Country Writer: Francois Veit
GIDE LOYRETTE NOUEL
Tel: +42 (0) 2 2287 1111
www.gide.com

FIRM PROFILE

Gide Loyrette Nouel is one of the most prestigious independent law firms in Europe. It is the leading international French firm with 82 partners and over 400 associates drawn from over 28 different nationalities. Operating out of 16 offices in 15 different countries world-wide, the Firm offers some of the most respected specialists in each of the various sectors of national and international business law.

The Firm has offices in Europe (Brussels, Bucharest, Budapest, Istanbul, London, Moscow, Paris, Prague and Warsaw), North America (New York), Asia (Beijing, Hanoi and Shanghai), the Middle East (Riyadh) and North Africa (Casablanca and Tunis).

CZECH & SLOVAK REPUBLIC SECURITISATION MARKET STATEMENT

There is currently no specific legal framework in place for securitisation type transactions in the Czech and Slovak Republics.

Companies are increasingly looking at new financing techniques as part of their restructuring plans, besides traditional bank borrowing. Following the successful privatizations of leading banks in both jurisdictions, financial institutions are also gradually broadening their financial product range. Securitisation, factoring and leasing are all different methods of financing that may have an important role to play. A growing demand for securitisation transactions can therefore be expected.

The lack of a specific legal framework is an obstacle to the structuring of a securitisation transaction in both Republics, although it may not be insurmountable.

The purchase of receivables may be carried out by any legal entity provided it disposes of the appropriate trade license, e.g. factoring.

The Civil Codes of both the Czech and Slovak Republics contain similar provisions on the assignment of claims (receivables).

Receivables may be transferred pursuant to a contract of assignment, as defined by the relevant Civil Code, to a special purpose vehicle ("SPV"), which has separate legal personality. The SPV does not have to be a particular form of business entity and does not require any specific authorization from any financial services regulator for the purchase of receivables. Such an entity may however require approval from the Commission for Securities ("KCP") for the issue of bonds. If the bond issue is targeted only at institutional investors or to less than 100 persons it will qualify as a private placement and the SPV will not require to issue a public prospectus.

There are however difficulties with applying the current laws to securitisations:

Firstly, under the Civil Code, the validity of any assignment as against the underlying debtor depends on its notification to the debtor. There is no legally prescribed system for making the assignment valid against "all the world", for example by means of a public register. It cannot therefore be excluded that a third party creditor may seek to ignore the assignment in such circumstances.

Secondly, a question mark hangs over the question of how the assigned assets will be dealt with in the case of the assignor's bankruptcy. The current Czech and Slovak laws on bankruptcy and composition of claims do not address the issue. Therefore it is difficult to assess whether deconsolidation, lack of control of the SPV and other safeguards will be sufficient to protect the assigned assets from the bankruptcy administrator. Currently, in bankruptcy proceedings the law requires all creditors to be treated equally and does not allow the administrator (who acts as an appointee of the court) to privilege any creditor or set of creditors as against the rest. Creditors with secured claims are however permitted to realize that security in order to satisfy up to 70% of their claims separately from other creditors.

The SPV does not benefit from tax transparency but investments in traded securities (e.g. bonds) by individuals will be exempt if the securities are held for more than six months.

Since there are no limitations in relation to foreign exchange, offshore transactions are therefore possible. There has been no use as yet of credit derivatives as part of synthetic transactions. However, apart from the above described legal obstacles to be taken into account there are no major impediments in this field.

The harmonization of Czech and Slovak law with the "acquis communautaire" has been progressing steadily since the mid-1990's with the Czech and Slovak Republic set to join the European Union on May 1, 2004. In the Czech Republic, new draft laws on insolvency and on trading on the capital markets have been finalized and will shortly be laid before parliament. The Civil Code is also in the process of being overhauled. These new laws are expected to address such important issues as bankruptcy remoteness and the assignment of receivables, including future receivables. In the Slovak Republic amendments to the securities and bankruptcy laws are also expected. Such changes should boost the development of securitisation in both Czech and Slovak Republics.

GLN CZECH & SLOVAK SECURITISATION CONTACT

Francois Veit

GLN REGIONAL SECURITISATION PRACTICE