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Bankruptcy & 2017 Virtual Round Table www.corporatelivewire.com Round Table: & Restructuring 2017

Introduction & Contents

The Bankruptcy & Restructuring Roundtable retail sector, and a discussion on recent case studies features eight experts from around the world. such as Toys R Us and Monarch Airlines. Featured Highlighted topics include a focus on key industries countries are: Australia, Brazil, India, South Africa facing bankruptcy & restructuring challenges such and the United States. as oil and gas, the impact of ecommerce on the JamesEditor Drakeford In Chief

8 1. Can you outline the current 28 6. Have there been any recent notable 42 10. Can you detail the different debt 50 14. How can the approaches bankruptcy and restructuring or ? Are restructuring options and processes? associated with corporate landscape in your jurisdiction? there any lessons to be learned from restructures assist executives in these case studies? 47 11. What are the most important driving successful unit level 12 2. Have there been any recent aspects to consider in executing turnarounds? regulatory changes or interesting 32 7. Are there any key trends or complex, global multi-national developments? interesting strategies currently being restructures? 51 15. Are there skills and business implemented? practices pertaining to managing 16 3. What are the formal procedures for 48 12. To what extent can focusing on corporate restructure, which extend in your jurisdiction, with 37 8. What does Brexit mean for the business management best practices and assist executives in managing particular reference to (i) tests for insolvency and restructuring market? benefit the organisation in the long business level restructures and insolvency, (ii) grounds for insolvency, run? turnarounds? and (iii) requirements following 38 9. With business increasingly insolvency? conducted on a continental or global 49 13. How has digitisation and process 52 16. In an ideal world what would you level, more than ever support innovation changed the like to see implemented or changed? 21 4. What is the process for asset have a cross border element. In realities of business performance and recovery in your jurisdiction? your experience what are the main improvement? challenges and solutions surrounding 24 5. Which sectors are at highest cross border insolvencies? risk of bankruptcy in the current business landscape?

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Meet The Experts

James F. Davidson - Avant Advisory Camisha L. Simmons - Simmons Legal PLLC E: [email protected] T: +1 214-643-6192 W: www.avantadvisory.com E: [email protected] Jim Davidson is a Certified Turnaround Professional, Certified Insolvency & Restructuring W: www.simmonslegal.solutions Advisor, and Certified Merger & Acquisitions Advisory in addition to holding other credentials Camisha L. Simmons is the managing member and founder of Simmons Legal PLLC, a law such as CPA, CFF, CGMA, CBA, CFE. He provides expert advice in areas of mergers and firm dedicated to assisting and other parties in protecting their interests in the acquisitions, distressed and special situations that include insolvency, bankruptcy, financial event of an insolvency, bankruptcy, restructuring, litigation and/or financing transaction. restructurings, operational turnarounds, and profitability improvement. He served on the Financial Executives International (“FEI”) committee for Mid-Sized Public Companies. He She founded the firm after practicing in New York and Dallas for close to 8 years as has served on the Small Business Bankruptcy Task Force of the American Bankruptcy Institute and as past 4-year an attorney for the global law firms of Weil, Gotshal & Manges LLP, DLA Piper and Norton Rose Fulbright. president and current 7-year member of the board of directors of the Los Angeles Chapter of Association of From 2006-2007, Ms. Simmons was a law clerk to the Honorable Mary F. Walrath, Judge of the United States Certified Fraud Examiners. He is current member of the board of directors of the Orange County Forensic Expert Bankruptcy Court, District of Delaware. Witness Association. She primarily practices in the areas of creditors’ rights, bankruptcy, restructuring and litigation. Ms. Simmons After 10 years of , auditing, M&A transaction advisory and other consulting for Big Four Certified is a frequent author and speaker on various bankruptcy, restructuring, finance and litigation topics. Public Accounting firm PricewaterhouseCoopers, Jim spent 20 years as a member of several boards of directors and in various financial and positions, including president and CEO, COO, CFO, secretary-treasurer, She is admitted to practice before the bars of the states of Texas and New York. chief accounting officer, and corporate controller.

Thomas Benes Felsberg - Felsberg Advogados David Bryan - Bryan, Mansell & Tilley LLP T: +55 11) 3141-9101 E: [email protected] E: [email protected] W: www.bmandt.eu W: www.felsberg.com.br David Bryan is a founding principal of Bryan, Mansell & Tilley LLP and a hands-on Thomas Benes Felsberg is the founding partner of Felsberg Advogados and is a senior financial manager with extensive experience working with international and UK global reference in the area of bankruptcy and company restructuring. He has taught companies in restructuring and improvement. He has operated at CFO level in large and International Private Law at the University of São Paulo. Member of Executive Committee SME companies in the UK, USA and Europe and has many years experience with Public of International Insolvency Institute, American College of Bankruptcy, former chairman and Private Equity owned . His industry experience includes automotive supply and current member of Turnaround Management Association – Brazil and Legal Counsel and commercial vehicle manufacture, industrial systems and services. of São Paulo State Federation of Industries - FIESP.

Thomas Felsberg acted as Brazilian consultant to the World Bank in the area of insolvency and credit rights, Vlad Nastase - Concilium Consulting having contributed, together with the IMF, to the ‘Global Insolvency Law Database’ (GILD) and ‘Reports on the E: [email protected] Observance of Standards and Codes’ (ROSC) projects. He is recognized by publications such as ‘Latin Lawyer’, W: www.concilium.ro ‘Legal 500” and ‘Chambers’ as Brazil’s leading insolvency lawyer. He formed part of the committees responsible Concilium Consulting is a financial services advisory firm and the best solution for your for development of the current bankruptcy and company restructuring law and is again part of a government business. selected group to remodel the Brazilian Insolvency Law. In addition to his work relating to insolvency and debt restructuring, Thomas Felsberg plays an important role as an arbiter with important arbitration chambers both in We provide services in Capital Advisory, Corporate Restructuring, Portfolio of NPL&SPL, Brazil and overseas, whilst he is a member of the ‘the Arbitration Chamber of the Legal Council of the Federação Strategic advisory and M&A projects. das Indústrias do Estado de São Paulo’ (‘São Paulo State Federation of Industries / FIESP), of the Arbitration Chamber of the São Paulo Stock Exchange, a director of the ‘Centro de Estudos das Sociedade de Advogados’ Concilium has an extensive expertise in turnaround management projects being an active member TMA – (‘Attorneys’ Society Study Center’ / ‘CESA’), and is President of the Columbia University Club of Brazil. Romanian Chapter. We have a team of highly seasoned professionals that assisted Concilium’s clients with a 350 + Mio Euro in turnover and that are active in 8 industries. Custom-made services, technical excellence, confidentiality and ethical behavior build the long-lasting relationships we share with our clients.

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Meet The Experts

Sumant Batra - Kesar Dass B & Associates Ronit Berkovich - Weil, Gotshal & Manges LLP E: [email protected] E: [email protected] W: www.kesardass.org W: www.weil.com An insolvency lawyer of international repute, social commentator, thought leader and creative Ronit Berkovich is a partner in the Business Finance & Restructuring Department of innovator, Sumant is a multi-faceted person with accomplishments in diverse spheres. A Weil, Gotshal & Manges LLP. She represents , creditors, and purchasers in all policy lawyer of global eminence, Sumant presently heads the insolvency practice of Kesar aspects of distressed situations. She has served as debtors’ counsel in several of the most Dass B & Associates, India’s leading law firm. significant chapter 11 cases in history, including GM, Lehman Brothers, WorldCom, BearingPoint, and Takata. She also has extensive experience representing companies in He has held leadership positions in prestigious multi-lateral, global and national organisations. prepackaged chapter 11 cases, out-of-court workouts, and international restructurings. A Past President of INSOL International, Sumant is currently President of Society of Insolvency Practitioners of India, Chief Mentor of INSOL India, President, Insolvency Practitioners Bar Association; Member of Advisory Committee Ms. Berkovich received a B.A. with distinction in Economics and Foreign Affairs from the University of Virginia to the Insolvency and Bankruptcy Board of India; and Chairman of ASSOCHAM National Council of Insolvency in 1997 and a J.D. magna cum laude from Harvard Law School in 2001. and Bankruptcy. Rated as India’s No. 1 insolvency lawyer by Legal 500 for many consecutive years, his contributions to reforms in Indian insolvency system are well recognised. He has recently been conferred two global awards – India - Insolvency Lawyer of the Year 2017 and; Game Changer of the Year 2017 by two different renowned global entities. Pawel Podolski - DXC Technology T: +61 3 9900 1791 E: [email protected] Richard H. Golubow - Winthrop Couchot W: www.dxc.com T: +1 949 720 4135 Pawel Podolski is an internationally experienced operations and commercial management E: [email protected] practitioner, specialising in effective business management practices, business turnaround, W: www.winthropcouchot.com and strategy. Throughout his career, Pawel has focused on under-performing operations, Richard H. Golubow is a founding member and the managing shareholder of Winthrop analytics around complex bids and commercial transactions, as well as has led business Couchot Professional Corporation. Richard devotes his practice to and has extensive transformation programs. Pawel has successfully managed functional teams as well experience in the areas of Chapter 11 reorganizations, complex bankruptcy litigation, as global and regional operations, with a special aptitude for managing relationships - often across complex , out-of-court workouts, acquisitions and sales of distressed assets, Uniform stakeholders and cultures. Pawel has a strong interest in process improvement, simplification and in more Commercial Code Article 9 foreclosure sales, general assignments for the benefit of recent times, process digitization. creditors, and . Richard understands that the law is a means to accomplish his clients’ business and personal objectives, not an end in itself. He listens to his clients and takes the time to learn about and understand his clients’ business as well as their needs to effectively provide customized, innovative, responsive and cost- Wessel Jacobs - Jacobs Capital effective legal solutions. For example, Richard places great emphasis on proactively counseling clients to identify E: [email protected] and manage cash flow and insolvency risks posed by customers, vendors, landlords, and other counterparties to W: www.wjcap.com all types of contracts including purchase and sales agreements, real and personal property leases, franchise and Wessel Jacobs is the founder and CEO of Jacobs Capital (Pty) Ltd, a South African-based intellectual property licenses, loan agreements, guaranties and employment contracts. private equity and business advisory firm with a proven reputation for business rescue. Since its establishment in 2002, the company has acquired and invested in a number of assets. With some of these investments being in a state of distress, effective strategic Shaun Langhorne - Hogan Lovells turnaround strategies have been required. T: +65 6302 2453 E: [email protected] Wessel specialises in company restructuring, management development and performance enhancement, and W: www.hoganlovells.com introduces international best practice and processes management to ensure streamlined restructuring and Whether its debt restructurings, distressed M&A, the use of formal and court driven business survival. He is an expert in implementing turnaround strategies and leading successful mergers and insolvency procedures, strategic advisory, non-performing loan portfolio sales, long- term acquisitions. His strategies result in increased output, reduced waste, raised efficiency and improved financial turnaround or enforcement and related litigation, Shaun has the experience and track performance in both performing and under-performing companies around the world. record to anticipate and help clients solve a range of complex cross-border issues.

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1. Can you outline the current bankruptcy and restructuring landscape in your jurisdiction?

Langhorne: As a leading financial centre Singapore has Felsberg: Brazil is emerging from the deepest recession seen an increase in the number of cross border restruc- in its recent history. The GNP shrunk almost 8% in turings since the financial crisis of 2008–2009. Accord- 2015 and 2016 and is expected to grow less than 1% in ingly, there has been a concerted effort by the Singapore 2017. The forecast for 2018 is a 3% growth. The reces- government to enhance Singapore’s debt restructur- sion affected the best and the brightest, especially the ing framework and improve its capability to deal with companies which had foreign currency exposure and to convey practical aspects which I felt relevant to the United States remain stable for the first since 2010. cross-border insolvencies and restructurings. were hit by the currency devaluation. Some of the larg- reform, following my years of experience dealing with Between 2010 and 2016, bankruptcy filings in the est companies in the country were affected by the Car insolvency matters daily. In addition to that, I recom- United States decreased on a yearly basis and by 2016 This culminated in the bankruptcy and restructur- Wash operation and similar corruption schemes. mended, along with other members of the Interna- had reached the lowest yearly total of bankruptcy fil- ing landscape being radically overhauled by the pass- tional Insolvency Institute, the incorporation of the ings since 2006. After increasing significantly from ing into legislation of the Singapore Companies Act Although in sheer numbers the filings for bankruptcy UNCITRAL Model Law on Cross-Border Insolvency. the beginning of the recession in the United States in (Amendment) Act 2017 (the “Amendment Act”), which were comparatively less than in other markets, the values 2008 through a peak in March of 2010, commercial amended the insolvency and restructuring related pro- involved is certainly impressive and unprecedented for Other groups – such as Federation of Industries of the filings in particular decreased sharply for the next five visions in the existing Singapore Companies Act (the Brazilian standards. Oi, a large telecom company, has a State of São Paulo (FIESP), the Brazilian chapter of and a half years until November 2015. For the past “Act”) by adding a number of concepts taken from the $20bn debt to restructure; Sete Brazil, a lessor of oil drill- the Turnaround Management Association (TMA), the two years, however, commercial bankruptcy filings US Bankruptcy Code. ing rigs, $6bn; Odebrecht Óleo e Gás, the oil and gas arm Brazilian Federation of Banks (FEBRABAN), and the have increased and are now at a level on a month-to- of a large conglomerate, $5bn; PDG, the largest real es- Federal Revenue – also made substantive contribu- month basis that they have not been since 2013. Start- The Amendment Act, which became effective on 23 tate company, $2bn. Not only insolvency filings are mak- tions to the draft. ing in December of 2016, the number of consumer May 2017, led to a number of improvements to the ex- ing headlines, though; the workouts of companies of sev- bankruptcies filed in the United States also began to isting regime including increased accessibility to Sin- eral industrial sectors, including corporate groups such The resulting bill is now expected to be submitted experience an uptick, and as of March 2017, the total gapore’s corporate rescue and restructuring framework as Odebrecht and JBS, are generating news every day. to Congress before the end of the year. Practitioners number of bankruptcy filings in the United States is for foreign companies, US Chapter 11 style rescue / DIP The outlook of the business community has finally be- expect substantive improvements in the legislation, at its highest since March 2015. Much of the increase financing, enhanced moratoriums with extra territorial come more optimistic and therefore many restructuring which will bring it closer to international standards in commercial bankruptcy filings can be attributed effect, expanded disclosure requirements, negotiations which had stalled are resuming positively. set by the World Bank and by entities of the United to the deterioration of retail business throughout the provisions, pre-pack restructurings and the adoption of Nations system such as the IMF and UNCITRAL. Al- Unites States, due in part to the rise in popularity of UNCITRAL Model Law. In any event, the unprecedented recession has highlight- though there is concern that the reform may fall short online shopping. Through H1-2017, more than 300 ed many deficiencies of the Brazilian insolvency of the initial expectations, especially in relation to the retail businesses of all sizes, from small individual These changes are a clear indication of Singapore’s com- (Law 11,101/2005) and related case law. To remedy the tax treatment of distressed businesses and the claims stores to large national chains, have sought bank- mitment to becoming a regional hub for international situation, the Ministry of Finance convened in Decem- which may be affected by restructurings, the resulting ruptcy protection in 2017, an increase of 31% from debt restructurings. We expect that these changes will ber 2016 a work group composed of over 20 specialists bill is set to speed up court proceedings, preserve go- the first half of 2016. At this point there is no indica- increase the number of debt restructurings being con- to discuss and draft amendments to the current legisla- ing concern value, improve the recovery of creditors, tion that increases in retail bankruptcies will subside ducted out of Singapore, particularly in light of the ris- tion. The work group has representatives from the major and encourage investment in distressed assets. any time soon. Retail bankruptcies will likely remain ing number of defaults both across the region and lo- involved governmental agencies and ministries, as well a significant feature of the restructuring landscape for cally in the oil and gas, shipping and offshore marine as judges, attorneys and law and economy professors. Golubow: In 2017, we are seeing the number of both the foreseeable future. sectors, as well as others. As one of the members of the group, I tried my best commercial and consumer bankruptcy filings in the

