Comparative Guide to Restructuring Procedures in the Uk, Us, Difc, Adgm and Uae

January 2021

COMPARATIVE GUIDE TO RESTRUCTURING PROCEDURES IN THE UK, US, DIFC, ADGM AND UAE

Court In court: two court hearings: As per UK restructuring plan In court: court-supervised In court: court-supervised In court: court-sanctioned In court: court-sanctioned In court: court supervised process Process process process process process  convening hearing: plan Court based distressed company-led proponent applies to court to Various court hearings to Directors of a company propose process convene stakeholder approve a variety of motions, scheme of arrangement of meetings e.g., “first day” hearing to company’s affairs to its creditors enable business operations to  sanction hearing: court has continue (including DIP The company’s directors must discretion whether to financing), “second day” notify the court in writing that sanction hearings to grant final relief on they intend to make a proposal to certain interim orders that were the creditors under the regime Otherwise, out of court heard at the “first day” hearing, omnibus hearings to address administrative motions, follow- on hearings, sale hearing (if applicable), plan confirmation hearing - number of hearings depends on circumstances / complexity of the case

Scope Allows a company to compromise Similar scope as the new UK As per the UK restructuring Similar scope as US Chapter 11 Similar scope as the UK There is no prescribed scope. The preventive composition plan with its creditors (secured and restructuring plan plan, but broader provisions to restructuring plan A scheme could be an (“PCP”) is similar to the voluntary unsecured) and shareholders facilitate greater degree of arrangement or compromise arrangement schemes under English operational restructuring - see, about anything that the law and the procedure de sauvegarde May – but need not - implement e.g., below, “Treatment of company and its creditors or under French law as it provides a operational changes Contracts” shareholders may settle on scheme for a solvent debtor to avoid among themselves liquidation by agreeing with its Flexible options: plan may creditors to repay all or part of its provide for: debts pursuant to a court-approved settlement plan with the assistance of  payment of classes of claims; a trustee

 sale of all or part of the Similar scope as US Chapter 11 debtor’s assets;

 exit financing;

 capital restructuring including possible issuance of new debt or equity securities;

 resolution of corporate issues, including cancellation of shares/ securities and amending constitutional documents; and / or

 possible releases and indemnification

Eligibility No need to demonstrate As per UK restructuring plan No need to demonstrate DIFC company, where the No need to demonstrate No need to demonstrate No need to demonstrate insolvency, insolvency, but does require insolvency, but must show debtor is, or is likely to become, insolvency, but does require insolvency, but does require but does require evidence of actual or evidence of actual or likely some kind of “financial unable to pay its debts and there evidence of actual or likely evidence of actual or likely likely financial difficulty e.g. debtor financial difficulty distress” and that debtor is not is a likelihood of a successful financial difficulty financial difficulty has ceased making payments filing just to take advantage of rehabilitation plan being agreed Open to domestic and foreign the benefits of the Bankruptcy Open to companies Open to companies Open to UAE commercial companies, companies which can Code Where a foreign company is the incorporated (or re-domiciled) incorporated in the ADGM, any person that qualifies as a trader demonstrate sufficient connection subject of insolvency in the ADGM, and certain and certain other legal pursuant to UAE law, civil with England e.g., English law Famously low jurisdictional proceedings elsewhere, the other legal entities with entities with exceptions companies/professionals and governed debt or COMI in threshold; includes where DIFC court shall assist that exceptions companies established in free zones England debtor has a place of business foreign court upon request (if the free zone does not have specific or property in the US (e.g., cash The ADGM Insolvency regulations relating to restructuring) If a non-English company uses a in a US bank account or The DIFC Insolvency Law Regulations adopt the plan, obtaining recognition of the location of stock certificate) adopts the UNCITRAL Model UNCITRAL Model Law on proceedings in home jurisdiction Law on Cross-Border Cross Border Insolvency will be key, as court orders do not US courts have long relied on Insolvency which among other expressly purport to have extra- ‘property’ element of the test to items allows the recognition of territorial effect establish broad jurisdiction foreign insolvency officials, over foreign companies foreign orders as well as concurrent insolvency Court orders expressed to have proceedings in the DIFC extra-territorial (global) effect

