Category Archives: Banking and Finance

Malta – foremost safe harbour in today’s stormy seas of maritime finance

Articles, Banking and Finance, Insolvency/Bankruptcy/Re-structuring, Latest News, Transport

International finance of ocean-going vessels and other maritime assets such as off-shore oil and gas equipment is currently experiencing what could be described as a perfect storm: Many owners looking to refinance newer assets in their fleet ordered their construction and locked into efficient funding before the global financial crisis of 2007/8. And according to the World Shipping Council, the global container fleet peaked in 2013 at around 34.5 million TEU. At the same time, along with transoceanic freight rates which are widely recognised as a bellwether of international trade flows, residual container ship values in US$ per dead weight tonnage slumped dramatically from the end of 2008 onwards, with ship brokers reporting declines of up to 40% from previous high water marks. What followed in the maritime finance sector, according to the world’s largest shipping lender HSH Nordbank AG, was a “monstrous wave” of loan loss provisions, peaking in 2013. So, when the need of ship owners for new funding was greatest, they found funding taps turned off – at least when investigating traditional sources.

The aircraft finance market had steered its way out of similar storms in the past by heading away from traditional bank lenders and towards increasingly global capital markets. Investors could consider the apotheosis of aviation capital markets financing to be the enhanced equipment trust certificate or “EETC”. EETCs are now a dominant force in aircraft financing, particularly in the United States, with fleet transactions of up to US$ 4.5 billion. In essence, an EETC transaction finances the acquisition and leasing of aircraft and other large equipment through the issuance of a type of asset-backed security by a special purpose vehicle held by a pass-through trust for institutional investors that buy and can potentially trade the relevant trust certificates. The trust certificate securities are said to be “enhanced”, because the special purpose vehicle as registered owner of the aircraft and issuer of the equipment notes backing the certificates is remote from the potential bankruptcy of the plane’s registered owner, typically, an aircraft leasing company. Equity injected for example by the owner / lessee of the aircraft, is thus regarded as credit enhancement for the EETCs, since the trustee for investors is empowered to enforce its security over the plane without getting mixed up in or delayed by corporate bankruptcy or reconstruction proceedings. Similarly, EETCs are so called because they will typically benefit from liquidity support in the form of a standby revolving credit facility from a highly rated financial institution to cover lease payment shortfalls against debt payments due for a period of months in order to avoid an immediate default on the securities.

Nevertheless, the EETC market has possibly been the victim of its own rapid success: Many investors are now facing concentration risk issues in their respective portfolios, with significant relative exposure to certain airlines, lessors, regions, aircraft types and manufacturers. EETC buyers also represent a relatively small part of the investor universe, being in the large part insurance companies and specialist investment funds buying in the U.S. private placement market.

This said, it should be easy to understand the excitement around 2015’s epoch in the development of Malta’s international capital markets sector as well as in ship finance worldwide, as EETC technology was applied for the first time to find a safe harbour for maritime finance deals. In September, the enhanced equipment trust certificate (“EMTC”) financing of MV Al Qibla, a 13,500 TEU ultra-large container vessel owned by United Arab Shipping Company (S.A.G.) (“UASC”) was completed in Malta. Closing in relation to Al Qibla’s sister ship, MV Malik Al Ashtar, was settled in August. The EETCs were privately placed with institutions in the United States of America qualifying as accredited investors under U.S. securities laws and similarly qualified investors in the European Economic Area.

The Equipment Notes cross-collateralizing the EMTCs in this deal were issued by two Malta incorporated special purpose vehicles, one for each vessel, established both as shipping organisations and securitisation vehicles under local legislation. Malta is also the flag of Malik Al Ashtar and Al Qibla. Malta’s Securitisation Act and related statutory instruments establish special regulatory, insolvency and tax regimes that make the jurisdiction uniquely equipped for the establishment of issuers in EMTC transactions. Special purpose vehicles with their centre of main interest in Malta enjoy the highest levels of protection under statute from being brought into the insolvency of a shipping company parent that is also charter party in an EMTC deal. In this deal, further comfort was given to capital markets investors by establishing a purpose foundation, the Tabuk EMTC Foundation, to own “golden shares” in the SPV Equipment Note issuers with rights to veto actions that could be prejudicial to investors, including placing the SPVs into bankruptcy proceedings. In the exercise of those golden share veto rights, the Maltese administrator of the Tabuk EMTC Foundation, Equity Wealth Solutions Limited, follows the instructions of the Subordination Agent in respect of the SPVs it has established. The Subordination Agent appointed for the Al Qibla and Malik Al Ashtar Equipment Notes was Wells Fargo Bank Northwest, N.A.

A particular feature of UASC’s debut EMTC transaction was that it wished as originator to maintain a substantial equity interest in the Equipment Note issuing SPVs and therefore ownership of the vessels. Originator ownership of the asset holding vehicle would ordinarily be anathema to a structured finance transaction – the norm is to “orphan” the vehicle through a charitable trust or purpose foundation. Here, UASC’s continuing ownership of the Vessels by holding ordinary voting shares in the SPVs was requisite. The ultimate concern of investors in relation to the legal structure of an EETC or EMTC transaction is that the assets and liabilities of an SPV will be consolidated with those of the originator on its subsequent insolvency, having been deemed by a court to be substantially those of the originator all along. This doctrine of substantive consolidation exists in policy or statute in many jurisdictions, but it is particularly prevalent as applied by the federal courts under the U.S. Bankruptcy Code. At the same time, a number of foreign ship owners have successfully placed themselves in U.S. bankruptcy proceedings, arguably to the detriment of their long term secured creditors. It was vital therefore to be able to demonstrate to the satisfaction of the investors and credit rating agencies that any bankruptcy or reorganization proceedings in which UASC might possibly be caught up would not affect the SPVs and in particular, the right of investors to enforce their security over the Vessels immediately following an event of default without stay or hindrance. An important element of this bankruptcy remoteness was the “true sale” of the Vessels to the SPVs, i.e., that the alienation from UASC’s estate could not be set aside by the court or an insolvency official recharacterising it as a secured financing, a transaction at undervalue or fraudulent preference. Likewise, the SPVs would be entitled to terminate the charter party agreements with UASC and repossess the Vessels on UASC’s default (including bankruptcy) under the arrangement as a “true lease” rather than a secured financing under the U.S. Federal Bankruptcy Code.

It was essential therefore to rely on the specific provisions of the Malta Securitisation Act that preclude an application by on behalf of an originator engaged in insolvency or restructuring proceedings affecting a securitisation vehicle established under the Act. Similarly, absent fraud on the part of the securitisation vehicle, statute prevents the Maltese courts from accepting an application from an insolvency official to reverse or amend the terms of a sale of securitisation assets by the originator effected prior to its insolvency. The statutory bankruptcy remoteness of the SPVs allows UASC to extract excess spread from charter party payments left after debt service by way of nothing more complicated than payment of a dividend. Bolstering this, the Merchant Shipping Act as it applies to shipping organizations such as the SPVs, allows for the enforcement of a Malta registered mortgage outside of any insolvency proceedings. The application of these and related provisions in the Malta Securitisation Act and Merchant Shipping Act were the subject of legal opinions addressed to investors and shown to rating agencies for the purpose of awarding the desired credit rating to the UASC EMTCs.

However, an originator holding an equity stake in a securitistion vehicle is not only problematic from a bankruptcy remoteness perspective:- profits building up in the issuing vehicle and profit extraction by way of dividend payments could obviously threaten the vehicle’s tax neutrality. By the same token, liability of the SPVs to account to the tax authorities in Malta for unpaid tax could threaten the exclusive right of securitisation creditors to manage the Equipment Note issuers’ indebtedness. Broadly speaking, an ordinary Maltese company issuer would be liable to 35% corporation income tax on taxable profits. And whilst interest payments on debt would be deductible, repayments of principal and dividends on shares would not. Hence it was particularly important that unlike in other onshore SPV issuer jurisdictions, the Securitisation Transactions (Deductions) Rules in Malta allow a securitisation vehicle issuer to make a deduction for residual income that would otherwise be taxable, provided that the originator gives its irrevocable consent to this treatment in the SPV’s tax return.

From an investor’s perspective, apart from bankruptcy remoteness and ease and speed of enforcement of security, it is important that shipping securitisation companies are not considered alternative investment funds, particularly if they are investing from Europe. Many European pension funds and insurance companies are limited by their investment policies and / or regulation in their holdings of units in non-UCITS collective investment schemes. Again, legislation in Malta makes it clear that securitisation vehicles are not collective investment schemes and therefore are unable to be considered AIFs as a matter of Maltese law. It is also helpful that all of the SPVs’ voting share capital is issued to UASC and the Tabuk Foundation, whereas the Equipment Notes are clearly debt securities. Similarly, private securitisation vehicles, namely those that do not, as the UASC SPVs do not, issue securities to the public on a continuous basis, are generally not required to be licensed by the competent authority in Malta. The issuers in the UASC transaction were however required to notify the Central Bank of Malta of their existence as financial vehicle corporations under Regulation ECB 2013/40 for collection by the European Central bank of data on FVCs’ activities in the Eurozone.

