Eurotunnel vision

For companies on both sides of the Atlantic, bankruptcy needs a clear goal. American firms are likely to fare far worse if they enter Chapter 11 groping for a recovery strategy, rather than having a plan in advance, says Peter Kaufman of the Gordian Group, an investment-banking boutique. In Europe, preparation for a financial solution is all the more important if default means a halt to trading. One hope is that Europe's less litigious culture might make companies and lenders more likely to plump for deals outside the courts. Britain, in particular, has some experience in this: Eurotunnel's reorganisation for example. When the administrators step in, the European assets of only the biggest firms, such as Olympia & York, which built London's Canary Wharf, tend to be rescued.

Changes to practice are sure to come before changes in European law. Federal-Mogul, an American car-parts company, filed for bankruptcy in October, under both American and British insolvency laws. By co-ordinating its British bankruptcy with its Chapter 11 process, the company was able to keep its British businesses trading while in administration, with an eye to emerging as a single healthy company.

In the meantime, European firms need not feel too threatened by Chapter 1 l's advantages. When Chiquita, an American banana company, filed a pre-packaged bankruptcy last year, it was able to continue to compete with Fyffes, an Irish rival. But as Chiquita emerged from protection this week, its debt greatly reduced, a raft of companies lined up to make a bid. Rumoured to be among them was Fyffes, which, if it succeeds, might yet profit from America's forgiving ways.

The Economist

Notes

travails [traevei] — тяжелый, мучительный труд; муки scarlet letter — символ позора

Vocabulary

unfair a	несправедливый, недобросовестный, нечестный
unfair competition	недобросовестная (нечестная) конкуренция
bona fide (fair) competition	добросовестная (честная) конкуренция, т.е. конкуренция в равных условиях
unfair practices	недобросовестность, недобросовестные приёмы, методы, практика
insolvency n	неплатёжеспособность, несостоятельность, банкротство
balk (at) v	остановиться, внезапно переменить решение
he balked at the price Syn. stall	цена заставила его внезапно изменить решение.
swap n	обмен; своп, обмен активами или обязательствами
debt-for-equity swap	обмен долговых обязательств на акции
one shouldn't change (swap) horses in midstream	коней на переправе не меняют
administration (in bankruptcy) Syn. receivership	конкурсное управление имуществом, управление конкурсной массой
liquidation n	ликвидация
company in liquidation	компания в состоянии ликвидации
administrator n receiver n	управляющий конкурсной массой
salvage n v	1) спасение имущества (напр.от огня) [спасать имущество]; 2) расходы по спасению имущества, компенсация за спасение имущества
unsalvageable a	не подлежащий спасению, постановлению
legal liability	юридическая ответственность, судебная ответственность
case law	судебная практика; прецедентное право
to file for bankruptcy (insolvency)	объявить себя банкротом
trustees	доверительный собственник
litigious a	1) сутяжнический; 2) спорный; подлежащий судебному разбирательству
litigious right	спорное право
litigation n	судебный процесс, судебное дело, тяжба

Legal Commentary Bankruptcy

State of insolvency of an individual or an organization, an ability to pay debts.

Legal proceedings for adjusting the debts of an individual or business unable to meet obligations to creditors. The debtor is placed under control of a bankruptcy trustee, who manages the debtor's affairs for the benefit of creditors. Whereas most debtors seeking protection from creditors have more liabilities than assets, a bankruptcy petition is not necessarily an admission of insolvency, i.e., inability to pay debts as they come due. Corporations, in recent years, have used bankruptcy as a strategy: filing a bankruptcy petition directs all pending legal claims to a single court — the bankruptcy court.

Bankruptcy courts deal with two broad types of cases: voluntary bankruptcy by debtors seeking a fresh start, and involuntary bankruptcy filed by a sufficient number of creditors, who believe the debtor has committed an act of bankruptcy by concealing assets or favoring one creditor over another. In both cases, the objective is a fair and equitable settlement of claims and distribution of assets. Filing a petition initiates an automatic stay against further debt collection until a debt is discharged, the petition is dismissed, or a repayment plan is accepted by creditors. Once a petition is filed, the bankruptcy remains on a debtor's credit bureau report for a 10-year period.

The Bankruptcy Reform act of 1978, the first major revision in the bankruptcy code in four decades, brought about several important changes: the new code simplified the procedures for filing petitions, modified the absolute priority rule giving secured creditors seniority over other creditors, limited creditor rights to set-off claims against a debtor's assets, and expanded the powers of federal bankruptcy judges to decide cases. Amendments to the code in 1984 curtailed some of the more liberal provisions in the 1978 law dealing mostly with consumer bankruptcies. The Bankruptcy Reform Act of 1984 added an ability to pay test to Chapter 13 debt repayment plans filed by individuals with income, gave bankruptcy courts the power to dismiss so-called abusive petitions by debtors concealing assets, and also modified the status of bankruptcy judges.

The important chapters in the revised code are the following.

Chapter 7: called a liquidation, allows a court-appointed trustee with broad discretionary powers to distribute assets among creditors and arrange interim financing. In general, the trustee represents the interests of the unsecured creditors, or general creditors. If, however, there are no assets, the debt is discharged, and the creditors receive nothing.

Chapter 11: a reorganization, normally by a business, allowing the debtor (called a debtor-in-possession if no trustee is named) to maintain operating control of a business, while restructuring debts and working out a repayment schedule acceptable to a committee of creditors. Creditor loans to Chapter 11 debtors are permitted under certain conditions.

