Abstract
Chapter 1 has provided a primer on the identity of new financing and the various modes of financing the distressed debtor. While it is one thing to identify the financing options, it is another thing to situate those options within the extant frameworks which support the restructuring of a financially distressed business. On the one hand, although debt restructuring is essentially a private matter between the distressed debtor and the relevant creditors, it is also commonly agreed that the state has a role in facilitating the functioning of the economy. Without doubt, restructuring frameworks—whether found embedded in formal restructuring or ensconced in workout structures—play an important role in the functioning of market economies. Hence, through a comparative statutory, case law and normative analysis, the preoccupation of this chapter is to identify the key components (toolkit) that have been suggested to facilitate successful debt restructurings. Setting forth the ideal toolkit of a business restructuring, the chapter seeks to identify which (if any) of the components play any role in supporting liquidity or new financing for the financially distressed business.
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Notes
- 1.
Stiglitz (2001), pp. 3–4.
- 2.
Hard contract generally refers to financial contracts where the parties have specified the terms and conditions of their association with each other. This is in contrast to soft contracts which do not specify what is to be delivered to either party. See generally, Heery and Noon (2008). In the particular context used above, financial contracts such as a bank loan or bond will qualify as a hard contract, while common or preferred stock will qualify as soft contracts.
- 3.
An out of court workout will qualify as an informal restructuring framework.
- 4.
Finch (2009), p. 294 (“noting that for most troubled companies, entering into formal insolvency procedures is a course of last resort only to be pursued when informal strategies have been exhausted”); Jostarndt and Sautner (2010), p. 624 (noting that in Germany, “… most firms first try to restructure their debt out of court.”).
- 5.
See Tilley (2005), p. 102 (arguing that European restructuring is still best achieved outside of formal restructuring “and with the exception of the UK, among the major economies, is still inflexible, bureaucratic and value destructive.”).
- 6.
One may argue that pre-packaged bankruptcies (as in the US) take a shorter time. However, a counter-argument will be that the relevant negotiations have already been carried out informally and this is what makes the shorter time in bankruptcy possible.
- 7.
See Gilson et al. (1990), p. 319 (“When debt is restructured privately, legal costs are reduced because such decisions can be made more quickly.”) See also Adler (1993), pp. 316–317 (arguing for a contractual resolution of distress (in legal systems that tolerate such types of contracts) as opposed to formal bankruptcy law-based restructuring; he identifies different costs associated with the latter. He identifies amongst others, the substantial costs arising from claimants’ maneuverings in order to gain strategic advantages as well as the distraction for management that arises therefrom. Other costs he mentions are the monitoring costs that may arise on the part of high priority creditors for fear of deprivation of contractual priorities already bargained for ex ante upon formal bankruptcy proceedings).
For a summary of empirical studies showing the direct cost of formal restructuring in the US, see Armour and Deakin (2001), p. 25; Also see Branch (2002); Larkin and Smolinsky (2015).
- 8.
Gilson et al. (1990), p. 319.
- 9.
Id.
- 10.
See for instance, Tajti (2018), p. 1 (on bankruptcy stigma and its negative impact on the restructuring policy); Bork (2012), at para 2.12, 24–25 (in the case of Germany for instance, author notes the effect of the emotional inhibition of bankruptcy in the German society and its implication for formal restructuring through bankruptcy law). See also McCormack (2009), p. 114. (“On the ‘stigma’ point, it is very difficult to find hard empirical evidence but within Europe as a whole, including the UK, there is certainly the opinion that stigma exists and that this works as a deterrent to entrepreneurial initiative.”).
- 11.
See Erhemjamts and Raman (2011), p. 411 (suggesting that assets of this nature may erode in a formal restructuring).
- 12.
- 13.
See Sect. 3.5.1 below.
- 14.
See generally, Seidman and Seidman (1994), pp. 75–84.
- 15.
Pottow (2014), p. 222.
- 16.