In short, Malta uniquely allows for originator owned unregulated onshore bankruptcy remote SPVs with profit extraction by way of distributions on equity. For this reason, GANADO Advocates is predicting that as maritime capital markets grow, EMTCs backed by equipment notes issued in Malta should emerge as the classic form of investment security. UASC has itself indicated interest in undertaking further EMTC transactions in the near future and it would be surprising if it remains alone in a large constituency of potential issuers. Moreover, the success of this EMTC transaction could be the harbinger of Maltese EETC issuing vehicles for aircraft deals where European investors or lessors dictate the deal structure. From constituting a fulcrum for Phoenician trade routes in the fourth century BC to becoming the Mediterranean’s first transhipment hub in 1988 with an annual trade volume in 2012 of over 2.5 million TEUs, Malta has been recognized as the region’s pre-eminent freeport. It has now developed the legal, tax and regulatory infrastructure to become the leading safe harbour for maritime capital markets issues.

Lawyers in the London and New York offices of White & Case LLP lead by the firm’s Global Head of Asset Finance, Chris Frampton, acted as Transaction Counsel to UASC and Morgan Lewis Bockius LLP as Investor Counsel. GANADO Advocates acted as Malta Counsel to UASC. The GANADO Advocates’ deal team was lead by capital markets Partner, Richard Ambery together with Max Ganado on Maltese corporate and finance law, Stephen Attard on taxation and Karl Grech Orr on shipping. The team also included Associates Nicholas Curmi, Matthew Attard and Amanda Attard, respectively on capital markets, shipping and tax matters.

Where Are Private Equity and Real Estate Funds Being Domiciled? What’s Changing?

Articles, Banking and Finance, Latest News, Real Estate and Construction

The world we live in is constantly changing. It feels as if new regulation is appearing almost every day. With over 400 funds under administration, Augentius, the specialist Private Equity and Real Estate fund administrator, put together a panel to discuss what changes they are currently seeing in the market, if any, and what we are likely to see in the coming months.

NORTH AMERICA

Delaware and Cayman Limited Partnerships remain the popular options for both North and South American managers for funds, SPVs and related entities. It’s a “well-trodden” solution and understood by managers and investors alike. In addition some Latin American countries have recently signed double taxation treaties with Canada and this is bringing Ontario into play as a domicile.

The current exclusion of both the US and Cayman domiciled fund structures from “Passporting” under the AIFMD have created some complexities for fund raising in Europe. ESMA, the pan-European regulator is currently reviewing both domiciles but an early outcome is not expected. As a consequence ether the individual country National Private Placement Regimes (NPPRs) need to be used (appears complex and difficult at the outset – but manageable) or a “third party” manager can be set up within Europe and a “Passport” obtained to market the European parallel structure (overall a more expensive and less popular solution). There is increasing recognition that Reverse Solicitation is not the way forward.

As a general rule of thumb, it is only the larger managers that have confronted the fund raising in Europe issue. Applications under NPPRs can be time consuming and a Depositary needs to be appointed to support fund raising in Germany and Holland. However the time and effort has been rewarded and substantial sums raised. Smaller managers have been more content fund raising from their home territories although as the market becomes more comfortable with the processes this is likely to change.

EUROPE

Private Equity and Real Estate funds in Europe have traditionally used The UK and Channel Islands for the domicile of their funds. Luxembourg has always been popular for Special Purpose Vehicles (SPVs) and has become more popular in recent years as a fund domicile, as it has created the concept of Limited Partnerships within its fund laws. Ireland has also gained a little traction in recent months following the creation of an LP structure. Malta and others try hard to compete with the major fund domiciles but have not succeeded in attracting a large number of funds despite attractive legislation and incentives. In addition, recent changes in tax rules in different European countries have also resulted in some managers, particularly in the Nordics, reverting to locally domiciled structures.

Many countries in Europe see the advantage of maintaining/creating a financial services industry. The UK, Channel Islands, Luxembourg and Ireland have all created substantial industries (and employment) around the servicing of funds of all descriptions. To retain a competitive edge, countries often “adjust” their legislation to create an attractive environment for funds, the related structure and of course fund managers. This is exactly what Luxembourg and, more recently, Ireland have done – the result of which is that they are more accommodating to Private Equity and Real Estate funds than they have been in the past. The UK, one of the dominant domiciles in Europe, is currently reviewing its’ LLP legislation – again to ensure that the laws and applicable fund structures are attractive solutions.

As a consequence, fund managers have considerable choice within Europe as to where they can domicile their funds. Some managers selecting “offshore locations” such as the Channel Islands, with others selecting onshore locations such as the UK or Luxembourg.

However with BEPs on the horizon, and in particular the regulators attempting to stop “treaty shopping”, it is highly likely that managers will need to focus on the major jurisdictions that have been tried and tested over the years. Another issue to consider is the potential Brexit of the UK from the European Union. It is difficult to contemplate the ramifications at this early stage but for those managers considering raising a fund within the next few years this is not an issue that can be ignored.

ASIA

India: GPs have typically used Mauritius to domicile their funds but since the Vodafone case, managers have been looking at alternative domiciles; notably Singapore. Although the treaty with Mauritius was recently ratified, many GPs, in particular the larger and better capitalised ones, have been building out their Singapore platforms domiciling their fund and management companies in Singapore. The country’s large network of double tax treaties and 13x and 13r tax exemptions have made the domicile attractive to many GPs. Investors are very comfortable with the robust regulatory framework put in place by the Monetary Authority of Singapore and there is an abundance of high quality service providers for managers to engage with.

The challenges that some managers face are the costs associated with operating in Singapore brought on by the significant substance requirements and regulatory hurdles. Indian managers will typically use a Singapore corporate entity, a PTE, as a pooling vehicle for offshore investors funds, via which they invest either directly into Indian portfolio companies or into an Indian domiciled investment trust.

China and Hong Kong: Chinese GPs raising USD funds will almost always structure the fund in the form of a Cayman LP. Domestic managers deploying RMB funds will use mainland vehicles such as investment trusts or domestic limited partnerships.

As China opens up its capital markets, we are seeing structures such as Shanghai’s QDLP (Qualified Domestic Limited Partnership) or Shenzhen’s QDIE, (Qualified Domestic Investment Enterprise),
allowing Chinese investors a channel via which to invest into offshore private equity.

Hong Kong based GPs either investing Pan-Asia funds or investing into China are for the most part using Cayman LPs, although with the extension of the profit tax exemption to include offshore Private
Equity funds, we may see more Hong Kong domiciled fund structures being used.

Singapore: The typical fund structure for Singapore based GPs investing into South/South East Asia is a Cayman (more often than not) or Singapore LP (we are seeing this more but not nearly as often as Cayman) with a Singapore master fund (a Singapore corporate) underneath.

This way managers take advantage of having the LP domiciled in a jurisdiction which investors are very familiar with, that has long standing tax benefits and a master fund that allows for a very wide number of double tax treaties to be accessed.

Australia: Domestic GPs will always use Australian open ended unit trusts and occasionally a Cayman LP as a feeder for offshore investors although this is not common.

Malaysia: Labuan, Malaysia’s equivalent of the Channel Islands has a Limited Partnership that we have seen used by some Malaysian GPs, but most continue to use Cayman.

_____________________________________________________________

In recent years the Private Equity and Real Estate world has been hit by a flurry of regulation – much of which it is still trying to digest and find the right solutions for. The next large piece of legislation in the form of BEPS is on the very near horizon and is already starting to have an effect on the way funds are structured. Some structures and domiciles may be more appropriate than others in this new environment – and the industry will go through another round of change.

The fund industry is currently in a constant state of flux – and the right structure and domicile used for the last fund isn’t automatically the right structure for the next. Managers and their advisors need to be aware of this and not just automatically “do the same as before”.

Unenforceability of Arbitration Clauses?

Articles, Banking and Finance, Latest News

Introduction

Banks in Hungary as in many jurisdictions, prefer arbitration over litigation before ordinary courts to resolve disputes arising out of a financing transaction. Efficiency, flexibility, professionalism and protection of sensitive information are among the main reasons for this preference. However, the large number of insolvencies in recent years revealed a difficulty in enforcing arbitration clauses.

The question of enforceability of the arbitration agreement often arises from a challenge to the validity of the entire loan agreement (or at least certain parts of it) by the borrower in financial difficulties. If such or similar dispute arises, the financially distressed claimant may not be in a position to advance the relatively high costs to initiate arbitration proceedings.

The arbitration agreement may be rendered incapable of being performed

Since the beginning of the financial crisis the number of debtors unable to meet their financial obligations has increased substantially. Most of these debtors commenced negotiations with the banks to achieve grace periods and standstill arrangements or the restructuring of the loans. For various reasons (the analysis of which is outside the scope of this article), banks in Hungary were often able to fulfil these requests, and the outcome was rather termination and acceleration in most cases. Debtors often challenged the banks’ decisions on drawstop, termination or acceleration; some chose to also initiate bankruptcy or final insolvent dissolution proceedings.

Arbitration proceedings are expensive, particularly for anyone in financial difficulties. A trend of submitting claims to ordinary courts has emerged, arguing that a person should have a fundamental right and possibility to assert or defend its rights before dispute resolution bodies, irrespective of its financial condition. The legal argument of the petitions for establishing the competence and jurisdiction of ordinary courts is unenforceability: debtors claim that the arbitration agreement shall be rendered “incapable of being performed”.

Hungarian precedent declaring that an arbitration agreement with a company under liquidation is unenforceable

In response to the emerging of these cases, ordinary courts were divided on how to handle this type of case, and whether or not they could rely on an exemption granted by the Hungarian Arbitration Act allowing ordinary courts to hear a case on its merits despite a valid arbitration clause in the underlying agreement. In 2014 the Supreme Court of Hungary issued a its guidelines confirming that an arbitration agreement is not enforceable with respect to a company under liquidation, since such agreement is incapable of being performed as a result of the pending liquidation. The Supreme Court of Hungary provided the following reasoning for this view:

      i. the costs of the arbitration proceedings exceed the costs of an ordinary court case;
      ii. in arbitration matters the claimant must advance the arbitration costs in any case, and may not request the suspension of this obligation or exemption from it;
      iii. in arbitration proceedings the insolvent company’s third party creditors are not able to intervene or interplead;
      iv. arbitration proceedings are not open to the public, which is detrimental to the interests of other creditors;
      v. the arbitration proceeding is a one instance proceeding without a right to appeal or contest the award and the setting aside of an award is available only in limited circumstances;
      vi. arbitration proceedings are less effective than ordinary court proceedings.