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Simmons: Except for certain distressed industry sec- cies is high. Business restructuring is therefore likely to a licensed (IP) takes over the companies have experienced relatively few bankrupt- tors, such as retail and oil and gas, U.S. bankruptcies face a growing demand. running of the company from the directors. He has cies and restructuring of distressed situations beyond and restructurings have tapered. However, leveraged three statutory objectives in order of preference. Firstly, the last five years. Possibly the most adversely affected loans, loans made to companies with pre-existing sig- Batra: In May 2016, the Indian Parliament passed to achieve a sale of the company as a going concern, has been the brick-and-mortar retail industry. More nificant amounts of debt, have increased in the U.S. by the Insolvency and Bankruptcy Code 2016 (Code) to secondly to achieve a better result for all the creditors than 25 high profile retail chain bankruptcies have oc- 53% in 2017. Moreover, a large number of these lev- provide a comprehensive consolidated framework for than would be likely if the company were wound up and curred during 2017 alone as the industry continues to eraged loans are covenant-lite. Covenant-lite loans corporate insolvency and bankruptcy of individuals lastly to realise property to make a distribution to one face an imbalance in supply and demand, much attrib- are riskier given they lack certain protections for in- and partnership firms. The Code was made mainly op- or more secured creditors. The IP can pursue only one utable to digital commerce. vestors, such as the ability to demand more frequent erational from 1 December 2016. The Code introduced of the objectives if the previous ones are not possible. and detailed financial reporting should the borrower’s significant legal and structural changes in the insol- Much of this retail sector has been leveraged with high operations appear distressed or its debt level increases. vency regime moving from the “ in possession” In practice the second option is the most common and debt levels that have constrained retailers operation- Should the economy suffer a glitch, causing debt-laden regime to a “ in control” regime, making it a most Administrations result in the assets and good- ally. Several of the largest chains, many private equi- companies to fail to meet their debt service, we may see creditor friendly legislation. The Code is based on the will being sold. IP’s will rarely trade a business for any ty-backed, have had their balance sheets laden with increased bankruptcies and restructurings in the near United Kingdom’s procedure, although significant amount of time so a quick sale, with lim- heavy debt such that the interest and debt service re- term. An economic recession and/or financial market a few provisions have been customised for India. The ited due diligence and no meaningful warranties at quirements have pushed the limits of lender covenants. correction may be on the horizon. law also establishes a new discipline of insolvency pro- what might be termed a “fire sale price” is the normal Simultaneously, combined with flat or declining sales fessional who perform crucial functions in the corpo- outcome. It is a quick and efficient way of effectively because of reduced foot traffic, many of these retail Jacobs: The South African economy has been in a low- rate insolvency process, including management of the re-cycling assets but is inherently value destructive. chains have also been cash flow strained in their abil- growth trajectory for several years, with two successive debtor’s enterprise as a going concern. ity to strengthen operationally and to react strategically. quarters of negative growth at the end of 2016 and the Consensual restructurings are the main alternative. Reinvestment in renovation, rebranding, rechannel- beginning of 2017 which placed the country in a tech- The Code has designated National Company Law Tri- Normally this will start with the necessary steps for ling, and remodelling expenditures has been inhibited nical recession. A widespread drought, weak interna- bunal (NCLT) as adjudicating authority to provide an an operational turnaround of the business to rectify because of declining free cash flows – hampering the tional commodity prices, political uncertainty, credit oversight of insolvency cases. The role of court has been the problems that caused distress in the first place. An ability of these retailers to compete and survive. New rating downgrades, high levels of unemployment and reduced. A new regulator – the Insolvency and Bank- agreement with the various creditors and other stake- and growing competitors include powerful online play- labour unrest, and weak consumer spending all con- ruptcy Board of India (Board) has also been established holders will then be negotiated to achieve the right cap- ers such as Amazon in multiple retail niches, as well tributed to the country’s financial woes. by the Code. Strict time lines have been provided for ital structure for the revived business going forward. as new foreign discount retailers, big-box warehouse resolution and , shorter even than what is There is no statutory legal framework for this approach clubs, and supercentre retailers. Toys “R” Us, Wet Seal, Since then South Africa has emerged from recession provided under English law. and there is always the risk that a hostile creditor could Payless, Gymboree, Macy’s, Kohl’s, Nordstrom, GNC, with 1% year-on-year growth, but business confidence tip the company into formal insolvency. But good turn- and J.C. Penney are only a few of the bankrupt or dis- is still at record lows. Many businesses struggle to grow Bryan: In the UK we have various formal processes around professionals can navigate this and the result tressed companies adversely impacted by this retail in- revenues and profits. This has created constraints in for corporate bankruptcy. Ahead of a full Insolvency should be the preservation of value and a better result dustry disruption and strong headwinds hitting brick- working capital and cashflow, putting pressure on fi- Administration, Creditors Voluntary Arrangements for all stakeholders. and-mortar shops. nancial commitments to banks and trade creditors. (CVA’s) are a useful tool for companies such as retail- ers shedding unprofitable stores. However, too many Davidson: Except for certain specific industry niches Under these conditions, the threat of business insolven- companies go into Administration too quickly where mostly affected by severe business disruptions, U.S.

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2. Have there been any recent regulatory changes or interesting developments?

Langhorne: Singapore has recently implemented a low for this; • the ring-fencing rule (which required that all the United States Supreme Court held that a bankrupt- number of changes through the Amendment Act. Many • “pre-packs”. The courts can now approve pre- Singapore debts has to be repaid before assets or cy court may not approve a structured dismissal of a of these borrow heavily from concepts in the US Bank- negotiated restructuring arrangements agreed funds could be remitted outside of Singapore) Chapter 11 case if the structured dismissal provides for ruptcy Code. These changes are summarised below. to between the company and its creditors with- has been abolished, although it will continue to distributions to creditors that would violate the absolute out the need for court approval to convene apply for specific classes of financial institutions. priority rule. In brief, the absolute priority rule man- Chapter 11 Style – rescue financing/ DIP financing: Sin- creditor meetings, the holding of various meet- dates that, in order to be “fair and equitable” a Chapter gapore courts are able now to grant new rescue financ- ings and the subsequent court hearing to sanc- Felsberg: The most recent changes to the Brazilian 11 plan must provide for each class of a debtor’s credi- ing a “super-priority” over existing claims and security tion the scheme. Bankruptcy Law happened in 2014, and, among other tors to be paid in full before any holder of a junior claim where the financing is necessary for the survival of the things, included a set of rules to protect small business receives payment under the plan. As a result of the Su- debtor or to achieve a more advantageous realisation of Judicial management: companies both as insolvent companies and as credi- preme Court’s decision, it is likely that more potential the assets of a debtor. • foreign debtors can now be placed under judi- tors in other insolvency proceedings. debtors will turn from seeking structured dismissals cial management (a process similar to adminis- under Chapter 11 of the Bankruptcy Code and will in- Enhanced moratoriums with extra territorial effect: tration in the UK or voluntary administration Currently, however, there is a working group assembled stead pursue liquidation under Chapter 7 of the Bank- there is now an automatic 30 day moratorium which in Australia) in Singapore; by the Brazilian Ministry of Treasury to discuss a major ruptcy Code or, in the alternative, pursue liquidation arises upon the filing of an application for a moratori- • the threshold for juridical management has reform to the Brazilian Bankruptcy Law. This working outside of the bankruptcy context entirely. In another um for both schemes of arrangement and judicial man- been lowered from a debtor that “is or will be group is comprised by many renowned economists and interesting recent decision, Marblegate Asset Manage- agement. The moratorium is expressly stated to have unable to pay its debts” to one that “is or is likely legal bankruptcy professionals, including professors, ment, LLC v. Education Management Finance Corp., 846 worldwide effect, to the extent Singapore can assert to become” unable to pay its debts; judges and lawyers. The working group already drafted F.3d 1 (2d Cir. 2017), the Second Circuit overturned a jurisdiction over the relevant creditor. The courts have • parties with the ability to appoint a receiver a proposed bill to amend the Brazilian Bankruptcy Law, decision of the District Court for the Southern District also been empowered to grant moratoriums on the ap- who object to the appointment of a judicial which shall be sent to Congress for discussion and vot- of New York in which the District Court found that an plication of a debtor’s subsidiary, holding company or manager are obliged to demonstrate that the ing on the next few weeks. out-of-court restructuring violated the Trust Indenture ultimate holding company. appointment of a judicial manager would cause Act because the restructuring negatively affected note- disproportionately greater prejudice than the Some of the changes that are being proposed by the holders’ practical ability to obtain payment and was Schemes of arrangement: prejudice to the unsecured creditors if a judicial bill are: (i) allowing non-corporate entities to benefit effected without obtaining unanimous consent of all • a clear framework for the continuous disclosure management was denied. from court-supervised reorganisation proceeding; (ii) noteholders. In overturning the District Court’s deci- of information throughout the restructuring permitting electronic voting system; (iii) a better regu- sion, the Second Circuit held that the Trust Indenture process from the debtor to its creditors has been Cross- border restructuring: lation of unimpaired credits such as chattel mortgages Act only prohibits debt restructurings that modify core implemented; • Singapore has now formally enacted the UN- (iv) a major reduction of the timeframe of the liquida- payment terms without obtaining unanimous note- • “cram down” provisions have been enacted that CITRAL Model Law on Cross Border Insol- tion procedure; and (v) the adoption of cross-border holder consent and does not prohibit debt restructur- allow for the courts to approve a scheme of ar- vency; insolvency rules based on the UNCITRAL model law. ings that do not modify such core payment terms, even rangement notwithstanding that there are cer- • As a result there is a codified framework for de- if restructuring is effected without unanimous consent tain dissenting classes of creditors. Although termining when judicial and other assistance Golubow: There have been a number of recent deci- of noteholders. The Second Circuit’s decision has re- there are strict thresholds to satisfy, this is a can be provided to foreign office holders and sions that will likely reverberate through and alter the solved some uncertainty regarding the effectiveness fairly radical change given that schemes of ar- when recognition should be granted to foreign restructuring landscape. In Czyzewski v. Jevic Holding of out-of-court restructuring and, as a result, has in- rangement around the world to not typically al- insolvency proceedings; and Corp. (In re Jevic Holding Corp., 137 S.Ct. 973 (2017), creased its attractiveness as a restructuring option.

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Berkovich: One interesting development was a recent rescue a business than to create a new one, and allow- Board of India imparted the imperative thrust to pro- and increase the chances for a successful turnaround. decision from the Second Circuit Court of Appeals (an ing businesses to survive helps create a strong economy. vide it momentum and the NCLT rose to the occasion The stay will not apply to liquidation, and would only influential court that has jurisdiction over New York with its decisions majorly aligning with the IBC ob- be in effect while the administration or scheme of ar- federal courts, among others) called Marblegate Asset The introduction of business rescue proceedings in jectives. Other stakeholders responded with zeal soon rangement is ongoing. With the ipso facto reforms ex- Management LLC v. Education Management Corp. that terms of Chapter 6 of the Companies Act No 71 of 2008 overcoming the initial scepticism. The mood around pected to take effect by mid-2018, there is still some made it easier for parties to engage in out-of-court re- was therefore welcomed. It provided an alternative to IBC turned positive and optimism hangs in the air! debate around several practicalities of this change – in- structurings. That decision reversed a lower court de- the traditional insolvency proceedings by introducing cluding whether the stay should remain in place per- cision a few years ago in a case caused some concern measures to facilitate the re-organisation and restruc- Podolski: From an Australian perspective, there have manently, as is the case in some other countries. over the viability of certain out-of-court restructurings. turing of struggling businesses. It allows a business to been several recent developments in the bankruptcy The lower court had held that Section 316(b) of the survive as a solvent entity, or at the very least result in regulatory landscape. The Insolvency Law Reform Bill As the new changes get implemented, discussions sur- U.S. Trust Indenture Act of 1939 (the “TIA”) prohib- better returns for creditors or shareholders than they was passed in 2015, assented in February 2016, and rounding operational and business management gov- ited a variety of indenture amendments that fell short would receive in liquidation proceedings. came into effect in March and September of 2017 for ernance practices I suspect will intensify. Particularly of changes to interest or principal without the con- each of the two respective tranches. Two additional ex- around the changes stemming from the ‘safe harbour’ sent of all affected noteholders—in that case an out- Unfortunately the legislation is badly drafted and ex- citing reforms were also passed through the Senate in bill. This has already been given focus by industry bod- of-court restructuring involving an asset transfer and tremely vague. The process is also not effectively or ef- 2017, namely the introduction of an insolvent trading ies in Australia such as the AICD and TMA, but will elimination of a parent guaranty. Recently, companies ficiently regulated. We are forced to rely on interpreta- ‘safe harbour’, and a restriction on the enforcement of no doubt drive a conversation around tighter interlock and investors who could benefit from out-of-court re- tions provided by case law, which is not always consis- ipso facto rights. Both reforms currently await royal as- between corporate governance practices and internal structurings breathed a sigh of relief when the Second tent. Another problem in case law is that specific facts sent. business management practices. Circuit held that the TIA’s proscription on non-consen- and circumstances in our projects do not fit squarely sual amendments applied only to an indenture’s core into the facts of the judgment that we have to rely on. The ‘safe harbour’ bill protects directors from insol- Bryan: The broad insolvency framework of the UK payment. In other words, so long as the transaction in vent trading liability, if they proactively take restruc- has been in place since the Insolvency Act 1986 was question does not amend terms such as the amount of We have also witnessed abuse and mismanagement of ture actions outside of formal insolvency. This is a very enacted so has been around a long time. Recent leg- principal and interest and maturity date, it will not vio- the business rescue process which has resulted in busi- welcome change, providing some flexibility around islation has seen changes to the procedural side of in- late Section 316(b). The restructuring community in nesses closing their doors when they in fact had the po- otherwise very punitive insolvency laws in Australia, solvency to allow such matters as electronic the U.S. views this as a positive development, because it tential to survive. allowing boards to attempt to turn companies around voting by creditors and to generally bring the process enables companies to achieve consensual out-of-court But despite the many regulatory, drafting and interpre- prior to invoking formal measures. This addresses the of running an insolvency up to modern standards. restructurings more easily rather than having to file a tation glitches in the legislature, it is a step in the right often-mentioned problem that the previous regulatory formal insolvency proceeding or consummate the re- direction. landscape pushed some companies into formal insol- The government has consulted on proposals for a pre- structuring with “holdout” noteholders who refuse to vency administrations prematurely. insolvency regime which would aid the consensual consent and get to keep a more valuable instrument. Batra: The Code completed nine months in September. turnaround process but with Brexit this appears to have Incidentally, 270 are also the utmost number of days The ipso facto bill will impose an automatic stay of en- been delayed due to resource pressures on government Jacobs: There are many reasons why businesses fail, but provided under the IBC for completion of insolvency forcement of ipso facto rights in the event of a company employees and a lack of parliamentary time. in many cases a business is only experiencing a tempo- resolution process. The Indian government deployed entering into a , or voluntary rary setback. A business rescue programme and some unprecedented will for effective roll out of the IBC – a administration. The changes are intended to give com- breathing space could lead to recovery. It is easier to feat well accomplished. The Insolvency and Bankruptcy panies the ability to trade during a formal restructure,

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3. What are the formal procedures for insolvency in your jurisdiction, with particular reference to (i) tests for insolvency, (ii) grounds for insolvency, and (iii) requirements following insolvency?