Note that when targeted formal restructuring regimes (like the schemes of arrangement) exclude creditors, the excluded creditors reserve the right to attend court during sanctioning of the hearing by the schemes court, where the court will address the question of whether such a creditor has an economic interest in the distressed business, and thus should have been involved. See the scheme confirmation cases of Re MyTravel Group plc [2004] EWCA Civ 1734; Re Bluebrook Ltd [2009] EWHC 2114 9 Ch. This notwithstanding, the procedure is by design targeted at certain stakeholders.
- 17.
As a targeted restructuring regime, the CVA is analyzed in this chapter in terms of how it meets the key requirements of restructuring.
- 18.
See Sect. 3.3.2.2 below.
- 19.
11 U.S.C. §§1101-1174.
- 20.
Note that apart from businesses, individuals are allowed to restructure their debt under Chapter 11. See Toibb v. Radlof 111 S.Ct. 2197 (1991), where the Supreme Court resolved that a consumer debtor was eligible to file under Chapter 11 of the Bankruptcy Code.
- 21.
See NLRB v Bildisco 465 US513 at528 (1983) where the Supreme Court opined that: “The fundamental purpose of reorganization is to prevent a debtor from going into liquidation, with an attendant loss of jobs and possible misuse of economic resources.”
See also Kerkman, who commenting on the rationale for chapter 11, says:
Congress envisioned the objectives of Chapter 11 reorganization to allow a debtor, usually a business, “to restructure a business’ finances so that it may continue to operate, provide its employees with jobs, pay its creditors, and produce a return for its stockholders.”‘... Creditors, employees and equity holders all benefit by allowing the business to operate and reorganize. The end result sought in a reorganization is a confirmed plan and a profitable business.
Kerkman (1987), p. 161.
- 22.
See for instance, Bebchuck (1988), pp. 780–781 (describing the numerous costs and inefficiencies in the current Chapter 11 scheme); Jones (1992), at p. 1089 (“… for all practical purposes, Chapter 11 is not facilitating reorganizations.”); Jensen (1989) (arguing that too often, financially distressed businesses end up in cumbersome court-supervised bankruptcy process that diverts management time and attention away from managing the enterprise”). Baird and Rasmussen (2002), p. 752 (noting that traditional formal restructuring under Chapter 11 has become irrelevant for most financially distressed firms); Dickerson (2003), p. 3 (arguing that US bankruptcy laws does not do enough to “encourage directors of [distressed firms] to seek protection afforded before the firm becomes is insolvent....”).
- 23.
Ball (2013).
- 24.
Finch (2012), p. 194 (stressing that the administration procedure is “the main, formal, procedure for effecting corporate rescue” in the UK).
- 25.
See generally, Cork (1982).
- 26.
See Sch B1 para 3, IA, 1986. See also the speech of Lord McIntosh of Haringey in support of the Enterprise Bill, 2003, where he noted that Parliament intend that the new administration procedure would serve as a means to rescue companies. See House of Lord’s Debate, Jul. 29, 2002, vol. 638, para 766.
- 27.
Schedule B1, para 3, IA, 1986.
- 28.
See Walters (2015), p. 563 (noting that the administration procedure “has always functioned principally as a procedure designed to facilitate a better (i.e. going-concern) realization of business assets than could be achieved through a piecemeal liquidation); see also, Paterson (2015), p. 705 (“... administration was reserved for a sale of the business and assets, or just the assets, to a third party if the banks decided that they were no longer willing to support the business”).
- 29.
See generally, Goode (2011), at para 11–17, 393.
- 30.
- 31.
Ibid. Winding up is used as equivalent to a liquidation and both terms refer to “a collective insolvency process leading to the end of the existence of the company….” See Goode (2011), at para 1–39, 36. Both terms will be used interchangeably.
- 32.
See Bork (2012), at para 6-30, 67 (relying on statistics from 2005 to 2010). It is also very possible that many of the cases involve the negotiated sale of all or part of the company as a going concern before the administrator is appointed, and the company or parts of it, is sold off as a going concern following the commencement of the administration procedure. This is known as “pre-packaged administration (or pre-pack). See Payne (2014a, b) (provides a detailed discussion of the pre-pack administration in English law).