Consequences

The need for support for financially distressed companies to enable them to obtain a fair trial (or, to that end, at least the chance of a fair trial) is understandable. However, the arguments of the Supreme Court of Hungary are not entirely convincing in establishing legitimate reasons for rendering an arbitration agreement “incapable of being performed”. Some of the reasons difficult to deny, but it is hard to see their relevance in the context of evaluating the enforceability of an arbitration agreement. For example, it is unconvincing, to say the least, that the arbitration proceedings being closed to the public and that the creditors cannot intervene prejudices the rights of the debtor company to such an extent that it raises the question of the enforceability of its valid contractual undertakings. Equally it is questionable whether non-availability of an appeal, even in theorem, should render an arbitration agreement “incapable of being performed” just because the claimant is under liquidation. Why would non-availability of appeal matter in respect of insolvent companies but not others?

Insolvency laws set out the rules under which an administrator or liquidator of an insolvent company may challenge, terminate, rescind from or set aside agreements and contractual obligations. These rules also guarantee that no cherry-picking occurs and only entire agreements may be set aside by the liquidator. In effect, the decision of the Supreme Court of Hungary by-passes the statutorily defined (and limited number of) circumstances where this could happen; and establishes an extraordinary exemption. This, in the view of many, goes beyond the scope of the traditional function of courts to apply laws, and breaches the prohibition of court created laws.

It has to be noted that the issue discussed above and the interpretation of law in that context is not a Hungarian novelty. The exemption from being bound by an arbitration agreement on the basis that it is “incapable of being performed” has its origin in Article 8 (1) of the UNCITRAL Model Law on International Commercial Arbitration which was implemented into the Hungarian Arbitration Act. Thus, in principle, banks should be aware of the risks that there may be special circumstances when an arbitration clause cannot be enforced. However, by specifying the general term of “incapable of being performed” and applying it to all cases where a party is under financial difficulty the Hungarian Supreme may have gone too far. Pandora’s Box is now open and a company which may have no more to lose, following the acceleration of its loan, could very easily hinder enforcement or the collection of the debt by filing for an insolvency procedure and commencing a lengthy ordinary court procedure against the banks. The consequence of this is not only significant delay, but also that the claim of the bank will be registered by the liquidator as “disputed”, which makes a creditor’s position in an insolvency scenario even worse, depriving them from their fundamental creditors’ rights such as the right to vote.

To be blunt, the Supreme Court of Hungary’s decision is not a surprise in light of the traditional borrower-friendly approach of Hungarian courts. Banks and other financing entities could only hope that the tide will turn, and their interests will be taken into account with a more balanced emphasis in future decisions.

 

Switzerland: Recent developments in the private placement regime for private equity, hedge funds and other type of alternative investment funds

Articles, Banking and Finance, Corporate/Commercial Law, Latest News

Until March 2013, the private placement of alternative investment funds was quasi-unregulated in Switzerland. Any type of investors could be solicited by any type of funds as long as the solicitation was not falling into the category of “public placement”.

A number of distribution scandals affecting retail investors during the past decade pushed the European Commission and the Swiss legislator to introduce new regulations with a view to provide better protection to investors.

Europe has heavily regulated the distribution of alternative funds through the AIFMD. The Swiss Parliament decided to adopt a pragmatic and lighter approach that would in essence preserve the former private placement regime but only for sophisticated investors. In March 2013, the modification of the Swiss Collective Investment Schemes Act (CISA) and its implementing ordinance, the Collective Investment Schemes Ordinance (CISO) entered into force.

  • The new Swiss regulation in a nutshell

The notion of private placement has been replaced in the new law by the notion of “distribution”. Any type of activity or action whose object or purpose is to generate investment in a collective investment schemes is deemed to be distribution.

In essence, the new Swiss regulation regarding the distribution of foreign collective investment schemes had the effect to create three categories of investors : 1) the non-qualified investors; 2) the non-regulated qualified investors and 3) the regulated qualified investors. Today, non-qualified investors can only be solicited by Swiss funds and by European UCITS duly registered and authorised by FINMA (the Swiss regulator). The solicitation of non-qualified investors by alternative funds is now strictly forbidden and liable to criminal penalty. On the other hand, the solicitation in Switzerland of qualified investors by alternative funds has been left wide-open, with only minimal constraints for the fund provider but some requirements for the fund distributor (the entity that will solicit qualified investors in Switzerland).

The solicitation of regulated qualified investors (mainly banks and insurance companies) is completely free and does not require any action, neither by the fund nor by its distributor.

However, the solicitation of non-regulated qualified investors (mainly independent asset managers, pension funds, family office and companies managing their treasury) is now subject to the following requirements :

  • The fund provider must appoint a Swiss legal representative whose role is twofold : a) to be the permanent Swiss contact point and complaint bureau for investors in Switzerland and FINMA, and b) to organise and to a certain extent supervise the distribution in Switzerland by entering into a Swiss distribution agreement with the fund distributor
  • The fund provider must appoint a Swiss paying agent, which must be a Swiss bank. The appointment is compulsory but the use of the paying agent for channelling subscription or redemption payments is at the discretionary option of the investor.
  • The Swiss legal representative must enter into a distribution agreement with the distributor of the fund represented (the entity that will solicit qualified investors in Switzerland). The scope of this distribution agreement is limited to regulatory issues. It can co-exist with a separate distribution agreement between the fund provider and the distributor focused on business issues. The CISA makes it a compulsory requirement that such agreement can only be entered into by the representative with foreign distributors regulated in their home jurisdiction and admitted for the distribution of collective investment schemes (at least the one they manage).
  • The fund provider must insert a Swiss section in the prospectus, the OM or the PPM of the fund represented. The information contained in this Swiss section has been made mandatory by various provisions of the CISA and CISO and various industry guidelines made minimal standard by FINMA.

This new system is illustrated in the diagram

diagram

After a grace period of two years, these requirements have become compulsory for all foreign funds on March 1st 2015.

  • Experience feedback

Based on our experience (Hugo has so far entered into representation agreement for more than 400 funds) the Swiss requirements appear to be relatively light. For fund managers, the drain on human resources, time consumption and financial costs are very limited in comparison to the cost of implementing the AIFMD. A full “on-boarding” to allow compliant distribution in Switzerland to non-regulated qualified investors can take less than two weeks if diligently pursued and with a reasonable annual cost. Following a minimal set-up effort, few on-going adjustments to previous marketing habits, and a relatively low cost, business can move forward quite similarly to the previous private placement regime.

More than two years after the entry into force of the new regime and the on-boarding in Switzerland of probably over 2’000 foreign alternative funds, a number of practical issues and interpretations of the regulation have emerged. We discuss a number of these issues hereunder in the form of a Q&A.

  1. What exactly is the role of the legal representative?

The representative of foreign funds offered only to qualified investors has a dual role :

  1. The representative represents the fund vis-à-vis the Swiss-based investor and FINMA (Articles 123 to 125 CISA). The representative is the permanent contact point of the fund in Switzerland for qualified investors and FINMA avoiding them to chase the fund or the fund manager abroad if required. Vis-à-vis the qualified investors the representative also acts as a complaint office. These roles provide a genuine level of protection to Swiss-Based qualified investors.
  2. The representative organises the distribution of funds by entering into a Swiss distribution agreement (Art. 30a and 131 a CISO), providing the legal framework for distribution and to a certain extent supervises the distribution by checking the regulatory status of the distributors (Art 19 para. 1 bis CISA) as well as their compliance with the SFAMA provisions for distributors (checking organisation and obtaining the yearly written confirmation of the distributor).

Even though their starting point is the organisation of distribution in Switzerland, these two roles are distinct. To be properly performed, the first role needs continuity from the moment a Swiss-based investor invests in the foreign fund and lasting up to the moment the last Swiss-based investor redeems and is reimbursed by the fund. The second role can be discontinued when distribution stops. Terminating the distribution arrangements shall not affect the obligations derived from the first role.

  1. From which point in time is it compulsory for a fund provider to appoint a representative and paying agent?

The obligation to appoint a representative and paying agent is initially related to the distribution activities in/from Switzerland. Therefore, a foreign collective investment scheme needs to appoint both of them prior to starting distribution activities. The relevant activities in this regard are those set out in Art. 3 CISA in conjunction with Art. 3 CISO and FINMA Circular 2013/9 “Distribution of collective investment schemes”.

  1. Can pre-sales and pre-marketing activities also trigger a duty to appoint a representative and a paying agent?

“Pre-Sales” and “Pre-Marketing” activities are considered to be “distribution” if the fund marketed has been launched or if its key elements (investment policy, fee policy, main contracting parties such as custodian and management company) have been determined and are set forth for marketing purposes. Under such circumstances presales or premarketing can be considered as distribution even though the fund has not yet been legally formed or formally launched. This would typically be the case for closed-end funds marketed on the basis of a draft PPM and before closing of the LPA. But it may also be the case of an open-ended fund offered on the basis of a draft OM or term sheet.