Langhorne: The formal procedures for insolvency in directors of the company may also make a statement Singapore are voluntary and compulsory liquidation, that they are of the view that the company will be able which is overseen by the High Court of Singapore. to pay its debts in full within a period not exceeding 12 months. If such a statement is made then the share- (i) Test for insolvency holders can appoint the . If the directors do not make such a statement then they must call a meet- A company will be insolvent where it is either unable to ing of creditors to appoint the liquidator. pay its debts as they fall due or if its liabilities exceed its assets. Under the Act a company will be deemed to be From the commencement of both voluntary and com- insolvent where: pulsory windings-up, the appointed liquidator or offi- • Creditor has served a demand on the company cial receivers take control of the company and its assets. for a debt exceeding SG$10,000 and the com- No action against the company may be commenced or pany has failed to pay the amount within three continued without the leave of the Court. Additionally, weeks or to secure or compound for it to the after commencement of the winding up, any transfer reasonable satisfaction of the creditor; of shares, disposition of property including things in • if an execution or judgment against the com- action, or alteration in the status of the members of the pany is unsatisfied; or company, except with the court’s sanction, is void. Recuperação Judicial (Judicial Reorganisation) – This may result in the automatic liquidation of the debtor. • if it is proved to the satisfaction of the Court court supervised proceeding shares many similarities that it is unable to pay its debts, taking into ac- Felsberg: Brazilian Bankruptcy Law provides three for- with the U.S. Chapter 11 Reorganization, and its goal is “Recuperação Extrajudicial” (Extrajudicial Reorganisa- count the company’s contingent and prospec- mal insolvency procedures that can be adopted by in- to allow the debtor to negotiate with its creditors a plan tion) – This proceeding is largely based on the U.S. Pre- tive liabilities as they fall due. solvent companies: of reorganisation that will provide for the reduction of Packaged Chapter 11 Reorganization. In the Extrajudi- its debt burden allow for the turnaround of its business. cial Reorganisation, the debtor negotiates a reorganisa- (ii) Grounds for insolvency Falência (Liquidation in Bankruptcy) – This procedure The Judicial Reorganization procedure can be com- tion plan with its creditors out-of-court, and then goes is similar to a U.S. Chapter 7 Liquidation, and consists menced by the debtor only, and, although the debtor to court only for confirmation. The Extrajudicial Re- Where a company is voluntarily wound up a special res- basically in the liquidation of the bankrupt company, remains in control of its own assets and business (debt- organisation plan does not need to contemplate all the olution must have been passed by its members. Where sale of its assets and distribution of the results among or-in-possession), the Bankruptcy Court will appoint a creditors, and the debtor is free to choose one or more a company is compulsorily wound up court approval is the creditors. The Bankruptcy Liquidation can be re- trustee to oversee the activities and help to identify the groups of creditors (e.g., bondholders, banks, secured required. quested by the debtor itself or by its creditors, provided claims subject to the reorganisation. There are no mate- creditors, etc.) that will be impaired by the plan. The that some specific conditions are met (most usually rial requirements or tests for a Judicial Reorganisation, Extrajudicial Reorganisation procedure is meant to be (iii) Requirements following insolvency related to the amount of the indebtedness or with the although in some cases the Bankruptcy Court conducts simpler than the Judicial Reorganisation, it is a more practice of fraudulent acts by the debtor). After the de- a previous assessment to determine whether the debtor adequate vehicle when the indebtedness is concentrat- For a voluntary winding up, the company must, with- cree of liquidation, the debtor loses control over its as- will be able to recover or not. If the plan is approved by ed in a few creditors when turnaround can be achieved in seven days of passing the special resolution lodge a sets, which are transferred to the administration of a the creditors (divided in four classes), the Bankruptcy by restructuring only a part of the debt. However, it copy with the registrar and publish a copy of the resolu- Bankruptcy Trustee appointed by the court. Court will confirm it, and any breach of the reorganisa- requires the approval of three-fifths of the impaired tion in the Singapore newspapers within 10 days. The tion plan within two years of the court confirmation group or groups of creditors.

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Golubow: The test for insolvency under the Bankrupt- . A default would have occurred when the debtor to the Central Government, any State Government or due. It is not a hard and fast line and has to be judged cy Code is fairly straightforward. Pursuant to the Bank- fails to pay all or any part or instalment of the amount any local authority. on the circumstances as known at the time. Directors ruptcy Code, a debtor other than a partnership or a of debt that has become due and payable. The “debt” has The process for initiating corporate insolvency resolu- can be held liable if they allow an insolvent company to municipality is deemed insolvent if the sum of its debts been defined under the Code as a liability or obligation tion may be initiated by a financial creditor, an opera- trade on and make the position of the creditors worse. exceeds its property, exclusive of property that has been in respect of a claim, which is due from any person and tional creditor, or the corporate debtor. The Code does fraudulently transferred or that may be exempted from includes financial debt and operational debt. not discriminate between a foreign and Indian creditor However, if there is a reasonable prospect that the com- property of the estate under Section 522 of the Bank- either – a foreign creditor can initiate the process. pany can avoid insolvency, e.g. if it is in negotiations ruptcy Code. 11 U.S.C. § 101(32)(A). A partnership is While a financial creditor is required to present a record with its lenders, then the directors are quite entitled to deemed insolvent if the sum of its debts exceeds the ag- of default before the NCLT for initiation of a corporate The NCLT must decide whether to accept an applica- continue trading whilst that reasonable prospect ex- gregate of all of the partnership’s property, except for insolvency resolution process, an operational creditor tion within 14 days. Where the NCLT admits an ap- ists and arguably should if it is likely to be of benefit property that has been fraudulently transferred, and the must issue a statutory notice to the corporate debtor in plication for commencement of corporate resolution to creditors. The courts have taken a pragmatic view sum of any excess value of each general partner’s non- the manner provided in the Code. process, it shall pass an order granting a moratorium – on this and will not judge directors with the benefit of partnership, non-exempt property over the partner’s appointing an insolvency professional as interim reso- hindsight. Their conduct is judged on what they knew non-partnership debts. 11 U.S.C. § 101(32)(B). With The Code defines “debt” as a liability or obligation in lution professional – and cause a public announcement or could reasonably have known at the time, the so regard to municipalities, insolvency is determined to respect of a claim, which is due from any person and in- of the initiation of corporate insolvency resolution pro- called “business defence”. It is therefore very important exist when the municipality is not “generally paying its cludes a financial debt and operational debt. A “claim” cess to be made and call for the submission of claims. in a near insolvency situation for directors to document debts as they become due” or is “unable to pay its debts means (a) a right to payment, whether or not such right what they knew and the rationale for decisions at the as they come due.” 11 U.S.C. § 101(32)(C). Pursuant is reduced to judgment, fixed, disputed, undisputed, le- Nastase: Prior to opening the insolvency procedure the time. to Section 547(f) of the Bankruptcy Code, in the con- gal, equitable, secured, or unsecured; (b) right to rem- companies may choose to enter into an “Ad-Hoc Con- text of determining whether a pre-petition transfer to a edy for breach of contract under any law for the time cordat”. If that fails or if it’s an option that was not con- Davidson: It is important to evaluate whether a com- creditor of the debtor may be avoided as a preferential being in force, if such breach gives rise to a right to sidered, than the insolvency procedure may be opened, pany is operating in the zone of insolvency such that transfer, there is a rebuttable presumption that a debtor payment, whether or not such right is reduced to judg- either at debtor request as a protection mechanism or at the fiduciary duties of the Company’s officers and di- has been insolvent for the 90 days that preceded the ment, fixed, matured, unmatured, disputed, undisput- a creditors request (having a minimum claim of 40,000 rectors may have been extended beyond those to the initiation of a bankruptcy case under the Bankruptcy ed, secured or unsecured. RON – equivalent of approx.€10,000). The insolvency Company’s shareholders alone. Legal issues relating to Code. 11 U.S.C. § 547(f). In that scenario, the trans- may be opened in a simplified procedure – direct to the rights of creditors, the business judgment rule, and feree has the burden of introducing at least some evi- The corresponding obligation of the debtor to pay may bankruptcy or general procedure having three phases: director and corporate management responsibilities are dence to rebut the presumption of insolvency. See, In re arise out of a financial debtor or an operational debt. observation (max one year) reorganisation (three years primarily legal considerations that are based on finan- Koubourlis, 869 F.2d 1319, 1322 (2d. Cir. 1989). Once a Broadly stating, “financial debt” means a debt along with a possibility to be extended for one additional cial measures. From a financial and board advisory per- transferee has rebutted the presumption of insolvency, with interest, if any, which is disbursed against the con- year) and bankruptcy (in case the reorganisation fails spective the following financial analyses are pertinent. the trustee must prove insolvency by a preponderance sideration for the time value of money. or the Reorganisation Plan submitted is not approved of the evidence. 11 U.S.C. § 547(g); Arrow Electronics by the Creditors/ Court). Insolvency tests fall primarily into two categories as fol- v. Justus (In re Kaypro), 218 F.3d 1070 (9th Cir. 2000). An “operational debt” means a claim in respect of the low: provision of goods or services including employment Bryan: I talked about the requirements following in- Batra: A corporate insolvency resolution process can be or a debt in respect of the repayment of dues arising solvency earlier. The broad test for insolvency is liquid- a. Balance Sheet (legal insolvency), whereby: initiated in respect of a company that has committed a under any law for the time being in force and payable ity, a company’s ability to pay its debts as they become i. Fair value of the Company’s assets is ex-

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4. What is the process for asset recovery in your jurisdiction?

Felsberg: Brazilian procedural law provides several dif- itor, then the foreclosure of the asset may be effected ferent ways by which a creditor can collect its claims even out-of-court. This is especially the case if the col- or recover its assets against the debtor. The decision of lateral is a real estate property or if the creditor is al- which procedure to adopt is guided, mainly, by two fac- ready in the possession of the collateral, as is common tors: (i) the documentation held by the creditor and (ii) with receivables. the type of guarantee received by it. If the debtor is undergoing an insolvency procedure, For the collection of unsecured claims or claims that the creditors (except for fiduciary creditors) may not are secured by a personal guarantee, the creditor has enforce their claims directly against the debtor, but three options. If the contract being enforced against the rather need to prove their claims before the bankruptcy debtor or its guarantor qualifies as an “enforceable title”, court, to be paid with all the other creditors. the creditor may file an enforcement action (ação de ex- Also, according to prevailing case law, the Bankruptcy ecução) to attach the debtor’s and/or the guarantor’s as- Court must previously approve any request for seizure ceeded by its liabilities; and/or within the zone of insolvency, and/or evaluate op- sets directly. If on the other hand the contract does not of assets of the insolvent debtor, even if such request is ii. The amount of debt is relatively high in re- tions, it’s important to be aware that duties may be qualify as “enforceable”, the creditor may file a regular made by an unimpaired creditor. lation to equity, i.e., capital is unreasonably owed to creditors, and not just to shareholders of the collection lawsuit against the debtor and/or the guaran- small for the size of the Company. business. Decisions that are inconsistent with duties to tor to first obtain an enforceable judicial decision, and Golubow: The two primary ways for the bankruptcy creditors may subject management and the board to li- only then proceed to enforce it. Also, if there is written estate to recover assets under the Bankruptcy Code are b. Cash Flow (equitable insolvency) relating to: ability, especially when scrutinised by a creditors’ com- proof of the debt (although not an “enforceable title”), the avoidance of preferential transfers, pursuant to Sec- i. Inability of the Company to pay debts as mittee, an individual creditor, or a bankruptcy trustee. the creditor may file an ação monitória against the debt- tion 547 of the Bankruptcy Code, and the avoidance they become due or and or its guarantor, which, if contested by the credi- of fraudulent transfers, pursuant to Sections 544(b) ii. Capital adequacy and concern of equity for The problem for officers and directors within the zone tor becomes an ordinary collection law suit or if the de- and 548 of the Bankruptcy Code. The purpose of the protection of creditors of Insolvency is how to simultaneously carry out fidu- fendant does not appear or if it appears and recognises Bankruptcy Code’s preferential transfer provisions is ciary duties to both creditors and shareholders. For ex- the claim, becomes an enforcement law suit. Example to avoid pre-bankruptcy transfers to a creditor of the In the U.S., directors and officers of an insolvent cor- ample, if the Company were to receive an offer from a of enforceable titles are checks, promissory notes, any debtor that would have allowed such creditor to receive poration owe a duty of care to both its creditors and competitor to pay off all the Company’s debts, but leaves written instrument recognising the debt signed by the more than it would have upon the liquidation of the shareholders. Typically, a business is considered insol- nothing on the table for the shareholders, the board debtor and two witnesses, etc. debtor. Section 547 of the Bankruptcy Code permits vent when it is unable to pay its debts as they become may be in a conundrum as to whether to accept or re- a trustee of the debtor’s bankruptcy estate to set aside due. Accordingly, a business could be deemed insolvent ject the offer. Also, the question arises with the difficult For the collection of secured claims, in addition to and recover transfers (i) that were made prior to the if it has net equity on its balance sheet, but is facing a decision of whether to file a bankruptcy, or hold off to the three procedures described above, new options initiation of the bankruptcy; (ii) that were made for the liquidity crisis where it cannot pay its bills as they be- attempt an out‑of‑court restructuring of the business. are available to the creditor. If the claim is secured by benefit of a creditor of the debtor; (iii) that were made come due. A business is also considered insolvent if the In the end, if an out-of-court restructuring plan fails, a regular pledge or mortgage, the creditor may opt to to pay an antecedent debt, i.e., a debt that arose prior amount of its liabilities exceeds the value of its assets. and if during that delay, the business incurs even more foreclose the collateral directly by filing an enforcement to the preferential payment; (iv) that were made while debt, the directors and officers may be called upon to action. If, however, the claim is secured by a fiduciary the debtor was insolvent; (v) that were made within 90 The point is that as management and the board deal justify their decisions to delay the filing. guarantee – in which title to collateral is passed to cred- days of the filing of the bankruptcy or one year of the