- 33.
The objective of the reform was to facilitate bankruptcy procedures with a focus on the enforcement of the right of creditors rather than what became of the insolvent business. See Amtliche Begrundung [Official Explanation of the Government Draft], reprinted in 1/92 BR-DS 75 (March 1, 1991). See also, Kamlah (1996), p. 423.
- 34.
See generally, Bork (2012), at para 1.08, 4–5 (listing these defects to include a mandatory insolvency application, the inflexibility of the procedure, inadequacy in the law which governed the insolvency plan, the difficulty of effecting a debt-equity swap under the law).
- 35.
For instance, the delay arose as a result of the ability of a dissenting creditor to delay the implementation of an insolvency plan. Bork explains this as follows:
… [I]f a creditor makes out a prima facie case, the court is bound to gather evidence to render a decision on it. The drafting and submission of the necessary expert advice takes a great deal of time and will generally condemn the restructuring to failure since the plan agreed by the majority cannot be put into effect.
Id, at para 17. 61, 262.
- 36.
See Westpfahl (2010) (on the difficulty of binding dissenting creditors).
- 37.
The Act came into force on 12 March, 2012.
- 38.
See Bork (2012), at para 1.08, 4-5. See also, Global Turnaround (2007). Also, but for the 99% approval of the restructuring plan by Monier, the German roofing tiles company, plans were already underway to relocate the COMI. See Attila Takacs, European Restructuring Report, Defaults, Restructuring and Recoveries in 2008–2010, 27. Available at http://www.debtwire.com/pdf/Restructuring_Report_2008_2010.pdf. Accessed 1 Feb 2017.
- 39.
It was indeed clear from the reform document that this forum shopping by companies in need of restructuring informed the need for reform. See Bundesregierung, 2011. Dokumentations und Informationssystem Deutscher Bundestag [Documentation and Information System German Bundestag]. Available at: http://dipbt.bundestag.de/dip21/btd/17/057/1705712.pdf. Accessed 1 Feb 2017.
- 40.
Prior to the reform, the conversion of debt to equity was achieved in two ways: first, by decreasing the share capital of the debtor and then an increase in the share capital, with the debt claims of the creditor recharacterized as a contribution in kind. The alternative was to transfer shares of the debtor to the creditors who go on to waive their claim against the debtor. The challenge was that for either of these transfers to occur, the consent of the extant shareholders was required, and shareholders were often unwilling to give this consent, resulting in the collapse of the restructuring effort. See generally, Kann and Redeker (2012), p. 439.
- 41.
S. 17 para 2 InsO.
- 42.
This is the so-called Forthestehensprognose and the prognosis period is generally considered to run from the current, to the following business year of the company. Other factors such as the sector or nature of the business may be taken into account to extend the period. See Westpfahl and Schonen (2015), pp. 334–335.
- 43.
S. 18 para 2 InsO.
- 44.
Bärenz and Bach (2017), p. 148.
- 45.
S. 15a para 1 InsO.
- 46.
On the criminal liability imposed, see 2. 15(a)(4) InsO. Regarding the civil liability imposed, see s. 823 Abs 2 BGB. The practice of imposing liability on directors for failing to petition for insolvency also applies in the UK, see s. 214 IA, 1986; See also See also Finch (2009), p. 300. The US presents a sharp contrast. The nearest to liability directors may come is based is based on their fiduciary duty. Attempts to rely on the theory of “deepening insolvency” have been consistently refused by the court as grounding a cause of action against the directors of a distressed and now insolvent debtor. See In re Hydrogen LLC 431 BR 337, 357. A powerful statement of the law rebutting deepening insolvency as a cause of action was proffered by Delaware Court of Chancery in Trenwick Am. Litig. Trust v. Ernst & Young, L.L.P., 906 A.2d 168, 205 (Del.Ch.2006) as follows:
[T]he fact of insolvency does not render the concept of “deepening insolvency” a more logical one than the concept of “shallowing profitability.” That is, the mere fact that a business in the red gets redder when a business decision goes wrong and a business in the black gets paler does not explain why the law should recognize an independent cause of action based on the decline in enterprise value in the crimson setting and not in the darker one. If in either setting the directors remain responsible to exercise their business judgment considering the company’s business context, then the appropriate tool to examine the conduct of the directors is the traditional fiduciary duty ruler….