By contrast, abstract discussions with potential investors not relating to a specific product are not deemed to have the nature of distribution. This is the case, for example, if information is provided on certain strategies or composites without reference being made to an actual specific product. Market testing should thus remain possible.

  1. Until which point in time do a representative and paying agent have to be appointed?

This issue is still debated by the industry participants.

For some, a difference must be made between open-ended and closed-ended funds. Open-ended funds should have a representative and a paying agent only as long as the fund is marketed in Switzerland. By contrast closed-end funds should keep a representative as long as investors based in Switzerland hold shares or interest in the fund.

For other industry participants, given the role of the representative as the permanent contact point of the fund in Switzerland for qualified investors and FINMA, there should be no difference between open and closed-end funds and all foreign funds offered or held by non-regulated qualified investors should maintain a representative as long as investors based in Switzerland hold shares or interest in the fund.

This latter solution appears to be the only one that does not create confusion and uncertainty.

  1. Is it compulsory to insert the text of the “Swiss section mandatory wording” in the Prospectus, OM or PPM?

The purpose of the mandatory wording is to provide Swiss based investors with certain pieces of information such as the name and address of the representative and paying agent, the place of performance and jurisdiction, the Swiss regulatory status of the fund and certain additional details concerning retrocessions and rebates. This information can either be inserted in the fund documents such as the prospectus, OM or PPM. It can also be provided under the form of a separate documents attached to the fund documents. It may even be disclosed under the form of a specific document addressed nominally to the investor. What is compulsory is that the investor based in Switzerland had access to the information and that such availability of the information can be proven by the distributor.

  • The Swiss Qualified Investor Marketplace

The first wave of investment managers keen on being compliant day one and registering for representation was, for a large part, managers with an already active presence in Switzerland. Once the deadline passed other managers have more time to consider needs, to proceed with balancing costs and the ability to raise assets, as well as proceeding with a thorough analysis of each country’s regulatory framework.

As a Swiss representative, we are in a unique position to see the flows of funds marketing in Switzerland, or close to doing so. Representatives have numerous discussions with marketing teams, lawyers, third party marketing firms and placement agents. Hugo is a company with a thorough understanding of the alternative investment universe as partners and employees mostly are ex-allocators to alternative investment funds. Our market intelligence tells us that fund managers should not look away from Switzerland if trying to raise assets. Indeed, the landscape has changed, and investors may not be as easy to reach as in the past, requiring more effort to identify them and a longer sales process. There is however a continued level of interest with a steady flow of assets into alternative investment funds. The current regulatory framework in Switzerland, not limiting any type of fund structure to market to qualified investors, should increase comfort levels of professional investors in Switzerland to venture further into diverse strategies and structures.

New Image: The Changing Role of ABL

Accounting and Audit, Articles, Banking and Finance, Corporate/Commercial Law, Latest News

As the number of acquisitions and management buy-outs appears to be on the rise in the UK, Evette Orams, Managing Director of Hilton-Baird Financial Solutions, explores the reasons behind an interesting shift in the financial composition of those deals.

News that the UK boasted the fastest growing economy of all the G7 countries in both 2013 and 2014 has served to confirm the strides that the nation has taken since the depths of the global downturn.

Even if an element of caution does still remain, confidence continues to creep back into the markets as businesses increasingly realign their goals from survival to growth. While the approach of different businesses to secure this expansion might vary according to their size, it is becoming evident that many are opting for an aggressive growth strategy.

One thing I’ve noticed of late is a growing number of acquisitions, management buy-outs (MBOs) and buy-ins (MBIs) taking place. This is to be expected in a recovery to a degree, as the healthiest companies make the most of the opportunities that present themselves. Yet the interesting part is the make-up of those deals, or rather the methods of funding that are being used to facilitate the transactions.

Where the MBO/MBI space was once dominated by equity-backed investments, it would appear that asset based lenders are now having an even bigger involvement as businesses look to make the most of their assets.

So what are the reasons behind this shift, and will it continue?

Sticking point

Equity finance clearly carries a number of benefits to businesses seeking growth capital. There’s much more to it than simply the funding element; the expertise and support of the investor, together with their ‘contact book’, can make a huge difference to the business’s growth potential. The sticking point has always been the need to cede equity.

Arguably, however, there just hasn’t been a viable alternative available to businesses when it comes to raising the finance to complete an acquisition, MBO or MBI.

Due to the sums of money required, it is rare for growing companies to be able to rely on their existing cash flow to fund the transaction without jeopardising their immediate financial health. Traditional debt finance, meanwhile, can be a costly and risky option, though the banks’ adoption of a more cautious stance in the wake of the financial crisis has made the likes of loans and overdrafts difficult to secure anyway.

What many have realised is that the strength of their existing business is in fact their biggest asset when it comes to raising finance.

The UK’s mid-market businesses are performing very strongly. Together they employ nearly 10 million members of staff and turn over a collective £1.5 trillion every year. This means that they are typically asset-rich with a great amount of cash therefore tied up in a wide range of assets, cash that’s becoming far simpler to access as the asset based finance sector continues to evolve.

Transformation

Asset based finance has undergone a significant transformation in the UK in recent years. Although it too contracted sharply as the global downturn struck, it has come back fighting and played a key role in fuelling the economic recovery.

According to the Asset Based Finance Association (ABFA), advances made to British businesses between April and June 2015 against the value of assets including debtors, stock, property, plant and machinery reached £19.3 billion. This is 32 per cent higher than the £14.6 billion that was advanced during the corresponding quarter five years earlier, in 2010.

There are a number of well-documented reasons for this dramatic increase. The decline in bank lending is of course one, which has also led to the alternative finance market expanding at breakneck speed (peer-to-peer lending and crowdfunding reportedly grew by 160 per cent in 2014 alone to provide £1.2 billion of funding).

Similarly, the introduction of the ABFA’s Code of Conduct has arguably helped to enhance the sector’s image, giving clients fresh confidence in the lenders and reassurances that any discrepancies or disputes can be resolved with the help of the trade association.

Yet a more overlooked reason is the sheer suitability of asset based finance in the current climate. Whether a business is struggling to maintain a steady cash flow or requires additional funding to capitalise on expansion opportunities, the features of this form of funding make it an extremely useful solution – particularly in times of economic recovery.

Crucially, this is what has appealed to so many larger companies who are looking to finance their growth plans.

A viable alternative

The statistics back this up. In Q2 2010, only 14.9 per cent of the asset based finance industry’s clients had an annual turnover of more than £5 million, according to the ABFA’s quarterly statistics. Fast forward five years, however, and this figure has risen steadily to 19.2 per cent as the profile of the sector has shifted.

Further still, comparing the data over the past five years reveals a notable change in the assets being funded. While advances against stock has risen by 160 per cent, for instance, funding against plant and machinery has increased by 327 per cent. Those assets alone now account for 6.1 per cent of overall asset based lending, up from 2.8 per cent in 2010.

While equity finance of course still has a place in acquisition and MBO/MBI transactions, it would appear as though, for the first time in a long time, businesses are being presented with a real alternative to ceding equity when looking to expand.

The challenge now is for the market to sustain its evolution, thriving on the success stories that are coming out of it. If it can, the MBO/MBI landscape will be just as different in another five years from now.

Wills, Probate and Trusts: Testamentary Capacity, Want of Knowledge and Approval; and Revocable Living Trusts

Articles, Banking and Finance, Family and Matrimonial, Latest News

Litigation involving wills and deceased estates has been rising in recent years, reflecting both a greater sense of entitlement and a greater willingness to take legal action against others.

The wills, probate and trusts lawyers at Bahamas law firm ParrisWhittaker are increasingly instructed to act for clients involved in contested wills, probate and trusts. These areas are becoming increasingly dynamic, with the developing case law giving welcome clarity as to how the law is interpreted by the courts.

Wills and probate

In The Bahamas, wills, probate and trusts law operate largely as in the UK, with its legal system being based on English common law. Case law emanating from the UK courts has persuasive effect in The Bahamas and is normally followed (in the absence of domestic judicial authority or legislation).

On the death of an individual, the estate must be distributed in accordance with the law, whether that is under the last valid will of the deceased or, in the absence of a will, under the statutory rules of intestacy set out in The Inheritance Act 2002. The issue of whether the deceased’s last will was, in fact, valid is the crux of many cases brought before the courts in recent times.

Developments in testamentary capacity

Testamentary capacity is a hugely subjective issue which is somewhat of a testing area for private clients and the courts alike.  Practitioners are professionally obligated to remain vigilant as to issues pertaining to mental capacity from the moment they first see the client.

Any concerns as to lack of capacity arising, for instance, out of illness, effects of drugs, bereavement and so on should put the practitioner on alert.  They must take appropriate action, whether this is talking sensitively with the client or obtaining a doctor’s report. It is by taking necessary precautions that the risk of later disputes after the death of the testator can be minimized. This is vital given that a growing number of people are taking action to claim an inheritance (or an increased sum) from deceased estates on the grounds that the testator lacked the required testamentary capacity to make a valid will.

So far as the case law is concerned, the test for whether a testator has capacity to make a will is set out in Banks v Goodfellow (1870) LR 5QB 549. The testator must be able to understand the nature of the act of making a will, and its effects; to understand the extent of the property of which he or she is disposing; and to comprehend and appreciate the claims to which he or she ought to give effect. The testator must not be subject to any disorder of mind as shall “poison [her] affections, pervert [her] sense of right, or prevent the exercise of [her] natural faculties”.

Recent important rulings demonstrate the issues practitioners need to be watchful for, particularly given that the courts are willing to declare a will invalid on the basis of ‘want of knowledge and approval’ – even where there is insufficient proof of lack of testamentary capacity.