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filing of the bankruptcy if the creditor is an “insider” business, including any goodwill, intellectual property, of the debtor, as defined in the Bankruptcy Code; and machinery, fixtures, vehicles, cash and access to bank (vi) that would allow the creditor to recover more than accounts, as well as servers. The bond is registered in such creditor would receive upon the liquidation of the the deeds office. creditor. 11 U.S.C. § 547. In the event of a default, an attorney can bring an appli- Pre-bankruptcy transfers of a debtor’s property may cation to court to perfect a bond within a few days. An also be recovered by the bankruptcy estate pursu- interim order is issued that authorises the sheriff of the ant to applicable state fraudulent transfer laws, which court to take into possession the moveable assets listed, a bankruptcy trustee may pursue pursuant to Section as well as all raw materials, shares, goodwill, licenses 544(b) of the Bankruptcy Code or directly, pursuant to and loan accounts, and to operate the business in order Section 548 of the Bankruptcy Code. Under the Bank- to maintain goodwill. Within a relatively short time, the ruptcy Code, certain transfers of a debtor’s property matter is finalised in court with a return date where the than were made within two years of the initiation of the debtor is given a chance to object to the order obtained. bankruptcy case can be avoided if (i) the debtor made a If there is no objection, the order is made final. Usually transfer with the intent to hinder, delay, or defraud an- by this stage the matter has been settled. other creditor of the debtor or (ii) the debtor received less than a “reasonably equivalent value” for a transfer Practically, this is most effective manner of recovery and (a) the debtor was insolvent at the time of the trans- because the original court order is obtained on an ur- fer or was made insolvent as a result of the transfer, (b) gent basis without notice to the debtor. This means that the debtor was conducting business for which it did not directors or shareholders of the debtor do not have the have adequate capital, (c) the debtor had incurred or chance to move or hide any assets. It also means that intended to incur debts that were beyond the ability the sheriff arrives at the business premises of the debtor of the debtor to repay, or (d) the transfer was made to unexpectedly and takes over his business, potentially or for the benefit of an insider of the debtor. 11 U.S.C. ejecting the directors from the premises if necessary. §548(a). The sheriff can sell goods, place orders, dispatch goods and run the business until the matter is in court again. Jacobs: There are a number of options available to re- Depriving a director of control of his business is usu- Batra: A creditor can recover asset on which it has outside the liquidation process. cover assets from an entity. In our experience the most ally an effective way to convince a debtor to settle and charge by (i) enforcing under the Se- effective is to ensure that proper security is obtained allow you to recover the asset, whether that asset is in curitisation and Reconstruction of Financial Assets and Nastase: An asset can be taken into creditors posses- through the registration of a combined special and the form of a loan or moveable property. Enforcement of Security Interest Act, 2002 (SARFAESI sion against the claim value (depending on the value of general notarial bond. A special notarial bond lists spe- Act) without intervention of court; or by enforcing a re- the claim: in total, partially or with additional cash in- cific moveable assets, with identifiable features such as This is an extreme and aggressive remedy, so although covery certificate obtained under the provisions of the volved), following certain rules, within the framework serial numbers. A general bond refers to any remain- it is very effective, it should be used with caution, and Recovery of Debts Due to Banks and Financial Institu- of the judicial procedure that the asset is part of (fore- ing moveables in the business and the operation of the only in default of large asset recoveries. tions Act, 1993; or in a liquidation process, by staying closure or insolvency).

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5. Which sectors are at highest risk of bankruptcy in the current business landscape?

Felsberg: Sugar and ethanol, real estate, construction, headlines, the oil and gas sector continues to be fraught, oil and gas, retail, power generation, transmission and driven in part by the downturn in the oil market that distribution, and auto parts are among the sectors occurred over the past few years. Since 2015, more than which have been suffering more in the current business 100 oil and gas companies have entered bankruptcy landscape. Also, all companies which have a significant in the United States, with an average of nearly five oil foreign currency exposure are at risk, if such exposure is and gas bankruptcies per month for 2015 and 2016. United States only exacerbates the problem, as compa- which has approximately 1,600 stores and 64,000 em- not properly hedged. The banking industry is however Still there are indications that the industry has begun nies cannot prepare sufficiently without knowing what ployees, is restructuring approximately US $5 billion in very solid, except for some small and medium financial to stabilise. For instance, through July of 2017 there the future holds. debt. institutions. Agribusiness is booming, but, in addition were 33 bankruptcies filed by oil field service compa- to sugar and ethanol, highly indebted companies of this nies in 2017, as opposed to 46 bankruptcies that were The nursing home industry, which has seen a high Other notable retailers that have filed for bankruptcy sector are facing difficulties. The high still filed during the same time period in 2016. Although number of bankruptcies in recent years, also faces simi- protection in the U.S. include footwear maker Aeor- prevalent in Brazil is certainly a complicating factor, as the number of bankruptcies in oil and gas may be de- lar pressures that may lead to additional restructurings. soles, Rue21, RadioShack and Payless Shoe Source Inc. well as the unresolved political crisis. creasing, the size of cases has increased. For instance, The nursing home industry relies heavily on Medicaid the two largest energy bankruptcy filings since 2015 and Medicare, and those reimbursement rates are stag- A second industry to watch is the oil and gas industry. Golubow: Industries that are currently facing the great- both occurred in 2017, with deep-water drilling con- nating. Due to a global oversupply of crude oil and gas as a est risk of bankruptcy include both retail and oil and tractor Ocean Rig USW listing debts in its March 2017 result of increased production in the U.S. and abroad, gas. With regard to the retail sector, there have been bankruptcy filing of nearly $3.7 billion and geophysical Simmons: The retail industry is at the highest risk of the price of oil and gas suffered significant declines in more than 300 retail bankruptcies through H1-2017, services provider CGG (US) Holding Inc. listing debts distress and/or insolvency. Over 20 retailers have filed the past three years. Though the price is beginning to which represents an increase of 31% from the first six in its June 2017 bankruptcy filing of $3.4 billion. for bankruptcy protection in 2017. Retailers with pri- rebound, it is still over 50% less than its July 2014 price. months of 2016. The primary catalyst for the recent marily brick and mortar stores are struggling to evolve Hundreds of North American oil and gas companies boom in retail bankruptcies is the rise in popularity of Berkovich: Not surprisingly, retail remains at high risk, and compete in the online shopping e-commerce space. have filed for bankruptcy protection in the last three online shopping. Excluding fuel and car sales, online as we saw with the recent bankruptcies of Toys R Us Notably, many retailers have lost business to online re- years. retail represented nearly 12% of the total amount of re- and Aeorpostale. According Standard & Poors, the per- tailer Amazon.com Inc. tail revenue in the United States in 2016. In the face centage of U.S. retailers with high-risk CCC ratings has The Organization of the Petroleum Exporting Coun- of this rising tide of online retail, the inherent costs of doubled this year. As of early October, 18% of U.S. retail On 19 September 2017, Toys“R”Us, Inc. and certain of tries (OPEC) and other non-OPEC producing coun- maintaining brick and mortar stores, such as leases and ratings are in the high-risk range, and approximately its U.S. subsidiaries and its Canadian subsidiary vol- tries have recently agreed to reduce production of oil in utilities, have become prohibitive for both small, single 21% of retail and restaurant companies are considered untarily filed for relief under Chapter 11 of the U.S. order to reduce the supply glut and raise the price. Even location retailers and national chains. To further add to currently distressed. Bankruptcy Code. Additionally, given the cross border though OPEC and certain non-OPEC producing coun- the pressure, as of December 2016, the retail sector as nature of the restructuring, Toys“R”Us, Inc.’s Canadian tries have cut back production, the price is still volatile a whole carried $38.9 billion in outstanding debt. The In addition, the healthcare industry continues to face subsidiary voluntarily commenced parallel restructur- given the U.S. has not decreased its production of oil. future for this sector looks dimmer still as consumer risks associated with the possible dismantling of the Af- ing proceedings under the Companies’ Creditors Ar- habits continue to evolve away from the mall and to- fordable Care Act (commonly known as “Obamacare”), rangement Act (“CCAA”) in Canada. The retailer’s op- Oil and gas companies that are highly leveraged with ward the computer screen. as well as related executive orders that may be signed erations outside of the U.S. and Canada are not part of debt and/or have low profit margins may face distress that will refuse to continue certain related subsidies. the Chapter 11 reorganisation bankruptcy filing in the in the volatile and slow to rebound oil and gas market. Although distress in the retail sector has overtaken the The uncertainty over the future of healthcare law in the U.S. and CCAA restructuring proceedings. The retailer,

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Jacobs: Sectors such as manufacturing and mining face of all corporate insolvencies. Construction has always the highest risk in our current economic landscape be- suffered from payment problems impacting sub-con- cause they rely on resources such as labour and energy. tractors who are often quite small businesses. Retailing The lack of available skills, shortage of training oppor- has all the disruptive problems of the internet and fickle tunities and strained employer/employee relationships consumers. Accommodation and food service busi- contribute greatly to this risk. In addition, the South nesses need careful management and it is easy to fall African market – being small – has much lower vol- out of favour as tastes change and new fads come along. ume demands. This makes it difficult for these sectors to be globally competitive when faced with high-vol- Looking forward I don’t see these sectors moving off ume automated competition. The continued shortage the top of the list any time soon. The one that I think of energy, and the steep increase in energy costs, col- may start to appear soon is automotive. The industry lectively extend this cost curve in South Africa and pre- has enjoyed record sales in most of Europe and North vent competitive output. These factors further lead to a America for a long time plus fast-growing markets in lack of investor confidence in these sectors which then China and developing countries. Sales are falling in affects other investor confidence in the design, automa- many markets which along with Brexit uncertainty tion and skills development sectors. could start to impact the supply chain as most operate on modest margins with high fixed costs. Batra: Power, steel and real estate sector are the most vulnerable. Davidson: In addition to the brick-and-mortar retail chain and the healthcare sectors discussed above, the Nastase: As per the official 2016 numbers, out of the oil and gas services industry remain a continuing risk. 8053 insolvent companies, the top 10 sectors are as fol- The number of oil and gas bankruptcies that have oc- noted for loaning to the shale and tar sands extraction are smaller and in rural areas. Already in 2017, several lows: retail (1391); wholesale and distribution (1335), curred over the last couple of years have been many. space has curtailed further lending to this niche. Many healthcare industry related bankruptcies have occurred constructions (1263), hotels & restaurants (687), other Yet, distressed companies in the oil and gas extrac- warn that Chapter 22s will occur in another soon-to- that include Unilife Corporation, Bostwick Laborato- services provided mainly to enterprises (558), transpor- tion space still plague the industry as it struggles with be-expected round of bankruptcy filings. ries, Halt Medical, 21st Century Oncology, and Adep- tation (538), agriculture (355), manufacture of textile an oil oversupply that has driven down prices from tus Health. Other distressed include Concordia Inter- products, clothing and footwear (323), manufacture of $120/barrel in June 2014 to just over $50 currently. The healthcare industry, particularly the hospital seg- national, Pernix Therapeutics, and HCR Manorcare. wood and wooden products (246), food and beverage The supply is expected to grow as the US has shifted ment, has also experienced disruption of which much industry (206). from a previously significant importer to an exporter is believed attributable to the so-called Obamacare. The Finally, experts believe the auto related industry may of over one million barrels per day. Few anticipate any Affordable Care Act has resulted in less than affordable be next. The recent GST Autoleather bankruptcy sug- Bryan: The most recent insolvency statistics for the UK significant increase in oil prices over the near-term as care for many as both consumers and companies have gests that a decline in vehicle production coupled with to 30 June 2017 shows company insolvencies remain- most forecasts remain flat or with declining demand. In experienced dramatically increased premiums and other factors such as concerns with high risk auto loans ing very low. The usual sectors took the top three spots; fact, many predict prices returning below $40 per bar- deductibles. The multitude of specialty medical clin- and declining demand attributable to the inevitable construction, retail/wholesale and accommodation/ rel, and some even predict a shocking long-term decline ics at lower cost and greater patient convenience have ride sharing are already having negative effects on this food services. Between them they accounted for 47% to $10 per barrel. At least one large oil and gas bank negatively affected hospitals, particularly those that industry.

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6. Have there been any recent notable bankruptcies or restructurings? Are there any lessons to be learned from these case studies?