Control Typically, the proposal will be Typically, the proposal will be Management / board will stay A rehabilitation plan may only An administrator is appointed Existing management remain A PCP application can only be made launched by the company - launched by the company in control and the debtor be initiated by the debtor to take over and control the in control of the company. An by the debtor although also possible for following extensive continues business operations. management of the distressed application for a scheme of creditors or shareholders to make commercial negotiations, However, the debtor must seek Existing management remain in company. arrangement may be made The debtor is placed under the control a proposal or a counter proposal although an application may be approval for all decisions and control (and liable) except where by: of one or more trustees appointed by made by: actions not in the ordinary there is evidence of the company An administrator may be the court or named by the debtor and Management / board stay in course of business e.g., sale of or its management, officers or appointed by:  the company accepted by the court. During a PCP, control and debtor continues  the company assets / entry into new directors being guilty of fraud, the debtor continues to manage its business operations financing dishonesty, incompetence, or  the debtor company itself  any creditor or business, albeit under the supervision  any creditor or shareholder mismanagement shareholder of the of the trustee No requirement for appointment of the company 120-day “exclusive period” for  a creditor which holds company of a supervisor / trustee debtor to propose a plan - The rehabilitation regime security over the whole or The PCP will not be available where  a liquidator or subject to extension to a date requires the company to appoint substantially the whole of  a liquidator or the debtor is already subject to not beyond 18 months after the an insolvency practitioner as a the debtor company’s restructuring, bankruptcy or  an administrator petition date. Once exclusivity rehabilitation nominee who will assets  an administrator liquidation proceedings lapses, any party may propose a be responsible for certain The directors remain in control competing plan company rights and duties  the court upon the of the company, continue to application of the debtor trade and undertake the Where fraud or misconduct are The appointment of the company, its directors or company's business, unless alleged, the Bankruptcy Court insolvency practitioner takes one or more creditors of otherwise provided by the may appoint a trustee; place prior to the notification of the debtor company terms of the scheme however, appointment of a the rehabilitation plan trustee is not common

Where a case is expected to have large administrative fees, 2

Moratorium Potential to combine with new No automatic moratorium to Automatic moratorium (the Automatic moratorium of 120 For as long as an administrator Unless a scheme of If the court accepts the application, a stand-alone moratorium (not assist in implementing a “automatic stay”), prohibiting days from the date the directors is appointed an automatic arrangement is carried out moratorium on creditor action automatic, and time-limited), scheme of arrangement outside creditors and other parties from notify the court of the intention moratorium (subject to a court together with another automatically applies (although the although many companies at the of a formal insolvency process taking any action, absent court to propose a rehabilitation plan order) will be applicable, insolvency procedure which moratorium does not prevent the top end of the market will likely authority, to collect a pre- prohibiting any steps being triggers a moratorium (e.g. an enforcement of secured claims which be ineligible for the moratorium in petition debt Similar to the new UK taken to wind up the company administration), a can still occur with the court’s practice restructuring plan, certain or to enforce security over the moratorium will not be permission) The moratorium lasts for the exceptions, including company’s property or to automatically applicable Certain exceptions, including duration of the bankruptcy case enforcement of financial repossess assets under a hire ***All legal proceedings against the enforcement of financial until the debts are discharged collateral arrangements and purchase arrangement. No debtor will be suspended only until (i) collateral arrangements netting under the DIFC Netting legal proceedings may be the ratification of the PCP; or (ii) the Limited exceptions, including Law brought against the company lapse of ten months from the date of certain government actions and except with the consent of the commencement of the PCP initiation of post-petition administrator or the court proceedings. The court may extend lawsuits on account of post- this period by an additional four petition claims months

Creditors may file a motion to ***Secured creditors may apply to the lift the automatic stay, but must court to grant them an exception to the show there is good cause (e.g. suspension of proceedings so they can lack of adequate protection) enforce their rights

