Dozens of large German firms on the brink of insolvency are preparing to come to London to shed their debts after a landmark legal ruling opened the insolvency courts to failing foreign businesses.
At least 90 German companies with debts of more than €100m (£88.8m) are planning to have their finances restructured before English judges, according to German legal sources. It will allow them to avoid strict German insolvency laws, force creditors to take a higher level of losses and rescue viable parts of the troubled businesses.
British lawyers and accountants are in line for a lucrative slice of the fees associated with the moves, with each case expected to generate income in excess of £10m. Their German counterparts are opening offices in London and advertising for dual-qualified staff.
The High Court last month granted a scheme of arrangement for Rodenstock, a major German spectacle manufacturer crippled by debts of €305.3m (£271m).
The company's headquarters are in Munich, its factories in Thailand and Europe and less than 2pc of its revenue comes from UK customers.
However, because loans were made under English law – now the standard in international finance – Mr Justice Briggs ruled the company could fall under an English jurisdiction. A panel of German legal experts agreed. Previously firms had to demonstrate this country was their "centre of main operations" in order to use English insolvency law.
It gives the green light to an exodus of German "debt refugees".
"Rodenstock was a very important decision. If it holds there are more German companies in the wings," said Frank Tschentcher, a partner at German insolvency specialist Schultze & Braun. The firm is recruiting dual-qualified solicitors for its London office.
Under a Scheme of Arrangement, companies can avoid insolvency by debt-for-equity swaps and fresh loans. The terms must be approved by creditors amounting to half the votes and three-quarters of the debt – meaning small creditors such as employees, suppliers and landlords can be deprived of their money.
Despite its economy's rude health, much of Germany's "mittelstand" of medium-sized companies are badly over-leveraged after taking cheap financing from London banks to buy out rivals.
"They were thought to be too cumbersome, too long, too costly – but because of the chance to cram-down dissenting creditors schemes of arrangement are in vogue again," said Mr Tschentcher.
"Most of the time senior lenders will have their share but junior lenders will lose out. There will be a lot of people jumping up and down and shouting, 'German companies going to England, how dare they'. It's inevitable."
No such schemes exist in Germany, where directors of failed businesses are open to a wide range of civil and criminal charges.
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