New U.S. ruling benefits Russian bank restructuring

CMS Cameron McKenna has successfully completed its work on the restructuring of the Russian bank, Rossiyskiy Kredit Bank ("RKB"). The successful completion of the restructuring hinged on a number of things including a landmark ruling by the U.S. Bankruptcy Court in New York, marking it the first time that an American bankruptcy court has given assistance to the reorganisation of a Russian bank.

The effect of last month's ruling on other restructurings is not yet known but it is clearly a milestone in the development of Russian financial institutions, representing a significant stride towards giving the nation access once again to the international capital markets.

RKB was one of Russia's leading retail and commercial banks when the collapse of the Rouble in the Autumn of 1998 dramatically changed its financial position. The bank instructed CMS Cameron McKenna in December 1998 as the legal advisor on the restructuring of its debt to Western banks and financial institutions. KPMG were instructed as financial advisers.

On 19 April 2000 an Amicable Settlement Agreement (the "Settlement Agreement") was approved by a substantial majority of the bank's creditors. The Settlement Agreement then received the requisite approval from the Moscow Arbitrazhniy (Commercial) Court on 15 August 2000. The Settlement Agreement marked the first time that a prominent bank under the control of the Russian Agency of Restructuring Credit Organisations ("ARCO") had signed an amicable settlement agreement and created the necessary conditions for a revival of its business.

Under the terms of the Law on Restructuring Credit Institutions, an amicable settlement agreement approved by all secured creditors, and a majority of all other creditors, and confirmed by a court decision is binding upon all creditors worldwide. In practice, this is often not the case, as recognition of the Settlement Agreement by foreign courts is not automatic.

Given the importance of New York law as the governing law of a significant portion of the restructured debt, including a guarantee on an offshore financing vehicle medium-term note programme, recognition by the U.S. courts was crucial to the success of the restructuring. Application was made to the U.S. Bankruptcy Court in New York for relief under section 304 of the U.S. Bankruptcy Code, seeking recognition of the Russian insolvency proceedings. The U.S. Bankruptcy Court entered a final order on 11 October which made the Settlement Agreement binding in U.S. law. This was the first time the U.S. courts have made such an order in relation to a Russian restructuring.

Under the terms of the Settlement Agreement, the bank's thousands of private depositors will be paid out in full and other creditors will receive a mixture of cash and both U.S. Dollar and Rouble denominated promissory notes. Since these promissory notes could not be cleared through the international securities clearing system arrangements were put in place for certain creditors to exchange their RKB promissory notes for Euroclearable notes. Over 80 per cent of foreign creditors participated in these arrangements on 18 October 2000.

John Hammond led the CMS Cameron McKenna team in Moscow with Dan Hamilton and Ashley Painter, from the Corporate Recovery and Capital Markets Groups respectively, leading the team in London. New York firm Fulbright & Jaworski LLP ARKO in the US bankruptcy application. Strook & Strook & Lavan defended RKB in litigation brought by creditors in the New York courts.

For further information on the restructuring, please contact: Ashley Painter tel: 020 7367 3135 or by e-mail on [email protected] John Hammond tel: +7-501-2585000 or by e-mail on [email protected] or Dan Hamilton tel: 020 7367 2796 or by e-mail on [email protected]