Approvals Class voting Class voting Class voting Class voting The administrator shall send a Class voting Class voting copy of the statement of the  For a class of stakeholders to  Each class must vote in  Classes that are receiving  The plan requires both 75% administrator’s proposals to  Each class must vote in  Once the court approves the plan, approve the plan, at least 75% favour of the scheme – at some - but not full- of creditors (or the registrar, to every creditor favour of the scheme – at the plan is then put to a creditor in value, of those voting, least 75% in value and recovery, are “impaired’ shareholders) in each class of the company (other than least 75% in value vote must vote in favour majority in number, of and entitled to vote that are present and voting those that have opted out) and those voting, in each class to support the plan and the to every member of the  A majority by number of  Approval from a majority  Every creditor or shareholder (an additional approval  For a class of claims to approval of the court company – all creditors to each class of creditor is representing at least two thirds in whose rights are affected by requirement in comparison approve the plan, at least approve the administrator’s not required for a scheme value of each class of creditor is the plan must be permitted to to the new UK 2/3 in value and more than  If approved, the proposal of arrangement to be required vote (except where the restructuring plan) 1/2 in number of voting arrangement will bind all approved application for a convening creditors must vote in creditors (or shareholders)  Dissenting creditors are still hearing is made within 12 favour who had notice of the bound by the plan if the requisite weeks of the end of any meeting and were entitled to majority approves the plan stand-alone moratorium, in  For a class of equity vote which case creditors in interests to approve the respect of moratorium debts plan, at least 2/3 in amount  Either (A) all classes of or priority premoratorium of voting interests must creditors have voted to debts may not participate in vote in favour accept the plan (or have the vote, nor be compromised been deemed to accept the under the plan unless they  Classes that receive a 100- plan) or (B) at least one consent) percent recovery are class of creditors which “unimpaired” and are would be impaired by the plan approves it

Cross-Class Cross-class cram-down possible: Schemes of arrangement are Cross-class cram-down Cross-class cram-down Cross-class cram down not Cross-class cram down not No cram down provisions Cram-Down plan may be confirmed by the not eligible for cross-class cram possible: plan may be possible: plan may be confirmed applicable: requirement to applicable: the scheme will court even where one or more down – each class of creditors confirmed by the court even by the court even where one or establish a creditor’s bind the debtor company and Where the relevant threshold is dissenting classes, provided: voting must vote in favour of where one or more dissenting more dissenting classes committee which passes all of its creditors which were achieved, the dissenting minority of the scheme classes (provided at least one (provided at least one class of resolutions (by majority in entitled to vote on the scheme creditors and all unsecured creditors  the court is satisfied that none class of impaired creditors impaired creditors votes in value of those voting) of arrangement, including will be bound by the composition of the members of the votes in favour, and subject to favour, and subject to dissenting creditors whether they participate or take part in dissenting class would be any safeguards) safeguards) the vote for the adoption of the PCP worse off than they would be in the event of the “relevant Plan must be “fair and Typically, the plan needs 75% of It is not possible for one voting class alternative”; and equitable” and not creditors in each class to support to ‘cram down’ another “discriminate unfairly’ the plan and the court to approve  at least one class of creditors it, however, in certain Secured creditors will only be bound or shareholders that would  A plan is fair and equitable circumstances, as long as: by the PCP if they relinquish their receive a payment, or have a to a class so long as the security rights and expressly vote in genuine economic interest in class receives the full  one class of creditors favour of it the company, in the event of present value of its claim, affected by the plan a relevant alternative, have or no junior class receives approves it; Secured creditors may only vote on voted in favour of the plan anything on account of its the PCP if the PCP affects their claims (the “absolute  no creditor is worse off than security interest The court may decline to exercise priority rule”) in liquidation; and its discretion to sanction the plan if it does not consider it “just and  The “unfair  no junior creditor gets paid equitable” discrimination” test before senior creditors are prevents creditors (and paid, Potential to engage the English interest holders) with courts in determining valuation similar legal rights from the court may still approve the disputes akin to those seen in receiving materially plan Chapter 11 proceedings different treatment under a plan absent a compelling The restructuring plan does not justification include the concept of an “absolute priority” rule (a key principle of the US Chapter 11 process)