Dictionary of Finance and Investment Terms, Barron's

Exercise 1. Translate the following into Russian.

stock-swap merger; interest rate swap; debt-for-equity swap; to file for Chapter 11; arguably; to default; to strike a bargain; to fall into the hands of administrators; to settle the case out-of-court; America's law-suit culture; to hold court hearings; litigants; receivership proceedings; restructuring debts; a trustee; to pick up new finance along the way; to grope for a recovery strategy

Exercise 2. Translate the following into English.

обанкротиться; иметь ясную цель; закон о банкротстве; спасать компанию; иметь свободу действия; прекращение коммерческих операций; нести личную материальную ответственность за торговые операции несостоятельной фирмы; доверительный собственник; государственная помощь; предлагать новые условия погашения кредита

Exercise 3. Find in the dictionary all word combinations which can be used to mean "обанкротиться" and fill in the gaps.

to go b ;to_________br_________________;

to to the ll; to go r; to f p;

to go into 1 id ; to d e;

to e di s ed; to become i s l __________ t

to f l; to f________ for _________an _______у

Exercise 4. Translate the text in writing.

What if GM Did Go Bankrupt...

After weeks of listening to analysts and pundits beat the drum about the possibility of a General Motors Corp. bankruptcy, Chairman and Chief Executive G. Richard Wagoner Jr. decided he had heard enough. On Nov. 16 he declared to his employees that bankruptcy is "unnecessary." In other words, Wagoner was calling bankruptcy unthinkable. But despite Wagoner's protestations, investors are clearly starting to ponder the unthinkable.

What would a GM bankruptcy look like? It probably would be the most massive Chapter 11 filing of all time — a watershed moment in the history of American business, with far-reaching consequences for all of GM's stakeholders. While the direct impact on the national economy would be relatively modest, the Midwest would be hit hard by the combination of job losses at GM and its suppliers and benefits cuts for the company's retirees.

Plenty of observers believe that this suffering would be worthwhile, of course, if a stronger company emerged from bankruptcy. As airlines and steelmakers have done, GM could use Chapter 11 to rewrite union contracts, potentially enabling it to slash retiree benefits and close plants without having to pay furloughed workers. The auto maker could even dump tarnished brands and get bankruptcy court protection from dealer lawsuits.

BusinessWeek

CHAPTER 4. BANKING.

STRONGER FOUNDATION

UNIT 17

• Text 1

THE COMING STORM

With markets apparently safer, banks are trading ever-greater amounts in search of higher returns. Expect trouble

IN THE autumn of 1998, at a conference organised by Credit Suisse First Boston in — appropriately enough — Monte Carlo, Alien Wheat, then head of the investment bank, stood up after dinner and delivered a breathtaking mea culpa. Some sort of apology certainly seemed in order given the huge sums the bank had just lost from extravagant gambles on the Russian economy in particular and financial markets in general. The bets went spectacularly wrong after Russia defaulted, financial markets went berserk, and Long-Term Capital Management (LTCM), a very large hedge fund, had to be rescued by its bankers at the behest of the Federal Reserve. CSFB eventually admitted to losses of $1.3 billion. Before the end of this year, the bosses of many big banks may face the same unpalatable task which confronted Mr. Wheat if, like him, they have the courage to admit their mistakes.

The reason is simple: the size of banks' bets is rising rapidly. This is because returns have fallen as fast as markets have risen. Yields on corporate debt of all types, for example, have fallen dramatically, and commissions for all sorts of businesses have also dropped. So banks are having to bet more of their own money to continue generating huge profits. But the amount that they have put on the table in recent months has become worryingly large.

So large, indeed, that the present situation "is not dissimilar" to the one that preceded the collapse of LTCM, says Michael Thompson, a strategist at Risk Metrics, a consultancy that specialises in the kind of risk-management models employed by the banks themselves. Like LTCM, banks are building up huge positions in the expectation that markets will remain stable. They are, says Mr. Thompson, "walking themselves to the edge of the cliff." This is because — as all past financial crises have shown — the risk-management models they use woefully underestimate the savage effects of big shocks, when everybody is trying to get out of their positions at the same time.

Even the banks themselves admit that they are taking bigger risks. Though they do not divulge the size of their positions, or in which markets they are concentrated, how much those positions have grown can partly be gleaned from what they have to report in their financial statements.

So-called value-at-risk (VAR) models determine the amount of capital that banks must set aside against their trading positions, and purport to show how many millions of dollars a bank might lose should markets turn against it. Banks report this figure. If a bank's VAR is rising, it is taking more risk — and VAR have been climbing for nearly every bank active in financial markets. The VAR at Goldman Sachs, which these days is widely viewed on Wall Street more as a hedge fund than a bank, has more than doubled in recent years. One of the bank's senior traders was even told recently that he must take still more risk.

Rest assured that he is far from the only one being told this at Goldman Sachs, or anywhere else for that matter, even though it was only a few years ago that many banks specifically eschewed higher-risk trading as a good way to make money. Earlier this month UBS, a big Swiss bank, said that "with markets and investor sentiment starting to improve" it would gradually increase credit and trading risks.

Even Citigroup, which stopped explicitly trading for its own account a few years back, and HSBC, a bank that used to think of trading as rather beneath its dignity, both announced recently that they too are increasing the amount of trading they do with their own money. And Credit Suisse First Boston, having scaled back its own trading after its 1998 debacle, is also now increasing the amount it devotes to trading, though it claims that it will no longer "bet the ranch." Allied Irish Banks, which has had more than its fair share of trading fiascos — losing nearly $70om in 2002 thanks to the activities of John Rusnak, one of its foreign-exchange traders — is trying to hire another 20 traders in Dublin.