Golubow: Retail bankruptcies have been the lead story statement caused the vendor to abandon its ownership recently in the United States, with more than 300 re- rights in the inventory and any sale proceeds resulting tail bankruptcies through the first six months of 2017 from its sale. Going forward, the conflicts related to the alone. Toys R Us is the latest retailer to experience diffi- status of consignment inventory in a bankruptcy, as il- culties amid the shifting business landscape. The vener- lustrated in the Sports Authority bankruptcy, will likely able toy outlet filed for bankruptcy in September 2017 lead to vendors reconsider their consignment relation- The island, which is an unincorporated U.S. territory, for the oil and gas industry. The company has over 4,780 amid mounting debt and pressure from wary suppliers. ships with retail businesses. not a state, is ineligible to file for bankruptcy under employees and operates in 22 countries worldwide, in- For now, the company intends to keep open its 1,600 chapter 9 of the Bankruptcy Code, which applies only to cluding the United States, Europe, Asia, the Middle store locations and operate as usual, with no changes Berkovich: Takata, the global auto supplier of seatbelts, mainland U.S. municipalities (such as the city of Detroit, East, Africa, and North and South America. The com- to organisation structure or payroll. A lofty expecta- airbags, and steering wheels, recently filed a chapter 11 which restructured its debts under chapter 9 a few years pany is headquartered in Hamilton, Bermuda. It main- tion since many of the recent retail bankruptcies have case in the United States, due to mounting liabilities re- ago). Instead, the case is being restructured through tains offices in the United States, the United Kingdom, resulted in pursuit of sales promotions and increased sulting from its airbag products, which are subject to “PROMESA”, a law enacted by Congress in 2016 to deal Dubai, Norway, Mexico, and Brazil. digital efforts to lure shoppers while shutting down the largest automatic recall in U.S. history. The U.S. sub- with the Puerto Rico debt issues. The law created an brick-and-mortar locations and substantially reducing sidiaries are subject to over 100 lawsuits, ranging from oversight board responsible for Puerto Rico’s restructur- Seadrill began restructuring negotiations with key workforce. class action economic loss to personal injury to state ing and offers quasi-bankruptcy protections, which the creditor constituencies long before it commenced its attorney general actions. The Japanese parent company, board sought as of 3 May 2017. Other interesting cases chapter 11 bankruptcy case. At the time of its bank- In March of 2016, Sports Authority, a national retailer which filed parallel insolvency proceedings in Japan, as are Toys R Us, which I mentioned earlier, an iconic toy ruptcy filing, Seadrill had a prenegotiated restructuring of sports equipment that had nearly 500 stores nation- well as ancillary (chapter 15) proceedings in the United company with over $7.9 billion in liabilities that filed in plan. On the bankruptcy petition date, the restructur- wide, sought bankruptcy protection with a plan to re- States, is also party to a criminal plea agreement with September 2017. ing plan, evidenced by a restructuring support agree- organise that included the closing of its less profitable the U.S. Department of Justice that requires the pay- ment, was supported by the majority of Seadrill’s bank stores. Issues soon arose, however, concerning the own- ment of $850 million in restitution payments by the Paragon Offshore is an example of a successful restruc- creditors, 40% of unsecured bondholders, and 24% of ership of Sports Authority’s inventory and the rights of end of February 2018. The company filed insolvency turing of one of the many companies to file in the last few Seadrill equity holders. vendors to inventory that such vendors supplied to the proceedings in June 2017 close to a deal with another years due to the unexpected and significant decline in oil debtor inventory on consignment. Both the debtor and auto supplier, Key Safety, to sell substantially all of its prices starting in late 2014. It exited chapter 11 through a Seadrill’s capital restructuring plan is, in part, designed the vendors claimed ownership of the inventory and assets through a chapter 11 plan in the United States, plan of reorganisation this summer eliminating approxi- to keep in place relationships with key stakeholders to this conflict led to insurmountable disagreements over a business transfer under the Japanese Civil Rehabili- mately $2.3 billion of secured and unsecured debt. ensure the company’s continuity. The company aims to the direction of liquidation sales contemplated as part tation Act, and out-of-court restructurings and asset preserve Seadrill’s valuable relationships with its lend- of the debtor’s restructuring, which in turn contributed sales in Europe and China. The combination of a truly Simmons: Many recent oil and gas bankruptcies have ers and largest shareholder. significantly to the debtor abandoning its planned re- global business and restructuring, mass tort liabilities, moved at a fast-pace. A number of oil and gas compa- structuring in favour of straight liquidation. In another regulatory issues, and a criminal plea agreement make nies have entered bankruptcy with chapter 11 reorgan- As part of its restructuring plan, some of the lenders’ matter related to the Sports Authority case, one of the this a case to watch. isation plans already negotiated and developed. debt will be exchanged for equity. Yet other debt will debtor’s vendors brought a malpractice suit against their be restructured by the extending of the maturity date attorney for failure to advise the creditor to file a UCC-1 The restructuring of Puerto Rico, which involves $123 On 12 September 2017, Seadrill Limited and 85 of its of the debt. Seadrill’s largest shareholder will have the statement to perfect their rights in the debtor’s consign- billion in liabilities, is being watched by most distressed affiliates filed for chapter 11 bankruptcy protection in opportunity to provide capital in order to maintain an ment inventory. The vendor’s failure to file the UCC-1 and restructuring professionals in the United States. the U.S. Seadrill is a leading offshore drilling company equity stake in the reorganised company.

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Seadrill plans to move through bankruptcy rather fectively brought the business to its knees. Sharehold- fidence to succeed in the face of severe obstacles. The tail but it is just one of many businesses with defined quickly. The company is expected to emerge from ers decided to liquidate the business as losses seemed implementation team requires trust and support to use benefit schemes struggling in the current low inter- bankruptcy in six or seven months. beyond recovery. their respective skills, despite setbacks which at times est environment. BHS failed to adapt to the changes might seem disastrous. An important aspect was to stay in retail while successive owners took large sums of The key takeaway from the Seadrill bankruptcy and However, an executive management team led by CEO focused on the goal and not be distracted by challenges. money out, albeit prior to the escalation in the pen- other recent bankruptcies, many of them oil and gas re- Louis Marais, with members of the Jacobs Capital turn- sion deficit. Until interest rates increase, pension defi- structurings, is that debtors and lenders alike prefer to around team, agreed to test a new downsized model. Batra: Recently, the RBI pushed into insolvency 12 ma- cits will continue to loom large in UK restructuring. spend less time in bankruptcy. Additionally, in indus- This plan was supported by shareholders, on condition jor non-performing assets comprising nearly 25% of tries dependent on commodities prices, such as oil and of some challenging risk-mitigating constraints. the total non-performing assets in the books of the In- Monarch Airlines went into insolvency very recently. It gas, lenders are willing to either take an equity stake in dian banks. Whether these big cases should have been had focused on the very competitive low-cost market, the company or extend the maturity date of their debt. The outcomes have been very positive. Over the past brought under IBC so early in the life span of IBC is pitching itself head to head against much larger busi- This is so because the price of oil and gas commodi- few months the production and sales targets continue debated by some. I however, feel that it offers an op- nesses such as Ryanair and EasyJet. It arguably should ties tend to increase in the long-run. Therefore, lenders to be met and exceeded. The business operates at break- portunity to the stakeholders to set the bar really high have looked at a different strategy sooner, maybe be- simply prefer to wait until the market improves so they even and has recently even become profitable. in terms of implementation of IBC and stakeholder be- ing an early entrant to the low cost long-haul market may realise a return on their investment. haviour. These cases also offer opportunity to set stan- like Norwegian. Interestingly the insolvency was trig- About 70% of the model has been effectively imple- dards, benchmark and good precedents in various ar- gered by the UK airline regulator withdrawing Mon- Jacobs: The restructuring of Masonite Africa Limited mented to date. Around 400 people have been re- eas of IBC implementation. The most encouraging part arch’s license. It is interesting to compare that to the US to Evowood Pty (Ltd) is the most notable turnaround employed by the company and a potential disastrous is that the advisors involved in these cases have handled where airlines in Chapter 11 can continue flying while achieved by Jacobs Capital Pty (Ltd). blow to the town and community of Estcourt has been these cases with great maturity. they restructure. There will undoubtedly also be some avoided. controversy over the ownership and structure. Al- Masonite Africa Limited was a listed entity that was ac- Bryan: British Home Stores (BHS) went into formal legations are already surfacing that the private equity quired by Jacobs Capital and Blackbird Capital after be- The business continues to grow from this base. More Administration in 2016 after its owner sold it a year owner structured the purchase in such a way that they ing placed in business rescue. As a first step, the forestry people are being employed, while shareholders and in- earlier for just £1 to a speculative buyer. At the time of won’t lose much in the insolvency whilst others are left assets were sold and the proceeds used to inject much- vestors are already raising capital to increase capacity. the sale the enormous deficit in its defined benefit pen- with big losses. The new owner allegedly did some- needed capital into the hardboard producing mill in sion scheme threatened the viability of the business. It thing similar in a previous corporate collapse recently. Estcourt in Kwa Zulu Natal. An aggressive marketing plan has educated consumers was a large retail chain with some 11,000 employees. Whilst it is reasonable for a distressed turnaround in- on the benefits of hardboard over substitute products Controversy and allegations of asset stripping abound. vestor to minimise risk in a turnaround situation, ex- The name was changed to Evowood Pty (Ltd) to create and greatly increased demand. The pension scheme was left with a huge deficit of ap- pect vigorous scrutiny of management and other charg- a new business with a new business strategy and focus. proaching £500 million on a buy-out basis. Under po- es which can discredit otherwise laudable objectives. A primary lesson learned during this process was litical pressure its original owner eventually agreed to But despite more than R100 million investment in the clearly to define the model, and then create a plan to pay over £300 million back into the scheme to save his Lastly, Carillion is a large construction company which first six months, the restructuring was dealt a serious implement this business model. A clear and transpar- reputation. The speculative buyer that bought it for is struggling with a large debt burden after announc- blow when organised labour – representing around 450 ent communication strategy should run concurrently £1 is under investigation and likely to appear in court ing huge losses arising from certain problem contracts. of the 700 employees – reneged on an agreement and with this implementation plan to ensure the support of soon for excessive management and other charges. To The company has not entered an insolvency process embarked on an illegal strike for several weeks. This ef- all stakeholders. It is vital to have the desire and con- some extent it was a victim of the disruption in re- and efforts are being made to plan and negotiate a con-

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7. Are there any key trends or interesting strategies currently being implemented?

Langhorne: The Amendment Act has brought about pervised reorganisation procedure upon confirmation a number of positive changes to Singapore’s debt re- of the plan, without waiting for the two-year moni- structuring framework and it is clear that companies toring system, required by the Insolvency Law. Lately, are seeking to take advantage of the additional options some courts have been recognising the possibility of provided under the Act by incorporating them into early termination of the judicial proceeding, without their restructuring plans and strategies. In particular, such “probation” period, as long as the creditors agree the provisions of the Act which allow for rescue financ- by allowing such a provision to be included in the reor- ing and enhanced moratoriums. However, there is still ganisation plan. uncertainty as to how the new provisions will be inter- preted and applied by the courts. There is also the growing recognition of the jurisdic- tion of the Bankruptcy Courts, especially in reorganisa- In the recent case of Re Attilan Group Ltd [2017] SGHC tion proceedings, to release funds of the debtor which 283 the court declined to grant priority rescue fund- were given as collateral or deposited with creditors ing status to funds advanced to the Attilan Group. This or retained by them to guarantee certain claims. The was because the court was not satisfied that the com- tendency of the courts, including the Superior Court pany had taken reasonable steps to secure financing on of Justice, is to recognise that the collective insolvency sensual turnaround. It seems there is a viable business much from earlier years has created crushing debt ser- a normal basis before seeking priority rescue finance. procedure and the maintenance of the company as a and hopefully it can be restructured to secure its future vice requirements. This in turn, an unbalanced capital The court reiterated that while this was not a condition going concern take precedence over individual collec- and that of its employees and numerous sub-contrac- structure, has resulted in insufficient free cash flows for the grant of super priory under the Act, it was one tion of claims – which leads to the recognition that the tors. An interesting twist is the appointment of a “Chief necessary to support investments in store remodels, re- of the factors considered when the court exercises its Bankruptcy Courts have jurisdiction to rule over all the Transition Manager” rather than a “Chief Restructur- positioning of stores, new store development, and other discretion to grant priority status. assets of the debtor, including assets that were collat- ing Officer”, a term that has become synonymous with required operational and strategic initiatives necessary eralised to other creditors. This is especially important creditor “haircuts”. to adapt and remain competitive. Felsberg: There are currently many interesting trends because it solidifies the recognition of the importance that are being implemented in and out of court. One of of equality among creditors and the social benefits of Davidson: As discussed, high profile brick-and-mortar Further, unlike strategic options available in past years, such trends is the increasing use of mediation to settle the preservation of businesses. retail chain bankruptcies and restructurings over the strategic consolidation possibilities are slim to none. The disputes between creditors and insolvent companies. last couple of years, particularly 2017 alone, have domi- brick-and-mortar retail industry faces the same issues Such instrument, adopted in a pioneer way in the In- Finally, reference could be made to the growing com- nated all other industries. The recent Toys “R” Us Chap- throughout – declining profitability and free cash flows, epar case some years ago, is now also being proposed by plexity of reorganisation plans throughout Brazil. The ter 11 filing just before the Christmas season (rather gross margin compression resulting reduced consumer Oi in its judicial reorganisation, both for settling small reorganisation plans are no longer simple schemes of than after) when it would be flush with cash surprised foot traffic combined with stiff and deepening –compe- claims and claims held by the regulatory agency of the payment, but rather include many complex financial many. It has been widely reported that the $5 billion tition and challenges arising from the online channel, sector (ANATEL). The use of mediation reduces litiga- instruments and operations, like perpetual debentures, debt laden balance sheet may have been the primary foreign entrants, big-box warehouse clubs, supercentres, tion while relieving the already heavy burden currently debt-to-equity conversion, among others. This is a clear contributing factor. This private equity owned retailer, not to mention mandated minimum wage increases and imposed on Brazilian courts. sign of the maturity of the Brazilian insolvency frame- like many others, will require a significant deleverag- fringe, e.g., overtime and healthcare benefits, regulatory work, which we hope will intensify in the years to come. ing. A hard lesson learned – this huge debt overhang restrictions at the federal, state, and local levels. Another trend is the possibility of finalising a court su-