Treatment No specific regime for treatment No specific regime for Debtor has flexibility to Protection against contractual No specific regime for No specific regime for A decision to commence the PCP of Contracts of contracts, but: treatment of contracts - in assume, assume and assign, or termination in respect of treatment of contracts - there treatment of contracts - there shall not result in the termination or relation to company contracts, reject all unexpired leases and insolvency clauses and other are restrictions in relation to are restrictions in relation to cancellation of any ongoing contract the default position is that a executory contracts with court terms (noting that the court can hire purchase contracts hire purchase contracts between the debtor and a counterparty order relief from moratorium for prohibiting: prohibiting: 4

UK RESTRUCTURING PLAN UK SCHEME OF US CHAPTER 11 DIFC INSOLVENCY LAW – ADGM – ADGM – SCHEME OF UAE PREVENTIVE ARRANGEMENT REHABILITATION ADMINISTRATION ARRANGEMENT COMPOSITION PLAN The Corporate Insolvency and Chapter 11 of the US REGIME Governance Act 2020 Companies Act 2006 Bankruptcy Code ADGM Insolvency Companies Regulations Federal Law by Decree No. (9) of DIFC Insolvency Law (DIFC Regulations 2015 2020 2016 on Bankruptcy Law No. 1 of 2019) and DIFC Insolvency Regulations 2019 scheme will not interfere with approval, subject to certain specific creditors in limited  company may compromise the contracts of the company limitations circumstances)  the exercise of any  the exercise of any Such counterparty shall perform its non-financial contracts repossession rights; and repossession rights; and contractual obligations, unless, prior within its plan In general, executory contracts Restriction on creditors to the decision to commence the PCP, are contracts where material exercising set-off (subject to  lessors accessing the  lessors accessing the the counterparty receives a judgement  new rules will restrict obligations remain to be limitations) premises premises entitling it not to execute the contract reliance on ipso facto clauses performed on both sides as a result of the debtor’s failure to in contracts for the supply of perform its obligations goods and services Debtor must continue to perform post-petition, unless it The initiation of a PCP will not rejects relevant agreement constitute an event of default under any existing financing agreement. Reliance on ipso facto clauses Any agreement to the contrary will be restricted in all contracts void

The trustee may terminate a valid contract to which the debtor is a party if the trustee is satisfied that the contract termination is necessary for the debtor to continue its business or that such termination is in favour of the creditors and the termination will not cause gross harm to the counterparty

Court Court expected to consider Court expected to consider Court will consider (among Court will consider (among Creditors to approve the Court will consider (among Court will consider (among other Approval / (among other things): (among other things): other things): other things): appointed administrator’s other things): things): Challenges proposal by a resolution of the  whether plan complies with  whether the scheme  whether plan complies  whether the plan complies appointed creditors’  whether the scheme of  whether the applicant is already the Corporate Insolvency and complies with the law with the US Bankruptcy with the law and the debtor committee arrangement complies subject to existing debt Governance Act 2020 Code proposed the plan in good with the Companies restructuring or PCP proceedings  jurisdiction faith Regulations 2020  jurisdiction - injunction,  whether the applicant is acting in  class composition exculpation, and  the arrangement is not  voting / approvals bad faith or if the application is an  class composition release provisions “unfairly prejudicial” to the abuse of process  fairness and general body of creditors as  voting / approvals - including reasonableness of the - classification of a whole  whether the debtor is convicted of whether plan satisfies process; and claims and equity a bankruptcy-related crime requirements for “cram-  voting / approvals - down”, if applicable  the majority of creditors - assumption or including whether plan  whether the PCP is inappropriate supporting the scheme not rejection of unexpired satisfies requirements for given the circumstances  whether classes were fairly oppressing the (dissenting) leases and executory “cram-down”, if applicable represented by those who minority contracts  whether the necessary deposit voted  no creditor is worse off than payments have been made  jurisdiction it would have been in a  whether the plan is “just and winding-up of the company equitable”  whether plan has been proposed in “good faith”  the holder of any claims junior to any dissenting  proper disclosure class will not be paid out any amount before the debtor pays the dissenting class in full

 voting / approvals - including whether plan satisfies requirements for “cram-down”, if applicable

 whether plan is feasible

 whether plan is in the “best interests of creditors”

