Schefenacker flees Germany for England

http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2006/11/08/cnschef08.xml
German bankruptcy laws drive car mirror firm to UK By Ambrose Evans-Pritchard Last Updated: 1:00am GMT 08/11/2006

Schefenacker AG, the world's biggest maker of car mirrors, has moved its corporate headquarters lock, stock and barrel from a sleepy Schwabian town to Britain to escape German bankruptcy laws.
The move by the family company, to be renamed Schefenacker Plc and based in Brighton, is being watched closely by distressed companies across Europe.
Schefenacker makes rear view mirrors for companies like BMW The switch allows the struggling parts maker to thrash out a deal with creditors on €430m (£290m) of debt under Britain's market-friendly laws, buying time to right the ship and save 7,900 jobs worldwide. If successful, it could open up a new niche in the City of London as a market for "jurisdiction shopping" by foreign groups battling archaic legal codes.
Schefenacker is as German as they come, a model of the wurst-eating family Mittlestand that drives the German export miracle. Founded in 1935, it produces a third of all rear-view mirrors used worldwide, supplying DaimlerChrysler, BMW, Ford and Renault.
The firm ran into trouble after taking on too much debt six years ago to buy Britax Vision Systems, a rival mirror-maker. German banks sold off most of their Schefenacker loans to UK hedge funds and institutions, so more than 90pc of creditors are now based in London.
Under Germany's rigid laws the company was faced with likely insolvency as third-quarter results breached terms of a bond convenant. At an extreme, the board risked criminal liability if it struck an optimistic tone but then failed to rescue the company. By moving to London, Schefenacker said it had escaped the "sword of Damocles" hanging over its head.
Reiner Beutel, the chief executive, said the firm was now on the "right path" and would soon complete the transfer of assets and debts to the new English entity. A close observer said that the switch prevented a legal morass in Germany. "If you issue a high-yield euro-bond as an English PLC you can do a deal with 75pc of bondholders and it is binding on everybody. In Germany a minority can hold out and it gets ugly. There's no flexibility," he said.
"The UK hedge funds are real risk professionals. You can talk to these guys, unlike the regional German banks who just panic," he said.
The rescue deal will involve a debt for equity swap. Ironically, the hedge funds - decried as "locusts" by the German vice-chancellor - appear to be saving a German family firm in short-term difficulties.
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Probably closer to benign US-style Chapter 11.
Judging by what happened to Eurotunnel recently in France did not look too bad, either. Official insolvency was avoided.
DAS
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