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Golubow: One key factor that will continue to govern needs a balance sheet fix. It is usually less appropri- tection in U.S. bankruptcy court. Contemporaneously other sizeable accounts lined up for filing have hurled strategies going forward is the uncertainty of the times. ate for a company that wants to take advantage of the with the filing of the bankruptcy petition, the company many legal and practical challenges at the resolution While interest rates in the United States remain histori- operational tools of chapter 11 or impair creditors be- files the plan and asks the bankruptcy court to confirm professionals (RP), legal experts and lenders. It is too cally low, even a slight uptick in the rates may lead to yond bank debt and bond debt holders. A prearranged the plan and approve the related disclosure statement early to comment on any emerging trends or strategies. an increase of businesses seeking bankruptcy protec- or prenegotiated case is a hybrid case where the debtor and solicitation of votes procedures. Suffice to state that the stakeholders have responded tion in lieu of out-of-court restructuring. On the other negotiates the chapter 11 plan (or a plan term sheet) very enthusiastically to the Code and are determined to hand, government policies and how they play out, both with large creditor groups prior to filing a petition, but In a prenegotiated bankruptcy case, a company negoti- make it a success. domestically and abroad, are contributing to economic solicits votes on the plan after filing the petition. ates a chapter 11 plan with certain key creditors prior uncertainty in the United States that may act to limit re- to the chapter 11 bankruptcy filing. The company may Nastase: Most recently companies and banks as credi- structuring activity. Domestically, there is great uncer- Simmons: Recent U.S. bankruptcies reveal that debtors draft a restructuring support agreement to memorialise tors are more open into discussing and implementing tainty surrounding the shape of healthcare, tax policy, and creditors alike prefer to move through the bank- its agreement with key stakeholders. The company, turnaround management projects – in or outside of the and trade going forward and such uncertainty will like- ruptcy process rather quickly. For instance, retailer however, does not solicit votes from creditors before legal procedures. ly affect companies throughout the spectrum of sectors. rue21 emerged from bankruptcy in four months. Rue21 filing for bankruptcy protection. The company instead Internationally, the fallout from Brexit and how it will filed for voluntary chapter 11 reorganisation on 15 May typically files the reorganisation plan and related dis- Bryan: The trend towards consensual turnarounds and play out over the next several years is still anticipated 2017. The company’s restructuring plan was approved closure statement with the filing of its bankruptcy pe- restructuring continues with formal insolvency process- and may also contribute to a general hesitancy to pro- by the bankruptcy court on 11 September 2017. Pay- tition or shortly thereafter. After commencing bank- es seen as being value destructive. They have their place ceed with restructuring, as opposed to sitting tight and less Shoe Source Inc. filed for chapter 11 bankruptcy ruptcy proceedings in court, the company also seeks and are clearly necessary in cases where the business is no letting the situation play out. protection in April 2017 and emerged from bankruptcy bankruptcy court approval of the disclosure statement, longer operationally viable. But whereas once they were four months later in August 2017. and, after approval, solicits acceptances of the chapter the default position for a distressed business they are no Berkovich: Over the years, we have seen an even great- 11 plan. After the voting process, the company requests longer seen as a universal panacea. Insolvency is now er trend toward “prepackaged” or “prearranged/pre- One strategy used to effectuate a fast-track bankruptcy that the bankruptcy court confirm the plan. often being used in a narrowly targeted part of a larger negotiated” bankruptcies. In a traditional chapter 11 process is to negotiate with key creditors to develop a consensual solution. This can be useful when there are restructuring, a debtor petitions for chapter 11 protec- plan of reorganisation before a company commences a Many oil and gas companies that have filed for bank- specific problems which can’t otherwise be overcome. tion without restructuring arrangements in place with bankruptcy proceeding in court. ruptcy protection have filed bankruptcy with a pre- its stakeholders. It uses the bankruptcy, especially the packaged or pre-arranged plan of reorganisation in Whilst filing for insolvency can be made too early when “breathing room” afforded by the automatic stay, to Usually the debtor company and creditors agree to a place. This has allowed these oil and gas companies to otherwise a consensual solution would preserve more stabilise its business and negotiate a restructuring plan prepackaged or prearranged/prenegotiated restructur- quickly emerge from bankruptcy in six to nine months. value, generally once in insolvency the UK’s insolvency with its major creditors. In contrast, a growing trend in ing plan. Offshore driller Seadrill, which filed a pre-arranged/ laws have been seen to be both flexible and predictable chapter 11 filings is a “prepackaged” bankruptcy case, pre-packaged plan of reorganisation on the day it com- and this has resulted in many restructurings of non-UK which is filed by a company after it has already negoti- In a prepackaged chapter 11 case, a company negotiates menced proceedings in bankruptcy court, is expected companies being carried out under English law, partic- ated and solicited creditor votes on a plan of reorganisa- and develops a chapter 11 reorganisation plan with cer- to emerge from bankruptcy in six or seven months. ularly when it is the governing law of lender agreements tion. The benefit of such an approach is the significantly tain of its key creditors before the bankruptcy filing and providing “sufficient connection” to UK. This has also reduced timeline for completing the chapter 11 case, as solicits acceptances for the plan before the filing. Only Batra: While the IBC’s sprint so far has been without been very effective outside of formal insolvency with well as significantly reduced risk and costs. It is a good after receiving the required number of votes in favour any alarming snags, the gigantic NPL cases pushed by Schemes of Arrangement. These are a very useful tool approach for a company with a sound business that just of the plan does the company file for chapter 11 pro- the Reserve Bank of India (RBI) into insolvency and for cramming down dissenting creditors and are a part

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of English Company Law, not insolvency law. The trend Davidson: The 2016 Aeropostale save out of bankrupt- 8. What does Brexit mean for the insolvency and restructuring market? for companies to “come to London” to restructure has cy may represent a potential new strategy for other store forced change in other European countries insolvency front retailers, particularly those operating in malls or Golubow: Both the United Kingdom and the United Batra: It does not impact India directly. But India hopes laws to facilitate cram down. Use of Schemes of Arrange- multiple locations with the same landlord. It’s not yet States, in Chapter 15 of the Bankruptcy Code, have to offer an attractive market for restructuring in Asia. ment is now predominantly by non-EU companies. clear if the Aeropostale rescue represents a trend to be adopted the UNCITRAL Model Law on Cross Border imitated by other retail chains in the struggling sector. Insolvency, which is intended to encourage the recog- Bryan: It is not possible to say as we don’t know what In some cases, EU companies have moved their Cen- However, it provides a viable blueprint particularly for nition of foreign proceedings and cooperation between Brexit will look like yet. A “hard Brexit” disrupting es- tre of Main Interest (COMI) to London to restructure landlords, but also other creditors and that allow these jurisdictions. Brexit will not affect the applicability of tablished supply chains in pan European businesses in what is a more flexible jurisdiction. This has given retailers to continue operating following bankruptcy. the Model Law to the United Kingdom or the Unit- will cause a period of industry readjustment which rise to so called forum shopping. The rules and Court ed States. Instead, the impact of Brexit on the United could increase the need for restructuring. A “softer interpretation have been tightened to stop some of The Aeropostale situation provided an incentive for States’ insolvency and restructuring market will be felt Brexit” will have less effect although uncertainty is al- the previous more spurious claims. Also, EU and lo- such major landlords as General Growth and Simon primarily in the uncertainty that it has instilled in the ways a harbinger of difficulty for marginal businesses. cal laws have changed in response. Properly used it is Property Group to help save the retailer, since so many both the United States and global markets. Although Currently EU insolvency law and company law is not a process assisting value preservation and accordingly stores operated out of their malls. In similar distressed trade with the United Kingdom comprises only ap- in the least harmonised. However, a system of mu- worthy. It is interesting to note that the US is begin- and bankrupt situations in which landlord and other proximately 0.5% of the United States’ GDP, the fallout tual recognition exists and in insolvency and restruc- ning to recognise the idea on an international basis creditor concentration exists, these landlords and ven- from Brexit may have a profound impact on the United turing it broadly works. If Brexit caused the UK to be even though it is something not defined in US law. In dors may able to work collaboratively to minimise their States. For example, the United States is the single larg- outside that system of recognition then that would be a recent case a COMI shift from a country with no in- own losses and create overall higher value than in an est investor in the United Kingdom, employing more a backward step for London professionals. It doesn’t solvency laws to one with flexible laws was sanctioned otherwise potential brick-and-mortar retailer liquida- than one million people, and uses Britain as an entry- seem to be in anybody’s interests for that to happen by the US Court as it benefited creditors as a whole. tion. way to the EU. Brexit may threaten such investments, but where politics are involved anything is possible. while diminishing the attractiveness of Britain as an in- The last thing I would comment on is the rise of Al- After all, since 2014, most bankrupt retail chains that vestment for American business going forward. Simi- London’s popularity as a restructuring hub hasn’t al- ternative Finance. From small beginnings it has be- include high profile retailers such as Sports Authority, larly, Britain’s investments in the United States, which ways pleased other EU countries and we may therefore gun to take off. Everything from challenger banks to American Apparel, and The Limited, were shuttered account for up to two million jobs, may also be threat- get some backlash. But the experience, flexibility and crowdfunding, peer to peer lending and internet based during the bankruptcy process. Now, landlords, ven- ened. This is admittedly speculative forecasting but pragmatism of UK courts will be hard to replicate. Per- invoice discount platforms. The amount of choice has dors, and other creditors, have another option of recov- illustrates that Brexit’s primary impact on the United haps of more concern is the rise of other jurisdictions proliferated and this has certainly created options to ering short and long-term value rather than minimal, if States, whether on the insolvency and restructuring in other parts of the world seeking to become a restruc- take unhappy lenders out and replace them as part of a no recovery is available via liquidation. markets or in a broader sense, will be indirect and due turing hub. Singapore in particular is pushing very hard restructuring without necessarily having to enter a for- to the effect that it has on the United States’ economy. and having some success as it tries to become the go to mal insolvency process. restructuring hub for Asia.

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9. With business increasingly conducted on a continental or global level, more insolvencies than ever have a cross border element. In your experience what are the main challenges and solutions surrounding cross border insolvencies?

Langhorne: In cross border insolvencies the main chal- A further benefit of the Model Law is that it has been tion’s insolvency system, which may not offer the same the location of the entity’s creditors, and the source of lenges that arise relate to ensuring the effective, timely adopted in many key jurisdictions including the United protections as the American system. In order to gain the laws which would apply to the principal issues of the and cost efficient enforcement of creditors rights against States, the United Kingdom, Australia, Canada, New bankruptcy protection under the Bankruptcy Code of insolvency. assets located in different jurisdictions. Issues tend to Zealand, Japan and South Korea. However, a material the United States, a prospective debtor would need to stem from the fact that there can be significant differ- limitation of relying on the Model Law is that it has not satisfy venue and jurisdictional requirements. If they Berkovich: Cross border cases provide unique challeng- ences between the insolvency rules in different jurisdic- been adopted by many of the jurisdictions surrounding are unable, such debtors may be subject to a less debtor- es of having to deal with different insolvency laws to be tions. This is prevalent in Singapore which is surrounded Singapore such as Indonesia, Malaysia and Hong Kong. friendly insolvency system. able to capture the inherent additional value of keeping by countries such as India, Indonesia, Malaysia, Vietnam Further, there is still uncertainty as to how the model law a global company together. Takata, which I mentioned etc., each with different systems of law and different in- will be applied because there is limited Singapore law ju- The UNCITRAL Model Law on Cross Border Insolvency, above, is a good example of that, where the purchaser is solvency and restructuring regimes. This in turn requires risprudence on the new provisions. upon which Chapter 15 of the Bankruptcy Code is mod- seeking to buy the entire global company. Both the com- co-ordination with local counsel in a number of differ- elled, addresses such issues by setting up a system which pany and purchaser have to navigate through two sepa- ent countries and can involve concurrent proceedings in Felsberg: The main challenge is that there are no specific attempts to harmonise multiple insolvency proceedings rate plenary insolvency proceedings in different coun- multiple jurisdictions. provisions on cross-border insolvencies in Brazil. A for- concerning the same insolvency estate. Under Chapter tries, as well as trying to keep the subsidiaries in other eign proceeding must necessarily be granted exequatur 15, a foreign entity is granted access to the United States jurisdictions out of potentially disruptive insolvency Singapore has sought to address this issue by enacting by the Superior Court of Justice for it to be recognised in court system to pursue three types of insolvency pro- proceedings. The key to success is being extremely coor- the Model Law. Prior to the Model Law being adopted Brazil, and the Brazilian courts have a history of denying ceedings: (i) a primary bankruptcy proceeding, in which dinated with advisors for all regions. the courts in Singapore had taken an ad hoc approach recognition to foreign insolvency proceedings. This chal- the bankruptcy will go forward under the jurisdiction to each application to recognise foreign insolvency pro- lenge will be overcome if Brazil adopts the UNCITRAL of the United States bankruptcy courts; (ii) an ancillary Another interesting issue relates to a foreign company ceedings. In some cases applications were recognised af- Model Law on Cross Border Insolvency, as proposed in proceeding to an insolvency proceeding in a foreign ju- with U.S. assets or creditors seeking to use chapter 15 ter a single hearing, whereas in other cases recognition the draft legislation. Even after the Model Law is adopted, risdiction, dealing exclusively with specific assets or is- of the U.S. Bankruptcy Code as an ancillary proceed- occurred after a number of hearings and only on the ba- there will be challenges, as courts, insolvency administra- sues under the jurisdiction of the United States; or (iii) a ing to recognise the foreign insolvency proceeding in sis that the applicant give a number of onerous undertak- tors and attorneys, with a few exceptions in the largest proceeding to stay or dismiss a proceeding in the United the company’s home jurisdiction. One of the challenges ings to the court. It was also not always clear what factors cities, are not used to dealing with cross border issues. States that may conflict with a foreign proceeding. Both in the chapter 15 context is that creditors may object to the courts would consider when granting recognition. Chapter 15 and other iterations of the Model Law, such recognition on the basis that granting comity is “mani- This lack of clarity and predictability leads to uncertainty Golubow: It is true that many industries – including sig- as the European Community Regulation on Insolvency festly contrary” to the public policy of the United States. for insolvency practitioners. nificantly oil and gas – are global in scope and, therefore, Proceedings, have established a test for determining un- The public policy exception is in conflict with the over- have a cross border element. One significant challenge der which jurisdiction an entity’s primary insolvency ac- all chapter 15 goal of increasing international coopera- The enactment of the Model Law, albeit with slight modi- that occurs in this context is the possibility of insolvency tion should proceed: the location of an entity’s “centre tion. While U.S. courts generally find that such public fications in its application, means that there is now a clear estates with assets that are located in multiple insolvency of main interest.” Although “centre of main interest” is policies must be restricted to matters of fundamental im- and internationally recognised framework for resolving jurisdictions. Such debtors must determine whether to not defined in the Bankruptcy Code, United States case portance, the courts have been reluctant to identify U.S. cross-border insolvencies. A key benefit of the Model pursue bankruptcy protection under the United States law recognises the applicability of multiple factors in de- public policies as such in any explicit manner. Thank- Law is that recognition has become a largely formalis- Bankruptcy Code, which allows for the debtor to con- termining whether primary jurisdiction over an inter- fully, for companies seeking chapter 15 recognition, the tic process, with applications generally being recognised tinue running its business during the pendency of the national entity is appropriate, including the location of public policy conception has been narrowly construed, where they made by an appointed foreign representative reorganisation as a debtor-in-possession and is typically the entity’s registered headquarters, the location of the but the lack of clear guidance on the issue creates risk for supported by the relevant documents set out in the Act. debtor-friendly or to go forward under another jurisdic- entity’s management, the location of the entity’s assets, foreign companies.