Hawes v Burgess1

In Hawes v Burgess, the testator did not know of or approve the contents of the will, even though it was drafted by an experienced solicitor. Although she executed the will, she did not have opportunity to check and approve its contents first.   Critically, the will was based on inaccurate information supplied by one of her daughters – a residuary beneficiary of the estate. However, the testator’s son had been excluded from the will.

The client’s lawyer was an experienced wills solicitor, and his “near contemporaneous attendance notes” (as described by the judge) were clear about his views on the capacity of the testator to make the will. The solicitor found her to be compos mentis and able to give instructions for a will at the relevant time. However, expert medical evidence was later taken from a doctor who never actually saw the testator. This expert said there was strong evidence that the she suffered from cerebrovascular disease which, in the light of evidence given by other witnesses and accepted by the trial judge, amounted to dementia of modest severity. The Court of Appeal said, however, that this fell short of what was required to show dementia and lack of mental capacity.

Critically, the daughter had played a major role during the will-making process, being the ‘controlling force’ who had even been present at the time the will was executed. Although the UK’s Court of Appeal ruled that although lack of testamentary capacity had not been conclusively proved – there was want of knowledge and approval and the will was therefore invalid.

So whose evidence did the court prefer? That of the solicitor who had actually met his client, and not that of the medical expert who had not met her. As Mummery LJ stated:

“My concern is that the courts should not too readily upset, on the grounds of lack of mental capacity, a will that has been drafted by an experienced independent lawyer.  If, as here, the experienced lawyer has been instructed and has formed the opinion from a meeting or meetings that the testatrix understands what she is doing, the will so drafted and executed should only be set aside on the clearest evidence of lack of mental capacity.  The court should be cautious about acting on the basis of evidence of lack of capacity given by a medical expert after the event, particularly when that expert has neither met nor medically examined the testatrix, and particularly in the circumstances where that expert accepts that the testatrix understood that she was making a will and also understood the extend of her property”.

This represents highly useful guidance for practitioners – both wills and probate lawyers and litigators.

Topciapski 

The subsequent case of Topciapski v Topciapski2 takes a similar theme. The claimant, one of the testator’s sons who was excluded from the will in question, argued that the testator neither knew nor approved the contents of the will, and that the other son exerted undue influence on the testator.   He relied on expert medical evidence that referred to a further medical report questioning the testator’ capacity on the basis of marked ‘generalised atrophic and ischaemic changes’ which impacted adversely on the testator’s capacity to know and approve of the contents of the will, and there seemed to be no rational reason for the claimant son to have been disinherited. In this case, the Will was declared invalid on the ground of want of knowledge and approval.

Turner v Phythian

In a further case3, the court found that the testator’s will was invalid both for lack of testamentary capacity and for want of knowledge and approval. The testator was a lady whose mental state was fragile throughout her adult life and, at the time the will was made, she was strongly bereaved and taking antidepressants.

The first defendant was the sole executor and also involved in the will drafting; the other beneficiary was his wife. The court found there was no evidence from anyone other than the first defendant that the testator had ever read the will or, indeed, had the will read out to her; nor had there been any discussion or explanation as to its content in the presence of the witnesses prior to the execution of the will. She had had no independent legal advice.

The will was declared invalid on grounds that the testator did not have mental capacity to make the will, and she did not know or approve its contents.

Sharp v Hutchins

In this 2015 case, testamentary capacity was not in dispute: the claimant (the sole executor and beneficiary) asked the court to pronounce a will as valid, but the defendants challenged the will on the grounds of want of knowledge and approval on the part of the testator. The judge ruled in favour of the claimant and found on the facts that “any degree of suspicion was relatively low because it was not a case where the 2013 Will was procured by the person benefitting under it”.

The High Court ruled that the testator understood what was in the will when he signed it and what its effect would be, and accordingly pronounced for that will.

What do practitioners need to know?

There are a number of salutary lessons for private client lawyers:

  1. The courts may resist declaring a will invalid for lack of testamentary capacity, but still find it is invalid for want of knowledge and approval (as the above cases show).
  1. There is a presumption that the testator knew of and approved the contents of a will if the will is formally executed in accordance with the required legal formalities. This presumption may be rebutted where there are factual circumstances that “excite the suspicion of the Court”.  Where there are such circumstances, the court will scrutinize them and consider the evidence before deciding if a will fails for want of knowledge and approval.
  1. In such cases, the burden of proof is on the individual relying on the disputed will itself to prove to the court that the will reflects the testator’s wishes.
  1. Where testamentary capacity and execution of the will are undisputed, where a claimant cannot sufficiently satisfy the court that the circumstances around the will are “suspicious”, a ‘want of knowledge and approval’ will not succeed. The testator’s knowledge and approval are “presumptuously established”.

As Mummery LJ stated in Hawes v Burgess, the cost of contesting the will was a calamity for the family in every way. Lawyers should always be mindful of their duty to their clients to minimize the risk of potential – and calamitous – legal action further down the line by taking appropriate steps if they have any concerns as to the testator’s testamentary capacity and or knowledge and approval of the will’s contents.

Trusts: Revocable Living Trusts

Setting up a Revocable Living Trust can lessen the risks of potential disputes involving a deceased after an individual dies (although trusts disputes can, of course, arise at some point). While a Revocable Trust can be contested, the procedure for doing so is much more difficult than it is to contest a will.

A Revocable Living Trust offers trustees a number of benefits well worth consideration. A Revocable Living Trust (sometimes called a ‘Living Trust’) is set up by an individual for the purposes of holding their own assets in trust.   These, in turn, are invested and spent for that individual – who is also the beneficiary. In other words, the trustmaker, trustee and beneficiary are generally the same person. It will govern what happens when the trustmaker is alive, if and when he or she becomes mentally incapable, and finally on death.

One of the biggest advantages of a revocable living trust is avoiding probate because it can spare beneficiaries the cost and stress of a potentially lengthy probate process. Avoiding the public probate process also ensures greater privacy in disbursing the assets of an estate to the beneficiaries. In addition, the process of setting up a revocable living trust can be a good incentive for individuals to deal with the important issues relating to their assets, and the potential ways of looking after them effectively.

Clients for which a revocable living trust could be advantageous need to balance the administrative and legal costs of setting one up against the cost benefits of having the trust in place.   Importantly, the clients will still need to have a will in place to cover property and assets outside of the trust.

Parris Whittaker: Biography

Parris Whittaker is an award-winning Bahamas law firm with expertise across the full range of legal practice. The firm combines an international reach with a firm grounding in the Bahamas region, and close working partnerships with important bodies such as the Bahamas Port Authority. It was founded in 2011 by partners Arthur K. Parris, Jr, one of the most senior leading legal authorities in the region, and Jacy Whittaker, a seasoned litigator who is very active in the Bahamian business community. Partner Kenra Parris-Whittaker is an award-winning lawyer who recently secured a significant victory in maritime law at the Appeal Court.

 

1 Hawes v Burgess [2013] EWCA Civ 94

2 Topciapski v Topciapski (2013) Ch 20 March 2013

3 Turner v Phythian [2013] EWHC 499

4 Sharp v Hutchins [2015] EWHC 1240 (Ch)                           

5 King v King [2014] EWHC 2827 Ch 

 

Can Crowdfunding fill the gap for franchise development loans?

Articles, Banking and Finance, Corporate/Commercial Law, Latest News

Franchising is moving with the times. Originating with Albert Singer in 1851 (who used franchising as a method of distributing and servicing his eponymous sewing machines), the use of franchising grew slowly over the following century before gathering pace in the 1990s and booming in the 2000s. Nowadays it has become commonplace and we are starting to see a wide variety of would be Franchisors taking to Crowdfunding platforms such as ‘Crowdcube’ and ‘Kickstarter’ to try and secure funding for their franchise development plans.

Franchising is a business growth method whereby a business owner (the “Franchisor’) grants a type of license (known as a franchise) to another (the “Franchisee’), permitting the franchisee to run their own business following the processes, procedures and training set out by the Franchisor. The Franchisor allows the franchisee to trade under the name (and trade marks) of the Franchisor and gives them a complete package containing all that the Franchisee needs to run their business. In return, the Franchisee pays the Franchisor an upfront fee and an ongoing percentage of their turnover. The franchising industry is one which is well-established in many countries around the world with the global industry looking to hit £3 trillion by 2020 and the UK franchise industry alone being worth £13.4 billion to the UK.

It is evident that franchising is an enticing method of growing your business, however the cost of franchising your business can often be prohibitive as most of the costs have to be paid before a Franchisor recruits its first franchisee (and is able to start recovering its investment from franchise fees). By way of example, the fees charged by franchise consultants, lawyers and other professionals in setting up the network and the cost of marketing and advertising franchise opportunities for sale all require to be paid in advance of any franchisees coming in to the business. Given this, would be franchisors need to make sure they have this “development capital” in place to fund the set-up costs.

While banks (particularly those with designated franchising teams) have always been keen to stress their support for the franchising industry and are ready and willing to lend to many franchisees of established brands such as “Dominos Pizza” or “McDonalds”, we have noticed a reluctance since the recession to lend development capital to relatively new businesses seeking to franchise. This has forced such businesses to look into more innovative ways of securing funding including Crowdfunding and Mini-bonds.