Post- No formal provision for post- No formal provision for post- Debtor-in-possession (“DIP”) DIP financing is possible DIP financing is possible, No formal provision for post- DIP priority financing is permitted petition petition financing. New funding petition financing - typically, financing is possible and used similar to US Chapter 11 petition financing which may be secured or unsecured financing must comply with permissions the company will look to its to fund operations during Court can permit new priority under existing debt existing lenders to provide Chapter 11 funding during the rehabilitation An administrator may obtain ***The Amendment Law (defined documentation (unless of course additional funding process which can be unsecured unsecured credit and incur below) confirms that the debtor may approval for new funding is Court may grant a DIP lender a or secured with security over unsecured debt in the ordinary apply to the court to obtain new granted under the plan itself) priming lien – a lien that would previous unsecured assets, on a course of business, and any financing (secured or unsecured) be superior to pre-existing liens junior basis to existing security, such credit or debt shall be during an Emergency Financial Crisis However, we understand the - if other lienholders consent or or on a senior or pari passu basis payable as an expense of the (defined below) Government is considering the debtor can show (a) other with existing security (the latter administration introduction of additional debtor- lienholders are adequately in certain circumstances such as in-possession financing protected and (b) DIP financing if adequate protection for the ‘Roll up’ of existing debt is provisions in due course was not available on more secured parties exists) possible favourable terms (e.g., on an unsecured or junior lien basis) The new funding takes priority over other unsecured debt, but the regime ensures protection of existing secured creditors

‘Roll up’ of existing debt is possible

Costs Costs potentially lower than in Costs potentially lower than in Administrative fees and Costs lower than in Chapter 11 Costs lower than in Chapter Costs lower than in Chapter Costs lower than in Chapter 11 Chapter 11 Chapter 11 expenses of Chapter 11 can be 11 11 significant and lead to significant drain on the estate

Disclosure / The company must provide a An application must be made to Increased disclosure Rehabilitation nominee must file Increased disclosure The company must provide a The application for PCP filed with the Publicity detailed explanatory statement in court by issuing a claim form obligations and scrutiny (by a statement with the court obligations regarding the detailed explanatory court shall be detailed and provide respect of the plan with a witness statement stakeholders, the US Trustee, confirming that the proposed appointment of an statement in respect of the information on the debtor, including exhibiting the draft scheme Bankruptcy Court and, in some plan is reasonably likely to administrator and the scheme of arrangement an overview of its financial situation, The court will require a similar circular cases, the media) succeed, that the company has company’s statement of assets, cashflow projections for the level of disclosure to a scheme of sufficient funds available during affairs Increased disclosure upcoming twelve (12) months, arrangement including, e.g., fees Increased disclosure Each filing entity must file the moratorium and stating obligations depending on the employees, creditors and debtors, – and in addition, enhanced obligations depending on the details of assets, liabilities, whether the debtor plans to Administrator to send a notice scenario, e.g. if a company is copies of financial books and valuation evidence (as compared scenario creditors, executory contracts, convene creditor and of his/her appointment to the merging, a draft of the statements, proposals for preventive to a scheme) unexpired leases etc. and shareholder meetings company and publish a notice proposed terms of the scheme composition and selection of a trustee statement of financial affairs. of his/her appointment on the must be drawn up and to carry out the procedure These are cumbersome and registrar’s website or in an adopted by the directors or time-consuming, but allow the English language newspaper equivalent office holders - the