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U.S. courts also face the challenge of insolvency proceed- Also, as noted in the Seadrill bankruptcy, dealing with Stakeholders do not see these provisions as being ad- er, with my partners we cut our teeth on the cross bor- ings filed by identical or overlapping sets of debtors in foreign suppliers and foreign creditors may pose a chal- equate to administer cross border insolvency issues. der restructurings of the early 2000’s which were heav- multiple foreign jurisdictions, both seeking recognition lenge. This is because some foreign suppliers have very Most sophisticated economies have well developed cross ily influenced by US professionals in London versed under chapter 15 in the U.S. as the foreign main proceed- limited connection to the United States. These suppliers, border insolvency laws. To provide a fair, efficient, trans- in Chapter 11 and giving viable businesses a “second ing. The comity analysis becomes more difficult in those thus, may be beyond the jurisdiction of the U.S. bank- parent, and predictable mechanism to deal with cross chance”. We were part of a US based boutique. Our first cases, because in essence the U.S. bankruptcy court is ruptcy court and therefore may disregard the automatic border issues, it is necessary to address the key tenets of instinct was to keep businesses out of insolvency pro- asked to decide not the usual question of whether a for- stay. Seeking to enforce the automatic stay in foreign cross border insolvency – access, recognition, relief, and cesses. In doing so we were always mindful of the in- eign jurisdiction has fundamentally fair insolvency laws, jurisdictions may prove costly and time consuming. co-operation by way of a comprehensive legislative and solvency triggers and directors’ liabilities and respon- but which case should be recognised as the foreign main Seadrill has sought to solve this issue by seeking an order regulatory framework. sibilities in each jurisdiction as we looked to initiate proceeding. from the U.S. bankruptcy court allowing Seadrill to pay an operational turnaround and negotiate a consensual all prepetition claims of foreign suppliers to avoid dis- For investors and companies alike, it is important to restructuring. Modern multi-national groups are com- Simmons: There are a number of challenges surrounding ruption in its global operations. know what is going to happen when things go wrong plex structures with inter-company trading and often cross border restructurings. Companies with global op- from a financial perspective in a particular country. In a financing and tax structure overlaid in numerous tax erations have assets and creditors spread across many ju- Batra: The missing piece in the Code is the cross border cross border insolvency situations the need for trans- haven jurisdictions. Just one company filing can cause risdictions. For example, global offshore driller Seadrill, insolvency framework. It was widely expected that India parency and predictability is even more compelling. In a large balance to become a bad debt or supply problem which filed for bankruptcy protection in the U.S., main- would adopt the UNCITRAL Model Law on Cross Bor- those situations, a company or investor needs to under- which in turn causes another insolvency trigger and tains 421 bank accounts with 27 different banks, in 24 der Insolvency or provide for an alternate framework to stand not only the relevant substantive laws and rules then a viscous spiral bringing the whole group down. different jurisdictions and with 25 different currencies. deal with cross border insolvency issues as part of the in the country they are investing and how they apply in Code. While considering the Insolvency and Bankrupt- practice, but also if and how these relevant substantive We have to manage that globally and make sure all group U.S. bankruptcy law requires that a debtor’s funds be in- cy Code Bill 2015, the Joint Parliamentary Committee laws and rules of country are recognised in other rele- companies are on the right side of local insolvency fil- sured or guaranteed by the United States or by a depart- also expressed the need to address the cross border insol- vant countries. ing laws, operate as a group rather than local interest and ment, agency or instrumentality of the United States or vency issues. Two provisions were included in the Code understand the consequences of non-compliance. In backed by the full faith and credit of the United States. to deal with cross border issues: Section 234 to provide Recognising the need for a law to deal with cross border parallel we would be looking for any processes and tools Alternatively, a debtor’s funds may also be deposited in for agreements with foreign countries and Section 235 to insolvency issues, a Cross Border Insolvency and Bank- anywhere that could facilitate group value preservation. an entity that has posted a bond in favour of the Unit- provide for letters of request to a country outside India ruptcy Bill 2017 (CBIB) is currently under consideration More and more countries are introducing so called pre- ed States or has deposited securities with the Federal in certain cases. by the government. insolvency regimes which allow moratoriums, cram Reserve Bank in an account maintained by the United downs and other useful ways of giving a distressed com- States Trustee. The United States Trustee is a watchdog The two provisions in the Insolvency and Bankruptcy Nastase: One option and recommendation to be consid- pany some breathing space and the chance for a turn- ensuring U.S. law is enforced. A U.S. bankruptcy court Code 2016 (Code) to deal with cross border issues, that ered by any creditor involved in cross border insolvency around plan to be prepared. Cross border restructuring may only waive these depository requirements upon a is, Section 234 to provide for agreements with foreign would be to have alongside the judicial administrator a is a skill set learned through experience. Having an ef- showing of “cause.” Therefore, Seadrill, must satisfy the countries and Section 235 to provide for letter of request team of experienced consultants with relevant local ex- fective network of local practitioners and knowledge of U.S. bankruptcy court that there is sufficient cause for to a country outside India in certain cases do not provide perience in each of the involved jurisdictions. coordinating the process is essential to success. the company to hold funds in foreign bank accounts to the adequate framework to deal with cross border insol- ensure avoidance of a disruption in its cash management vency issues. Bryan: I’m not an insolvency practitioner nor a lawyer system. so can’t speak in depth of formal insolvencies. Howev-

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10. Can you detail the different debt restructuring options and processes?

Langhorne: 1. Schemes of Arrangement of the company’s assets than through a winding up or- der). If the court grants an order for judicial manage- A scheme of arrangement (“SA”) is an agreement be- ment, then the judicial manager will take control of the tween the company and its creditors to restructure the business and property of the company for a period of company’s debts and vary the creditors’ rights to assist 180 days subject to any further extensions granted by the company to continue as a going concern and fulfil the court. An automatic 30 day moratorium can also companies classes and a majority in number and amount comply with significant and on-going disclosure obliga- its debt obligations. For a SA to be implemented, as- be obtained. in unsecured and secured classes), in an expedited re- tions. In addition, a primary disadvantage that must be suming the “pre pack” path now provided for in the organisation proceeding the plan must be approved by considered before initiating a bankruptcy is that once Amendment Act is not chosen, an application needs to 3. 60% of all claims in each class affected by the plan. started, it can be difficult to emerge from bankruptcy. be made to the High Court for an order summoning As a result, bankruptcies can last for a long period of a meeting of the relevant creditors or stakeholders to A receiver may be appointed pursuant to a contractual Second, formal bankruptcy proceedings grant an auto- time, during which expenses and time commitments consider the proposed agreement. An automatic 30 day right under a debt instrument. This can be done with- matic stay of all claims against the debtor for a period continue to accrue. moratorium can also be obtained to protect the compa- out applying to the court and is generally the fastest of a 180 days (which is frequently extended), prevent- ny from any enforcement actions being taken. The SA way for a to realise their security. The ing a “run” on the company’s assets by the creditors. In the alternative, distressed companies may seek to must then be approved by the court and a majority in powers of the receiver and the effect on the company’s Third, formal bankruptcy proceedings grant incentives restructure their debt through out-of-court workouts number representing three-fourths in value of the cred- board of directors will depend on the agreed scope of for debtor-in-possession lenders, who must be paid with or assignments for the benefit of creditors under state itors or class of creditors, or members or class of mem- the receivership. priority to all pre-filing creditors. law, which have the advantage of being less costly than bers at the meeting. However, the court has the power bankruptcies, quicker, and requiring less disclosure. to vary the majority in number requirement and cram Felsberg: There are two basic methods for debt restruc- For more details regarding the formal insolvency pro- The disadvantages of these courses of action are that, down on dissenting classes of creditors. Alternately, as turing: private workouts and formal bankruptcy pro- ceedings available in Brazil, please refer to question three. unlike bankruptcies, there is no automatic stay prohib- noted, the court can now approve the SA in the absence ceedings. In private workouts, the company may enter iting creditors from taking actions to enforce their con- of a creditor meeting if it is satisfied that the company into an agreement with its principal creditors outside of Golubow: There are a number of restructuring options tractual or legal rights against the distressed business has provided sufficient information about the SA to the a bankruptcy process to negotiate a reduction of interest available to a distressed company, each with its own and one does not receive the resolution of pre-restruc- creditors and the scheme would have been approved if payments and/or an extension of loan maturities. Hair- advantages and disadvantages. Bankruptcy itself offers turing obligations that one receives in a bankruptcy. the meeting had been held. cuts are rarely granted in workouts. Workouts generally many significant advantages and the Bankruptcy Code involve lower costs and are faster than formal bankrupt- provides many tools that can be used by a debtor to ef- In addition, out-of-court workouts and assignments for 2. Judicial Management cy proceedings. However, there are several factors that fectuate a restructuring. Further, there is a finality that the benefit of creditors may not be appropriate for a dis- influence the relative use of workouts in Brazil. comes with a bankruptcy proceeding, as orders of the tressed company with a significant number of creditors Upon the application of a company or its creditors the bankruptcy court are binding on all parties-in-interest, or creditors that are not known. If there are numerous court may appoint a judicial manager where it is shown First, workouts require the consent of all participants, including all creditors of the debtor. competing interests, an out-of-court workout can be- that the company is or is likely to become unable to pay creating the danger of creditor holdouts, in contrast to come unwieldy and impractical without the structure its debts and one or more of the purposes outlined in the less restrictive voting rules in formal bankruptcy Bankruptcy, however, is not appropriate in every situa- inherent in bankruptcy proceedings. In the end, a dis- the act will be achieved by the appointment (such as the proceedings. While in a judicial reorganisation proceed- tion or for all distressed companies and carries with it tressed company must acknowledge its situation with survival of the company or whole or part of its business ing the plan must be approved by a majority of creditors several distinct disadvantages. Bankruptcies are expen- frankness before deciding which restructuring option as a going concern or a more advantageous realisation in each class (a majority of creditors in labour and small sive and time consuming, as the debtor is required to is the most appropriate.

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Batra: The Code provides freedom to the interested must be placed before the creditors committee by the tressed situation. The challenge is to determine the ny as “Debtor in Possession” (DIP) under Court parties to design their resolution plan. An applicant resolution professional for its approval. The committee optimal debt restructuring alternative by weighing the supervision may submit a resolution plan to the resolution profes- may approve a resolution plan by a vote of not less than various factors and circumstances. If circumstances do • Allows Company to sort out its troubles in a sional prepared on the basis of the information memo- 75% of voting shares of financial creditors. The resolu- not allow for a debt restructuring, a liquidation may calmer atmosphere than the crisis immediately randum. A resolution plan means a plan proposed by tion applicant may attend the meeting of the creditors result. Each option has its own set of advantages and preceding any person for insolvency resolution of the corporate committee in which the resolution plan of the applicant disadvantages, some of which are summarised below: • Provides good opportunity for obtaining fresh debtor as a going concern. It could be based on slump is considered. However, the resolution applicant shall DIP (priority) financing sale, merger, de-merger or any other model. The reso- not have a right to vote at the meeting unless such reso- Out of court restructuring • Court approved plan or an order authorising an lution professional shall examine each resolution plan lution applicant is also a financial creditor. asset sale provides greater certainty (beyond in- received by him to confirm that each plan: Advantages: formal out of court workout) regarding liabili- All the creditors must vote. The voting is not based on • Less expensive and faster to implement ties, ownership, and responsibilities • Provides for the payment of insolvency reso- “present and voting” principle. The creditors can au- • Potential flexibility to treat creditors differently • Potential buyer, i.e., stalking horse bidder re- lution process costs in a manner specified by thorise an insolvency professional or another person to • Resources can be fully applied to operations quires “free and clear” sale Court order under the board in priority to the repayment of other attend the meeting and vote on their behalf. Voting by rather than depleted by administrative costs of S.363 of bankruptcy code. debts of the corporate debtor; creditors is possible by electronic means. a formal legal proceeding • Provides for the repayment of the debts of oper- • Recovery may be higher Disadvantages: ational creditors which shall not be less than the The resolution plan as approved by the creditors com- • Relationships among parties may be easier to • Must have sufficient cash and/or DIP financing amount to be paid to the operational creditors mittee must be presented by the resolution professional manage as egos, status, etc. and relationships to execute in the event of a liquidation of the corporate to the NCLT for approval. If the NCLT is satisfied that may not be as adversarial as in litigation • Court supervision is pervasive and transpar- debtor and shall be paid within 30 days from the resolution plan as approved by the creditor com- ency to parties-in-interest is significant sanctioning of the plan; mittee meets the requirements of the resolution plan Disadvantages: • Adversarial proceeding is more difficult to con- • Provides for dissenting financial creditors to be referred above, it shall, by order, approve the resolution • Success is dependent upon all participants trol once started paid ahead of creditors voting in favour of the plan. agreeing to negotiate cooperatively • Generally, most expensive option plan but on liquidation value; • May be hard to obtain consensus, since there is • Generally, most time consuming (although • To confirm that source of funds to make the The resolution plan approved by the NCLT shall be less leverage over uncooperative creditors “prepack” / pre-negotiated may mitigate cost above payments has been identified; binding on the corporate debtor and its employees, • May reduce assets available for company opera- and time • Provides for the management of the affairs of members, creditors, guarantors, and other stakeholders tions if a later, court-driven reorganization be- • May dissipate going concern / value of estate by the corporate debtor after approval of the reso- involved in the resolution plan. Because of the order of comes necessary significant consumption of resources lution plan; approval, the moratorium order passed by the NCLT • If out of court workout fails, credibility may be • The implementation and supervision of the res- shall cease to have effect. If the NCLT is satisfied that damaged Article 9 “Friendly Foreclosure” olution plan; the resolution plan does not confirm to the stated re- • Does not contravene any of the provisions of quirements, it may, by an order, reject the resolution Chapter 11 reorganisation Advantages: the law for the time being in force. plan and pass an order for liquidation. • Consummated quickly Advantages: • More cost effective than a Chapter 11, S363 sale A resolution plan, which conforms to these conditions Davidson: Multiple options exist in any given dis- • Management continues to operate the Compa- • Good title can be given, because a friendly-

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11. What are the most important aspects to consider in executing complex, global multi-national restructures?

Felsberg: The first obstacle that Brazil must overcome ing standards governing the financial regulatory sys- is the fact that it lacks modern cross-border insolvency tem. In many countries, there are additional labour foreclosure eliminates junior • Management may have better success than a legislation. This adds a layer of complexity to multi-na- laws and trade union complexities to navigate around. • May result in minimal disruption to operations lender in collecting receivables tional restructurings, since a local proceeding may have From personal experience of dealing with organisa- • Mitigates risks to buyer of claims by distressed to be filed in Brazil if no consensual solution is reached. tional right sizing of labour cost and labour pyramid company’s creditors Disadvantages: Even after the enactment of the Model Law in Brazil, globally, these are significantly harder and take sig- • Very close oversight by lender there would be aspects worth considering such as (i) nificantly longer to work through in certain parts of Disadvantages: • Management may not manage liquidation in the venue in which a restructuring proceeding will be the world. Geo-political implications also need to be • Subject to “commercial reasonableness,” e.g., cost effective manner filed; (ii) the coordination of agreements and court pro- considered as part of the broader restructure strategy fair value • Collection lawsuits/costs may dissipate assets cedures; (iii) the rights of local creditors and of minori- and risk management approach. • Subject to senior liens, and lender may only and going concern / value of estate ty shareholders of subsidiaries of a group of companies; convey assets in which it has perfected liens (iv) the treatment of certain claims such as those se- There are however also some more-subtle aspects to • Lender liability risks, e.g., environmental, if Chapter 7 liquidation cured by collateral, held by workers and suppliers, and consider, which are no less important yet sometimes lender takes possession of assets by the tax authority and other governmental agencies; underestimated. One I have seen ignored far too often • Greater risk of successor liability; therefore, Advantages: and (v) the timing and cost of the restructuring. is the recognition of cultural differences that need to buyers may only be interested if sale is cleansed • Less expensive than Chapter 11 reorganisation be taken into consideration by foreign restructuring through a S363 • Court oversight and trustee mitigates exposure Podolski: Restructures within a single jurisdiction or teams. Not only language and business practice differ- to other creditors economy already require significant skill, knowledge ences play a role when executing change across borders. Out of court liquidation – self liquidation and experience to undertake. Driving global business Significant differences also exist around negotiating Disadvantages: transformations or restructures introduces several ad- styles and techniques, as do ways to motivate and com- Advantages: • Management no longer involved; Trustee is ap- ditional complexities which restructuring teams need municate messaging to workforces in different parts of • May be most efficient and yield highest recov- pointed to consider. the world. Ensuring restructuring teams not only have ery • More expensive than other liquidation options experience working across borders from a technical, • Management may operate to turn raw materi- • Usually less recovery than other liquidation op- The first set of complexities stems from regulatory financial and legal perspective, but also are able to em- als and work-in-process into finished goods for tions considerations – local legal system, taxation issues in- brace and align with cultural aspects is often a make or greater recovery cluding transfer pricing implications, as well as vary- break of global transformations and restructures.