Crowdfunding

Crowdfunding, whilst not a new concept, has seen significant growth in recent years thanks, in a large part, to increased internet accessibility and a significant increase in the number of Crowdfunding platforms. Crowdfunding utilises large groups of people (the “Crowd’) to collect a significant number of small contributions which (when added together) makes a usable sum. The main types of Crowdfunding are:

Equity – where members of the Crowd invest in return for a shareholding in the business;

Donation – where members of the Crowd simply donate money to the business (usually for a charitable cause);

Lending – where members of the Crowd are repaid their investment over a certain period of time; and

Reward – where members of the Crowd receive an item or service in return for their money (e.g. a limited edition product or a discount for future services)

Equity Crowdfunding is the method most frequently used by start-up and early stage businesses and, as such, it fits well with businesses looking to franchise. The advantage of the Equity model are:

  • Funding can be raised quickly with limited upfront fees;
  • Presenting the franchise project via the Crowdfunding website is useful marketing which can raise awareness of the brand and help recruit a franchisor’s first franchisee; and
  • Sharing the plans for franchising and monitoring any reaction or feedback is a great way of testing the potential market for franchisees.

Indeed as a live case study, one of our clients, specialising in craft beers and ciders, successfully raised £107,130 on Crowdcube in May 2015 and hopes to use the funds to aid their expansion through franchising.

Mini-bonds

Mini-bonds are an increasingly popular form of alternative finance which may also appeal to potential franchisors. Essentially a “Mini-bond” is an unsecured, non-convertible and non-transferable bond issued from a company in return for investment. The bond acts as a type of loan whereby the investor receives regular fixed interest (usually between 6% and 8% a year) for a specified term (usually around three to five years) and the return of the initial investment amount at the end of the term. This method of funding is normally used by businesses at a relatively advanced stage.

The growth of the mini-bond industry as a means of alternative finance is predicted to reach £8 billion in 2017. The application of mini-bonds to the franchising market can be seen through a number of successful franchise specific deals. For example, one of our clients (an established chinese takeaway franchise) has recently launched a mini-bond campaign with a target of raising £1 million (at the date of writing this article they have managed to raise £554,250 of this target). Also, although not strictly a franchising operation, Chilango (a mexican restaurant chain) recently secured £2.2 million of funding via the operation of a mini-bond which will be used to fund the opening of a further three Chilango restaurants.

In addition to the benefits of Crowdfunding there are many advantages to securing investment through mini-bonds. For example, there are no restrictions on the amount that can be raised and no equity needs to be sacrificed by the business (albeit the business will have to ensure that it meets all the interest repayments to its investors!).

In short, we predict that Crowdfunding and Mini-bonds will increasingly be used as an alternative means of raising the development capital required to set-up a franchise operation and, going forward, the establishment of new franchise brands will no longer be subject to the discretion of a bank.

 

The Hungarian Personal Bankruptcy Act

Articles, Banking and Finance, Insolvency/Bankruptcy/Re-structuring, Latest News

The Hungarian Parliament recently enacted Act CV of 2015 on Personal Bankruptcy (the “Act”). The Act will become effective on September 1, 2015[1] and fill the gap of the country’s bankruptcy law, Act XLIX of 1991[2], as amended, on Bankruptcy Proceedings and Liquidation Proceedings also known as the Bankruptcy Act that did not allow private individuals to file for bankruptcy, or using the terminology of the Act, debt settlement petitions.

The Act fills an important gap in the Hungarian legal system concerning the availability of debt settlement proceedings for private residents of Hungary. Proper implementation of the Act should create an efficient personal bankruptcy system that is able to provide the long-sought relief for qualifying debtors and at the same time honor the rightful interest of their creditors.

Main Provisions of the Act

Individual debtors will now have the legal opportunity to settle their debts through an agreement made with the creditor(s). Debtors successfully petitioning debt settlement proceedings enjoy various privileges during the quasi moratorium, including exemption from judicial enforcement procedures, avoidance of losing their pledged real and tangible properties and the possibility to avoid eviction.

Who May Be a Debtor

Persons residing in Hungary with combined assets and income less in value than their total outstanding liabilities may be debtors under the Act.

The Act sets forth the basic eligibility requirements for the petitioning of a debt settlement proceeding as follows[3]:

  1. total debts must be more than HUF 2,000,000[4] but less than HUF 60,000,000;
  2. total debts must exceed the value of the debtor’s combined assets and income, including income expected for the next five years but may not exceed twice (200%) that amount;
  • 80% of the outstanding debt has to be accepted or unchallenged by the debtor;
  1. one of the debts must be for HUF 500,000 or more and outstanding for at least 90 days;
  2. the debtor may not have more than 5 subordinated claims;
  3. one of the debts must be from a consumer loan agreement or an agreement financing the debtor’s private business; and
  • none of the debts are from secondary liability for the debts of a business.

Debtors who participated in any prior unsuccessful debt settlement proceedings as a debtor or additional debtor are not eligible to file another debt settlement petition within 10 years following final conclusion of the prior proceeding.[5]

Other Participants in Debt Settlement Proceedings

The debt settlement proceeding was construed to provide breathing room not only to the individual debtor but his/her immediate family members who got caught in the debt trap. Persons who have joint and several liability for the debtors’ debts and live in the same household with the debtor, or a marital community, will qualify as additional debtors and entitled to the same rights and subject to the same obligations as the debtor.

It is also assumed that under specific circumstances certain debts may be repaid by persons other than the debtor, for example the holder of a lien or surety. Under the Act judicial enforcement procedures may not be initiated and pending proceedings will be stayed against these persons if they join the debtor in the debt settlement proceeding as co-debtors, and undertake similar payment obligations in case the debtor, as the primary payor, would fail to pay the debt agreed and accepted under the payment settlement plan or any other binding document conceived within the proceeding.

Property of the Estate of the Debtor

The commencement of a case under the Act creates an estate. The estate is comprised of all the assets and income of the debtor and additional debtor, including any assets or income acquired during the debt settlement proceeding. There will be an exemption for assets and income required for basic personal needs, the amount to be set by implementing regulations.

Family Bankruptcy Service[6]

The Family Bankruptcy Service will be established to employ a family trustee and maintain the debt settlement register. The Family Bankruptcy Service will assist the court during the judicial debt settlement proceeding. The family trustee will act as the executive authority in the implementation of the court’s decisions.

Debt Settlement Register[7]

The debt settlement register will be the official register to contain the data of those who underwent any personal debt settlement proceeding including (i) information on the initiation of the debt settlement proceeding; (ii) the stages of the proceeding; and (iii) the resolution rendered on the merits at the conclusion of the proceeding. In addition, commencement of a debt settlement proceeding shall also be entered into the Central Credit Information System.

The Debt Settlement Proceeding

The Act stipulates the following three phases of the debt settlement proceeding:

  1. A) Out-of-court Negotiation[8]

At the outset and following the filing of the debt settlement petition, the debtor and the creditor(s) shall attempt to enter into a debt settlement agreement. The debtor must state in writing, addressed to the main creditor, that s/he requests a debt settlement proceeding. The statement must include the following:

  • personal data of the debtor and his/her creditor(s);
  • property of the estate of the debtor;
  • composition and amounts of debts and the obligations assumed for their repayment; and
  • list of close relatives and civil partners living in the same household of the debtor and their regular incomes and expenses.

The main creditor of the debtor may be from among banks, credit institutions and financial enterprises that hold a lien on the property of the estate, or lessors under a financial leasing agreement. In both cases the property of the estate used by the debtor for his/her own primary housing purposes, or the housing purposes of his/her close relative(s), must be subject to the aforementioned lien/leasing contract. The main creditor must participate in the out-of-court debt settlement procedure. If the debtor does not have a main creditor, the petition must be filed with the court through the Family Insolvency Service.

Following submission of the petition, the Family Bankruptcy Service should verify compliance with all legal and financial prerequisites, and then simultaneously issue a certificate on the petition and publish an individual public notice electronically on its website to unlisted and unknown creditor(s) inviting them to file their claim(s) within 15 days. The publication will remain on the website of the Family Bankruptcy Service until the out-of-court negotiation was successful or is registered in the Debt Settlement Register.

After the initiation of the proceeding, creditor(s) may only pursue their claims within the framework of the debt settlement proceeding. During the proceeding, the debtor must make his/her assets and income available – excluding the assets and income required for everyday living expenses – and may neither pledge nor willfully diminish the value of the estate to be used for the satisfaction of the creditor(s) claims.

It is the main creditor who is charged with the coordination, negotiations and preparation of the debt settlement agreement. The debt settlement agreement is concluded when the creditor(s), debtor, additional debtor(s) and codebtor(s) make a valid statement accepting the terms of the agreement, and return the statement to the main creditor and the debtor. A debt settlement agreement is valid only if 100% of the participants in the debt settlement proceeding has approved it. Out-of-court debt settlement agreements do not require court approval, but they must be entered into the debt settlement register.

  1. B) Judicial Proceeding[9]

Although more costly because of the filing and debt management fee, a judicial proceeding may be initiated if the parties

  • fail to enter into an out-of-court agreement within 90 days from the receipt of the Family Bankruptcy Service’s certification (120 days if there are multiple creditors);
  • there is no main creditor able to coordinate the negotiations; or
  • the debtor does not comply with the provisions of the executed debt settlement agreement within 30 days following receipt of the notice to comply.

Judicial debt settlement proceedings follow the rules of civil, non-litigious procedures and are intended to make the debtor and the creditor(s) reach an agreement on payment facilities. At the commencement of the proceeding, a notice is published on the website of the Family Bankruptcy Service inviting creditor(s) to the judicial proceeding within 30 days. The family trustee, with the cooperation of the debtor, compiles the list of creditors and additional debtors, and the details of the creditors’ claims within 30 days upon expiration of the deadline open for creditors to file their claims.