UK RESTRUCTURING PLAN UK SCHEME OF US CHAPTER 11 DIFC INSOLVENCY LAW – ADGM – ADGM – SCHEME OF UAE PREVENTIVE ARRANGEMENT REHABILITATION ADMINISTRATION ARRANGEMENT COMPOSITION PLAN The Corporate Insolvency and Chapter 11 of the US REGIME Governance Act 2020 Companies Act 2006 Bankruptcy Code ADGM Insolvency Companies Regulations Federal Law by Decree No. (9) of DIFC Insolvency Law (DIFC Regulations 2015 2020 2016 on Bankruptcy Law No. 1 of 2019) and DIFC Insolvency Regulations 2019 bankruptcy court to assess the distributed in the United Arab draft terms must be published full picture of a debtor’s estate Requirement for nominee to Emirates and available in the on the company website advertise moratorium in an Abu Dhabi Global Market appointed publication Each administration We expect the court to require a application must contain a similar level of disclosure to the statement on the company’s new UK restructuring plan - financial position, specifying including, e.g., fees - and likely the company’s assets and enhanced valuation evidence liabilities, details of any security known or believed to be held by creditors of the company, details of any insolvency proceedings etc

Timing No express timeline provided; A straightforward scheme of Varies widely, and depends on No express timeline provided The appointment of an No express timeline The law provides that the duration of recent new plans have mirrored arrangement that does not whether the Chapter 11 is: administrator of a company provided; we expect it to the PCP should not exceed three years that of schemes of arrangement involve a reduction of capital, shall be automatically mirror that of a UK scheme of (the term may be extended with the could be completed in about  traditional or “free-fall” - terminated one year after it arrangement though it may approval of the majority creditors Unlike in Chapter 11, the two months from the date of the i.e., debtor enters takes effect. The court may by take longer holding an aggregate of at least two company (or other plan company's first application to proceedings without an order extend the thirds of the value of the outstanding proponent) cannot commence court. Schemes that include a agreed path to emergence administrator’s term of office debts) proceedings without having reduction of capital or other for a specified period prepared a plan in advance additional requirements can  pre-arranged - i.e., debtor ***The settlement period offered by take considerably longer has negotiated plan with the debtor to its creditors should not certain creditors prefiling, exceed twelve months during an or Emergency Financial Crisis

 pre-packaged- i.e., debtor has solicited and obtained acceptances of plan prefiling

Pre-arranged / pre-packaged cases are more certain than traditional, “freefall” Chapter 11 cases, given that certain creditors are already on board with debtor’s plan

Certainty New procedure – limited testing Tried and tested procedure Tried and tested procedure with New procedure - untested Limited application Untested New procedure - untested extensive case law A company can also enter into “lock-up agreements” with creditors designed to give the company certainty earlier in the process

*** The UAE Cabinet made an announcement that it will make further amendments (the “Amendment Law”) to the Federal Law by Decree No. (9) of 2016 on Bankruptcy (the “UAE Bankruptcy Law”). The Amendment Law follows the previous amendment to the UAE Bankruptcy Law (Federal Law No. (23) of 2019). The Amendment Law is yet to be published in the Official Gazette and its effective date has not been confirmed. The Amendment Law seeks to address periods during an ‘Emergency Financial Crisis’ which is defined under the Amendment Law as a general situation that affects trade or investment in a country, such as a pandemic, natural or environmental disaster, war, etc.

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For further information, please contact the Gibson Dunn lawyer with whom you usually work, or the following authors, with any questions, thoughts or comments arising from this update.

Aly Kassam – Dubai (+971 (0) 4 318 4641, [email protected])

Scott J. Greenberg – New York (+1 212-351-5298, [email protected])

David M. Feldman – New York (+1 212-351-2366, [email protected])

Ben Myers – London (+44 (0) 20 7071 4277, [email protected])

Galadia Constantinou – Dubai (+971 (0) 4 318 4663, [email protected])

Ashtyn Hemendinger – New York (+1 212-351-2349, [email protected])

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