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
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
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.