In this phase of the proceeding, claims must be classified in categories, such as:

  • claims accepted or unchallenged by the debtor;
  • claims challenged by the debtor;
  • secured claims;
  • unsecured claims;
  • priority claims;
  • claims of privileged creditors (holding claims for alimony, child support, unpaid public utility charges, public debts); and
  • subordinated debts (e.g. claims of close relatives, civil partners, partner companies).

Afterwards, the family trustee prepares the debt settlement plan proposal together with the debtor and sends it to the creditor(s), who have 30 days to accept the proposal or request its amendment. As part of the settlement, the debtor may agree with the creditor(s) on the conditions of the debt settlement regarding payment facilities, payment rescheduling, potential conversion of debt from foreign currencies to HUF, the relevant exchange rate, the joint risk pertaining to the foreign exchange rate and the allocation of amounts collected within the scope of a prior enforcement procedure.

In order to become effective, the settlement plan requires the approval of the debtor, the main creditor, and the simple majority of all other creditors. Although a successful plan does not require 100% consensus, this phase accords all creditors the right to present proposals on the merits of the plan and the subsequent agreement.

The Family Bankruptcy Service assists the court during the judicial debt settlement proceeding and supports the debtors in performing their obligations and exercising their rights.

If the content of the plan complies with all applicable legal provisions and has the required consents, the court approves it in a resolution. The court approved agreement will be binding on all creditors regardless of their participation or position in the plan approval vote.

Execution of the agreement should be supervised by the family trustee, who can inspect the debtor’s financial management at any time.

The court may amend the agreement twice at the debtor’s request if there is a substantial negative change in the debtor’s financial situation. In both cases, the amended agreement will be put to a vote among the creditors not yet satisfied.

Once the settlement is concluded, the family trustee will prepare a closing account statement with the assistance of the debtor.

  1. C) Debt Repayment Procedure[10]

The court shall initiate a debt repayment procedure if the

  • parties could not come to an agreement in the judicial proceeding;
  • the debtor did not pay all of his/her debts in accordance with the settlement agreement; or
  • the settlement agreement requires an amendment due to an unanticipated deterioration of the debtor’s financial position or any unanticipated and significant income, but the parties fail to reach an agreement on the amendment.

If any of these happen, the court adopts a debt repayment resolution, which includes the allocation and sale of the debtor’s estate within the scope of a repayment plan.

The family trustee will prepare the debt repayment plan for the court’s approval. Additionally, the family trustee should suggest solutions to ensure housing and necessary expenses for the everyday life of the debtor and his/her close relatives living in the same household.

If the financial position of the debtor substantially deteriorates, the debt repayment resolution may be amended twice upon the debtor’s request.

The debt repayment procedure period is five years, which may be extended by the court only once, for a maximum of two additional years. Upon the conclusion of the debt repayment procedure the family trustee, with the cooperation of the debtor, shall prepare a final closing account statement.

Termination of the Debt Settlement Proceeding

The court may terminate the debt settlement proceedings if the debtors do not comply with their obligations during the procedure. Termination of the debt settlement procedure will end all the benefits and protections that the debtors enjoyed while the case was pending, and creditors may continue to pursue and enforce their claims in accordance with the general rules of civil, civil procedure, and judicial enforcement laws.

Post Debt Settlement Agreement Rights of Creditors

The following rights are available to creditors if debtors fail to comply with their obligations undertaken in the debt settlement agreement or the court’s resolution:

  1. If the debtor removes or conceals any property of the estate, or gives preference to certain creditors by breaching relevant statutory provisions or provisions of the debt settlement agreement, creditors participating in the proceeding may, in case of out-of-court negotiations, request the termination of the debt settlement agreement[11], or in case of judicial proceeding, request the court to repeal its release resolution[12].
  2. If the term of a contract or the conditions of repayment was defined in a way that exceeds the term of the agreement in the release resolution and the debtor has not fulfilled his/her payment obligations during this period, creditors participating in the judicial proceeding may request the termination of the debt settlement agreement[13].

Miscellaneous Provisions of the Act

The general procedural rules of the judicial debt settlement proceedings will be provided by the Hungarian Code of Civil Procedure with certain derogations related to electronic communication and the broader powers of court officers.[14] A complaint may be submitted against the family trustee for any irregularities, negligence or if his/her acts infringe the rights and rightful interests of the debtor and/or the creditor(s)[15]. For the appeal of the orders of the court rendered during the proceedings, the Act includes specific rules that differ from the general provisions of the Hungarian Code of Civil Procedure[16].

In the debt settlement proceedings creditor(s) have to pay a registration fee and a claim management fee.[17] Debtors are obliged to pay a one-time fee of HUF 30,000 in case a main creditor can be engaged in the out of court proceeding.

Following its entry into force and until September 30, 2016,only those debtors may file a debt settlement petition whose residence or the residence of their close relative(s) are threatened by judicial enforcement or auction sale.

[1]http://www.magyarkozlony.hu/dokumentumok/fb415639d09af80cabd00f053dc9e0fd3fc78d46/megtekintes

[2] http://www.matraholding.hu/images/userfiles/files/Legislation.pdf

[3] Article 7 of the Act

[4] Approximately EUR 64,500 based on EUR 1.00/HUF310 exchange rate.

[5] Article 8 of the Act

[6] Articles 11-15 of the Act

[7] Article 16 of the Act

[8] Articles 17-31 of the Act

[9] Articles 32-68 of the Act

[10] Articles 69-82 of the Act

[11] Article 93 of the Act

[12] Articles 95-96 of the Act

[13] Article 94 of the Act

[14] Article 36-38 of the Act

[15] Articles 97-99 of the Act

[16] Articles 100-102 of the Act

[17] Article 88 of the Act

This article was first published in Insolvency Restructuring International, Vol 9 No 2, September 2015, and is reproduced by kind permission of the International Bar Association, London, UK. © International Bar Association.

The upcoming Swiss Financial Market Regulations – Risks and Opportunities

Articles, Banking and Finance, Corporate/Commercial Law, Latest News

Switzerland is currently in the process of overhauling the existing Swiss financial market regulations in order to implement international standards, to create a level playing field for market participants and to increase the stability of financial market infrastructures and client protection. This summer, the Swiss Federal government took a number of key decisions; important changes will be implemented in early 2016, others in 2017. Generally speaking, the idea was to shift the regulatory structure from specific regulations for each sector (banks, stock exchanges, insurance companies, etc.) to regulations applying to all industry sectors alike under the rule of “same business, same rules”. However, in the process, it became clear that specific rules and laws for collective investment schemes, for insurance companies and for banks will remain in place. Hence, the scope of application of the new acts will overlap with these existing laws. Three new acts are planned: FINFRAG, FIDLEG and FINIG. However, in addition, most of the existing laws will be or have been subject to considerable changes, the most relevant of which are summarized below:

FINFRAG

The new FINFRAG (Financial Market Infrastructure Act) is the first of the new acts that passed parliament; it will become effective on 1st January 2016. Its content is heavily influenced by EMIR and MiFID II. Under the act, new licensing requirements for FMIs (financial market infrastructures) such as trading venues (stock exchanges and multilateral trading facilities), central counterparties, central securities depositories, trade repositories and payment systems will be introduced. However, there will be a number of differences to the regulations in the EU, among which are the following: Self-regulation will continue to play an important role; an operator of an organized trading facility may trade on the platform for its own account; and the transfer of data to foreign authorities is more restricted than under the EU regulations. The act furthermore introduces new standards on derivatives trading which are compatible with foreign regulations, in particular Emir and the US Dodd-Frank Act. Swiss market participants, among others, have to clear derivatives transactions through central counterparties, must report transactions to trade repositories, and must take certain risk-mitigating measures. Again, there will be a number differences to the current EU regulations due to FINFRAG introducing local concepts such as that asset managers that do not manage collective investment schemes and investment advisors will qualify as non-financial counterparties, that group internal transactions are not subject to approval by the authorities (compliance will be monitored by the auditors of the participant) and that it will not be necessary to disclose the beneficial owner under the reporting obligations.

FIDLEG

In June 2015, the Swiss government agreed on key elements of the new Swiss Financial Services Act (FIDLEG) and mandated the Federal administration to draft the so-called message to parliament by the end of 2015. Therefore, it can be expected that parliament will discuss the new act in 2016 and that it may become effective sometime in 2017. The new act introduces a variety of MiFID II standards into the Swiss Financial Market Regulation, in particular with respect to conduct and prospectus requirements. Conduct duties include comprehensive information duties, appropriateness and suitability obligations, rules on inducements, cost transparency and conflicts of interest and the need for client segmentation, among others. The rules differentiate between professional and private clients, with possibilities to opt in or out. The rules may also apply to non-licensed market participants such as investment advisors. Product documentation requirements will be similar to those applicable in the EU. For the first time in Switzerland, FIDLEG intends to introduce regulations on the rendering of cross-border services and product offerings into Switzerland (up to today, this was only regulated and restricted for collective investment schemes and insurances) and such service or product providers will have to register with the Swiss FINMA (Financial Market Supervisory Authority); the same will apply to client advisors of non-prudentially supervised market participants. For the offering of financial products, a prospectus is required which needs to be pre-approved by FINMA in case of a public offering.

FINIG

Timing for the introduction of the Swiss Financial Institutions Act is parallel to the introduction of FIDLEG. FINIG will govern the supervisory and regulatory regime for financial institutions, including financial institutions providing asset management services to third parties. As a rule, independent asset managers were not subject to prudential supervision in Switzerland (unless managing collective investment funds). Under the new act, the Federal Council decided in June 2015 that independent asset managers should become prudentially supervised by a new supervisory organization which will in its turn be authorized and supervised by FINMA. A risk based supervision approach will be taken so that small asset managers will only be subject to a reduced supervisory burden. Certain small asset managers will benefit from a grandfathering clause.

