned response to the
council—or just pays it lip service—the com-
pany could face legal challenges and fines,
according to Eversheds employment partner
Thomas Player. In the United Kingdom, for
example, the maximum penalty is £100,000
if management is found to have breached its
duties under the law.
Because the directive applies to proposals—not just decisions—by management,
Player worries that the consultation requirements will delay deals. He also fears that
the more detailed disclosures will create new
risks, especially where confidential or sensitive information is involved.
“There’s scope to withhold certain information if disclosing it would cause harm to
the organization, but you can’t use that as
a shield against providing information on a
meaningful basis,” Player says. “[The consultation requirements] will inevitably result in
information being provided at an earlier stage.
You have to make sure [to have] robust confi-
dentiality provisions.”
Labor groups hope that the new law will
encourage the growth of EWCs. According to
2008 data from the European Trade Union
Confederation, 61 percent of multinationals
with 10,000 or more employees in Europe
had EWCs. However, among companies with
fewer than 5,000 workers, the percentage
with councils fell to 23 percent. U.S.–based
companies led the way with 149 EWCs, fol-
lowed by German-based businesses with 145.
The impact of the new directive will vary
according to the strength of existing labor
laws in each E.U. country. Germany, the Netherlands, Belgium, and France already give
significant powers to employees. Christopher
Jordan, an employment partner with CMS
Hasche Sigle in Cologne, says that Germany’s
powerful national works councils—and not
EWCs—will remain in the driver’s seat in negotiations with management. “Compared to
the national works council, the EWC is really