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12. To what extent can focusing on business management best practices benefit the organisation in the long run?

Felsberg: The adoption of corporate governance prac- cess, it’s not hard to sometimes lose sight of the basic tices is an efficient measure to increase transparency and goal – that is, to provide a very clear and timely health improve the decision-making process, which includes check of whether the business is heading in the right the recruitment of expert and specialised professionals. direction. Which in turn enables corrective action to Such measures are efficient to avoid unnecessary risk be taken, much before any drastic measures are needed. taking and thus minimise the risk of bankruptcy. As organisations get larger and more complex, so does In formal reorganisation proceedings, the inclusion of also the complexity of having a consistent approach to best practices rules in the reorganisation plan (such as business management. Ironically, added complexity the recruitment of specialised management, a CRO, also calls for much more rigour and discipline in being the creation of a creditors committee and monitoring crystal clear in establishing and communicating very 13. How has digitisation and process support innovation changed the realities of agents for providing disclosure of relevant information succinct business priorities. These priorities and asso- and transparency) may increase the probability of suc- ciated measures almost in most cases revolve at a mini- business performance and improvement? cess of the reorganisation proceeding, as a more effi- mum around ensuring revenue is on track against plan, cient supervision of the management will be in place costs are under control, and the company has sufficient Podolski: Clearly, the digital transformation age has for the CIO but for the COO, CEO and business func- and the debtor company will have more incentives to cash to meet its obligations and invest in growth. When not only come, but is becoming a reality of how we do tional heads alike. comply with the terms of the plan. either of these is underperforming in isolation – this is business on many levels. Just like various go to market often a trigger for corrective action. It is much harder channels are being digitised, so too are companies look- With technology and process digitisation helping re- Podolski: Business management is a very broad area, to try to transform and restructure two or three of these ing at their internal tools and processes to help drive duce effort and speed with which business health checks and its scope varies organisation to organisation. Whilst elements concurrently. When revenues decrease, gen- efficiency in how these are delivered. We touched on can be monitored, does this automatically reduce the every business is different, generally most organisations erally fixed costs become quite impactful to the bottom the importance of business management rigour earlier pressure on leadership teams and boards in managing will focus their business management interests towards line. It is a lot easier and quicker to focus on aligning on, and in ensuring there is a clear visibility of a com- their business? Effort and cost wise, perhaps. In fact, four key agendas: growth, cost management, cash flow and reducing cost to the declining revenue trajectory, pany’s health with sufficient controls and processes in large aspects of business operations activities and dedi- and their key success enablers (people, plant, machin- than to fire up the revenue engine. Sometimes there is place to remediate any issues quickly. In the traditional cated roles may disappear. However, the core challenge ery). in fact no choice to do so, for the company to survive in world, much of the data enabling these views would of understanding what drives a given business, what the short term. Achieving both at the same time is quite come from either manual reports, or data warehouses signals to look for as clues to early problem signs, and There can be a lot of complexity and investment that an art, and takes a lot more effort and strategy. Busi- requiring massaging, translation and normalisation, react to them quickly and decisively will not go away. often goes into setting up internal business manage- ness management practices, will help in deciding on such that data could be aggregated into useful business An experienced leadership team will remain the critical ment practice, with most relying on integrating vast the most effective strategies both long and short term. information. Robotics and automation, as well as sys- linkage point between the company’s strategy, and its amounts of data and information from a complex set This true in both on-going operations, as well as during tem simplification and integration methodologies are effectiveness of execution. Nevertheless, the new trends of pan organisational tools and processes. This can be major restructure and transformational activities to en- changing a lot of this traditional approach, reducing the around process digitisation, robotics and automation quite daunting, and without the right leadership direc- sure progress against desired outcomes is being made. manual effort organisations need to spend on collecting will certainly drive the efficiency and speed with which tion to define and prioritise the key measures of suc- and reporting data. This is a very exciting time not just information driving decisions will become available.

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14. How can the approaches associated with corporate restructures assist executives in driving successful business unit level turnarounds?

Felsberg: The inclusion of best practices rules in the large corporate restructures, although with some obvi- reorganisation plan (such as the recruitment of spe- ous differences. A benefit of being part of a large, global cialised management, a CRO, the creation of a com- corporate structure meant the need for external bank or mittee of creditors or monitoring agents and rules for creditor renegotiations was not needed, with the parent providing disclosure of relevant information and trans- company absorbing and funding the resource drain un- 15. Are there skills and business practices pertaining to managing corporate parency) may assist executives in driving successful til the restructure and turnaround was complete. Nev- restructure, which extend and assist executives in managing business level turnarounds, as it creates incentives for executives to ertheless, the process of identification of the root causes restructures and turnarounds? comply with the terms of the reorganisation plan and of the distress, homing in on the key performance in- provides for specific duties and responsibilities of the dicators and prioritising them in order of criticality to administrator with its creditors. In a formal reorganisa- address, dealing with inefficiencies and cost bubbles, Felsberg: There are some accounting and financial firms Understanding drivers influencing the industry and the tion proceeding, in principle, the management remains renegotiation of several contractual impediments with (such as the Big Four and some specialised profession- specific business being restructured is also key. Ability operating the business during the proceedings (debtor- clients and suppliers, together with a methodological als) developing specific areas to deal with distressed to navigate complexity, both inside highly matrixed or- in-possession), but the court appoints a judicial admin- governance process, were all foundational elements companies, providing services related to corporate re- ganisations as well a network of partners and suppliers, istrator responsible for monitoring the debtor and the of the turnaround efforts. Many of these are the same structuring, which includes crisis management, finan- is a critical shared skill across both aspect of restruc- compliance with the provisions of the reorganisation ingredients that any corporate restructure will need to cial, corporate and operational restructuring, designing tures. The aptitude to connect with people – both in plan. If the management refuses to provide informa- address as well. of business plans and diagnosis. Some firms may also driving outcomes through relationship building, and tion requested by the judicial administrator or acts in a act as chief restructuring officers (CROs) or assume being able to take people on a journey, are also skills manner detrimental to the regular business operations We alluded to the importance of business management temporally the management of distressed companies. relevant to any restructure. Most restructures – be it or to the creditors’ interest, the management may be re- practices across several of the questions, as they pertain at corporate or business level, involve a high degree of placed by the court. to the broader topic of bankruptcy and restructuring. In formal reorganisation proceedings, the manage- change and uncertainty for employees, partners, clients This case was a good reminder as to how serious the im- ment of the company remains operating the business and financial stakeholders alike. It is very difficult to Podolski: Having operated inside large, complex or- plications of a lack of business management practices or during the proceedings (debtor-in-possession), but it drive a convincing and successful outcome, unless all ganisations for most of my career, I guess my expe- adequate scrutiny around their governance can be for is common that the company hires a financial advisor stakeholders embrace the vision and accept to go on the riences will be skewed towards the latter part of the organisations. to design the reorganisation plan and to negotiate with transformational journey. question. I recall one example I helped turn around, the main creditors. In some cases, a specialised profes- where a business unit became so distressed several The larger and more complex the organisation, the big- sional may assume the management of the company, as From the perspective of methodology and approach, years ago that it not only materially impacted the per- ger the magnitude of the impact when things get out a result of the negotiations with the main creditors and whilst some of the focus around corporate versus busi- formance of the entire region it was part off, but had of control. At the same time, these organisations usu- as a condition for the approval of the plan. ness level restructures is clearly different, particularly the potential to impact key health measures of the en- ally dispose higher resources to be able to absorb some around navigating the insolvency and legal framework tire global group. It’s not unusual for corporate dis- tough projects or phases, buying some time in being Podolski: As mentioned earlier, there definitely is a as well as different financial restructuring needs. Just like tress to start with issues stemming from a function or able to drive restructuring activities. In smaller compa- linkage between not just some of the approaches, but skills, many of the approaches share a common ground- a large account inside large organisations, which drain nies, where the company generally has less resources at also the skills required to drive corporate level and ing and mind set. Understanding root causes of distress, resources to the extent of impacting organisational its disposal to be able to absorb financial burdens, the business level restructures or turnarounds. reviewing and adjusting strategies around the go to mar- health at a corporate level. quicker the implications will challenge the company’s ket model and business portfolio, addressing underlying sustainability and shortening the remediation time abil- On the skills side of the ledger, an ability to think technical and cost structure challenges, as well as review- In this case, given the size and complexity of the dis- ity before potentially solvency considerations surface. strategically and not lose sight of the bigger picture, ing the organisational structure to ensure it is effective tressed business unit, the remediation and turnaround Therefore, implementing and governing a sound busi- yet possess enough patience for understanding some and efficient, are all elements which are shared. approach shared many principles that also apply to ness management practice are no less important there. of the operational detail, is a good balance to have.

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16. In an ideal world what would you like to see implemented or changed?

Felsberg: In an ideal world all restructurings, in or out to many more small businesses that would otherwise of court, result in healthy and creditworthy companies, not be able to afford pursuing a Chapter 11 bankruptcy. abandoning the “pretend and extend” mode, which unfortunately prevails in many Brazilian restructur- On a related note, I would also prefer to raise the debt ings. Unfinished business perpetuates insolvency and limit on those who may file a bankruptcy under Chap- to the market forces and competitive pressures. Legisla- civil service and parliamentary time are pushing such is contrary to the “raison d’être” or “ratio legis”, i.e., the ter 13, a so called wage earner’s plan. It enables indi- tion is also undergoing some very dramatic and excit- legislation out into the future. purpose of the insolvency legislation. viduals with regular income to develop a plan to repay ing changes across many jurisdictions to try to keep up all or part of their debts pursuant to a repayment plan with the future reality and business needs. This is a very I think this could be a real game changer for the UK Golubow: Ideally, I would like small business Chap- to make instalment payments to creditors over three exciting time for any professional associated with busi- and would very much like to see the proposals enacted. ter 11 cases to be available to a larger number of busi- to five years. Chapter 13 is only available to individu- ness transformation or business restructuring – be it at As somebody who worked in a PLC that went into Ad- nesses. While a small business Chapter 11 bankruptcy als with non-contingent, liquidated, unsecured debts a corporate level, or inside of organisations helping re- ministration I know first-hand how value destructive provides the same protections and tools as a standard of less than $394,725 and non-contingent, liquidated shape corporations in the new economy. an insolvency can be and just how hard it hits employ- Chapter 11 bankruptcy, a small business Chapter 11 debts of less than $1,184,200. 11 U.S.C. § 109(e). If ees and others. Surveys suggest that in excess of one- bankruptcy has a number of unique features designed these debt limits were raised, more individuals would Bryan: In 2014 the EU issued a recommendation on third of all insolvencies are caused by an insolvency, to lessen the cost and streamline the process so as to be able to take advantage of Chapter 13 instead of be- an EU wide pre-insolvency regime. This became a di- normally a major customer going under. We need to make it accessible to businesses that would not be able ing left with the only the option of filing a prohibitively rective in 2016 so all EU countries will have to put break this domino effect. to afford to pursue a standard Chapter 11 bankruptcy. expense Chapter 11 bankruptcy. their own laws in place to comply with the principles For example, in a small business Chapter 11, there is outlined. Very briefly these are (i) to facilitate restruc- The “I” word is seen very negatively and the sugges- a longer period in which the debtor has the exclusive Batra: We urgently need a cross border insolvency law. turing at an early stage without lengthy or costly pro- tion of an insolvency causes stakeholders to do noth- right to file and solicit acceptance of a Chapter 11 plan, Hopefully, we will get it early next year. cedures and without court involvement; (ii) a super- ing more than try to protect their own position, often which minimises situations in which there are conflict- vised stay or moratorium period where nobody can making things worse in the process. Management fear ing Chapter 11 plans. 11 U.S.C. § 1121(e). Podolski: In my experience there is no such thing as an take enforcement action against the business; (iii) the loss of their jobs and all too often stick their heads ideal world. Particularly in context of the topic of this preventing dissenting minorities from holding the in the sand until it is too late. Then they rush to file due At the same time, a small business debtor may not be round table, business leaders need to make the most process to ransom; (iv) facilitating continuation of the to fear they may be accused of . required to create and file a disclosure statement in sup- and embrace the opportunities that exist in the pres- business while restructuring; and (v) generally giving port of its Chapter 11, an obligation that is necessary ent. This is a very exciting time for business, with many a better chance of success for restructuring without We need to have a major change to this business culture. in the context of a standard Chapter 11 bankruptcy industries undergoing significant change. The digital resort to formal insolvency. A proper pre-insolvency regime presented in a positive but which entails the expenditure of significant time revolution is impacting many legacy business models light should encourage management to seek help ear- and resources. Fed. R. Bankr. P. 3017.1. A small busi- in ways and at a pace which we have not experienced The UK consulted on this in 2016 with proposals of its lier. Rather than the negative consequences of insol- ness Chapter 11 bankruptcy, however, is only available since the internet revolution several years ago. Whilst own along the lines of the EU ones. There were a lot of vency there should be an expectation that help should to debtors who hold an aggregate non-contingent liq- this is putting pressure on traditional business models responses and some things need more work, particular- be sought and that if early enough, there should be a uidated secured and unsecured debt of no more than and on companies who are struggling to adapt to the ly the recognition of the status of accredited turnaround reasonable chance of saving the business. This would $2,566,050. 11 U.S.C. § 101(51D). Raising the debt limit change, at the same time many new, innovative com- professionals, but it did seem there was a real willing- be good for business, good for the country and a major from $2,566,050 to $10 million would make the stream- panies are emerging. Traditional organisations are re- ness in government to push ahead with this. Then came boost to the entrepreneurial spirit we are going to need lined nature of bankruptcy under Chapter 11 available defining and transforming themselves to stay relevant Brexit, and right now it seems that the demands on the post-Brexit.

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