New AML and Due Diligence Convention

Considerable changes were made in 2015 to the existing Anti-Money Laundering Act. New rules regarding bearer shares (increased transparency) became effective as of 1st July 2015. As of 1st January 2016, new rules on predicate offences under the Anti-Money Laundering Act will become effective rendering the qualified tax offence a predicate offence under the act. A qualified tax offence is defined as any tax fraud (in Switzerland or abroad) by which the amount of taxes not paid per tax period exceeds the amount of CHF 300’000.

Furthermore, stricter rules on the identification of the beneficial owner of bank accounts are introduced under the new Swiss Bankers Due Diligence Convention (VSB 16) which will become effective on 1st January 2016. Banks have to identify the beneficial owner of operative companies (defined as a person holding 25 % or more of the voting rights or of the capital or the person exercising factual control over the company by other means). If there no such controlling persons, the managing director of the company has to be determined and will be treated as the person controlling the company.

Automatic Information Exchange and changes to FINMAG

Also in June 2015, the government published the message to parliament for a Federal Act about the Automatic International Information Exchange in Tax Matters. The proposed act implements the global AEOI standard of the OECD. The introduction of the federal act is part of the general strategy of the Swiss government to implement international standards (including with respect to tax transparency) in Switzerland. Under the act, finance companies will collect finance information of their customers domiciled abroad and will transfer such information to the Swiss tax authorities which will forward the information to the foreign tax authority at the customer’s domicile.

The already existing FINMAG (Financial Markets Supervision Act) will also be revised and amendments include new rules for cross-border information flow. FINMA will be entitled to spontaneously exchange information with foreign authorities (no longer limited to supervisory authorities), provided that such information exchange serves the purpose of enforcing financial market regulations and that the foreign authority is bound by official or professional secrecy. As the client may be refused access to the formal request by the foreign authority and as FINMA has the option not to inform the client prior to the delivery of the information, client defense rights against transfer of the information will become more restricted.

Conclusions

Switzerland’s financial market laws are going through a period of dramatic change, which has implications not only for markets participants in Switzerland but also for foreign participants involved in cross-border financial services or transactions. Key issues to be aware of include, among others, the increased cross-border exchange of information, new licensing requirements for FMIs, new rules applicable to derivatives trading, prudential supervision of asset managers, new rules on retrocessions, new rules for clients segmentations, client information and suitability tests and new prospectus requirements. Any participant in the Swiss market needs to review its current business model and evaluate whether and to what extent it needs to be adapted to comply with the comprehensive changes made to the Swiss regulatory architecture.

Do trusts have a future in the context of the 4th AML Directive?

Articles, Banking and Finance, Family and Matrimonial, Fraud & White Collar Crime, Latest News,

It is an undisputed fact that money laundering is a major hindrance to a stable EU market. Money laundering distorts economies by allowing the corrupt to legitimise the illegal. It has unfortunately become increasingly common to witness the world’s most corrupt to launder their funds derived from illicit sources into financial centres.

The Fourth EU Anti Money Laundering Directive (the “Directive”), which has just made its way through the EU’s legislation, is designed to update and improve the EU’s Anti-Money Laundering (AML) and Counter-Terrorist Financing (CTF) laws. The changes are in line with the recommendations issued in 2012 by the Financial Action Task Force (FATF) which is the international global AML and CTF standard-setting body.

What becomes immediately clear from an overview of the Directive is that it obliges, for the first time, EU member states to maintain central registers listing information on the ultimate beneficial owner of corporate and other legal entities, as well as trusts in certain cases. Interestingly enough, it appears that these central registers were only included by MEPs during the negotiations and were not envisaged in the European Commission’s initial proposal.

Clearly, the aim is to enhance transparency and target those criminals in Europe who have for many years used the anonymity of offshore companies and accounts to hide their financial dealings. In the words of Krisjanis Karins (EPP, LV) (Economic and Monetary Affairs Committee rapporteur) “Creating registers of beneficial ownership will help to lift the veil of secrecy of offshore accounts and greatly aid the fight against money laundering and blatant tax evasion”.

Essentially, a central register of an EU country would contain a list of the ultimate owners of companies which register would be accessible to the competent authorities and their financial intelligence units (without any restriction) as well as to “obliged entities” (such as banks conducting their “customer due diligence” duties). Additionally, any person or organisation who can demonstrate a “legitimate interest” (such as investigative journalists and other concerned citizens) with respect to money laundering, terrorist financing and the associated predicate offenses – such as corruption, tax crimes and fraud – are granted access to beneficial ownership information, such as the beneficial owner’s name, month and year of birth, nationality, residency and details on ownership. Timely access to beneficial ownership information should be ensured in ways which avoid any risk of tipping-off the company concerned.

In terms of the Directive, any exemption to the access provided by member states would be possible only on a case by case basis in exceptional circumstances. Access to the information on beneficial ownership shall be in accordance with data protection rules and may be subject to online registration and to the payment of a fee. It is very dangerous that the Directive failed to define “legitimate interest” as this may give rise to confusion and uncertainty as well as potential room for abuse.

The persons who are able to demonstrate a legitimate interest should have access to information on the nature and extent of the beneficial interest held consisting of its approximate weight. Member States may, under national law, allow for access that is wider than the access mandated under this Directive. The UK, for example, has opted for a publicly accessible register of corporate beneficial ownership.

As far as trusts are concerned, the FATF recommendations have likewise obliged countries to take measures to prevent the misuse of legal arrangements for money laundering or terrorist financing. The FATF recommendations have specified that countries should ensure that there is adequate, accurate and timely information on express trusts, including information on the settlor, trustee and beneficiaries that can be obtained or accessed in a timely fashion by competent authorities. This was faithfully transposed in Articles 30 of the directive which provides that Member States shall require that trustees of any express trust governed under their law obtain and hold adequate, accurate and current information on beneficial ownership regarding the trust. This information shall include the identity of the settlor, the trustee(s), the protector (if any), the beneficiaries or class of beneficiaries, and of any other natural person exercising effective control over the trust.

The Directive further provides that Member States shall ensure that trustees disclose their status and provide in a timely manner the information referred to above to obliged entities (such as banks in the course of undertaking customer due diligence measures), when, as a trustee, the trustee forms a business relationship or carries out an occasional transaction above the threshold set out in points (b), (c) and (d) of Article 111 and accessed in a timely manner by competent authorities and FIUs.

This has inevitably triggered a debate as to how to reconcile this easy access to information with the right to confidentiality especially when once bears in mind that that trusts are widely used to protect the interests of vulnerable family members. As professionals, we all appreciate the importance of having measures in place to prevent the movement of illicit funds, and commit to ensuring that such measures are effective. We are experiencing on a daily basis the loss of human lives caused by terrorist attacks and we all feel this innate drive to do our part to curb the flow of funds to terrorist organisations and help curb these atrocities. Equally, as professionals, we have a commitment to preserve the legitimate confidentiality of our clients’ financial affairs. This will be an ongoing dilemma that most are confronted with. It is interesting to note that a much wider debate is under way in many countries on whether it is time to give power to governments to monitor email traffic to fight serious crime at the clear expense of the right of individuals to privacy. As a profession, we need to recognise that we are confronted by similar dilemmas and need to help develop effective solutions.

Thankfully, the mandatory register of trusts applies only to taxable trusts and it will not be public. In terms of the Directive, Member States shall require that the information mentioned above is held in a central register only when the trust generates tax consequences. The central register shall ensure timely and unrestricted access by competent authorities and FIUs, without alerting the parties to the trust concerned. Moreover, information on trusts will only be available to competent authorities. Ultimately this information could nonetheless be collected by tax authorities as a result of automatic exchange of tax information agreements and therefore one does not envisage that the impact on the institute of trusts will be too major in this sense. The abovementioned strict limitations placed on access to trust registers were naturally welcomed by trust practitioners especially when one considers that trusts in common law countries are regularly used to protect vulnerable beneficiaries, some of whom could be at significant risk if their identities were published. Therefore said limitations allowed families to maintain their fundamental right to respect for a private family life. Whilst the focus is on the Directive and therefore the direct impact on EU countries, the pressure to allow public access to beneficial ownership information is spreading around the world in the wake of the revised FATF Recommendations. To mention a few, it appears that the government of the British Virgin Islands is planning to introduce some new measures whilst the government of the Cayman Islands said it will work on the Directive. It is clear to everyone that we’re living in an era where there’s nowhere to run to or hide!
[i]

1 Article 11 provides that “Member States shall ensure that obliged entities apply customer due diligence
measures in the following cases:
(b) when carrying out an occasional transaction:
(i) amounting to Eur15,000 or more, whether that transaction is carried out in a single operation or in several
operations which appear to be linked; or
(ii) which constitutes a transfer of funds, as defined in point (9) of Article 3 of Regulation (EU) 2015/847 of the
European Parliament and of the Council exceeding Eur1000;
(C) in the case of persons trading in goods, when carrying out occasional transactions in cash amounting to
Eur10,000 or more, whether the transaction is carried out in a single operation or in several operations which
appear to be linked;
(d) for providers of gambling services, upon collection of winnings, the wagering of a stake or both, when
carrying out transactions amounting to Eur2000 or more, whether the transaction is carried out in a single
operation or in several operations which appear to be linked.[i]