- 47.
Bärenz and Bach (2017), p. 153.
- 48.
See Bork (2012), at para 5.10, 48.
- 49.
See Sect. 3.7.3 below.
- 50.
See Sect. 3.6.3 below.
- 51.
Payne (2013), p. 567 (Given that it is not a bankruptcy procedure, it “allows the company’s financial problems to be tackled at an earlier stage than might otherwise be possible.”).
- 52.
While the scheme may easily serve as a restructuring device in the UK, it is not clear how courts in other jurisdictions perceive the schemes sanctioned by the English courts, in terms of their recognition. See for instance the case of Equitable Life, where the German Federal Supreme Court (Bundesgerichtshof), like the Celle Higher Regional Court re-emphasized the point that the scheme of arrangement does not qualify as an insolvency proceeding in the EU Regulation. This decision has been reinforced by the recast Insolvency Regulation 2015/848 where in Recital 16, it is pointed out that proceedings which are rooted in “general company law not designed exclusively for insolvency situations should not be considered to be based on laws relating to insolvency.”
- 53.
- 54.
Ibid, at 176 (pointing out that absent this statutory content, the scheme can be used to “… remove or modify all aspects of the creditor–debtor relationship, including security rights [and] can also be used to swap debt for equity, and to reorganize corporate groups.”).
- 55.
In re Hawk Insurance Co. Ltd [2001] BCLC 480, Chadwick LJ had pointed out that at the sanctioning of the scheme, the court is interested in ascertaining that (1) the meeting convened was in line with the initial order made by the court (2) the approval was secured by the statutorily mandated number of those who are present at the meeting(s) and (3) that the views and interests of those who have not voted in support of the proposal are properly taken into account. See para. 12.
- 56.
On the key requirements, see Sect. 3.4. below.
- 57.
See McCormack (2008), p. 276 (“Schemes of arrangement … [are] complex and difficult to organize, demanding of expensive legal resources and generally the preserve of larger companies.”).
- 58.
- 59.
The twinning of the schemes and administration (especially the pre-pack administration) procedure entails the combining of both procedures. The result is that once the scheme is confirmed by the court, all or part of the assets and business of the distressed company are transferred to a new company. The claim of junior claimants is however left in the old company. See Payne (2014a, b), p. 247.
- 60.
Ibid, at 254 (proposing reform that streamlines debt restructuring regime).
- 61.
See generally, Payne (2013).
- 62.
Jessel MR defined a receiver as follows:
a person who receives rents or other income paying ascertained outgoing, but who does not … manage the property in the sense of buying or selling or anything of that kind. We were most familiar with the distinction in the case of partnership. If a receiver was appointed of partnership assets, the trade stopped immediately. He collected debts, sold the stock-in-trade and other assets, and then under the order of the court the debts of the concern were liquidated and the balance divided. If it was desired to continue the trade at all it was necessary to appoint a manager, or a receiver and manager as it was generally called. He could buy and sell and carry on the trade.
See re Manchester & Milford Railway Company (1880) 14 Ch. D 645, at 653.
- 63.
This was introduced by Schedule 1 to the IA, 1986. See Goode (2011), at para 10–01-02, 315-6 (on the evolution of the role of the receiver).
- 64.
For instance, the Cork Report had this to say of the administrative receivership procedure:
There is … one aspect of the floating charge which we believe to have been of outstanding benefit to the general public and to society as a whole; we refer to the power to appoint a receiver and manager of the whole property and undertaking of a company. … Such receivers and managers are normally given extensive powers to manage and carry on the business of the company. In some cases they have been able to restore an ailing enterprise to profitability, and return it to its former owners. In others, they have been able to dispose of the whole or part of the business as a going concern. In either case, the preservation of the profitable parts of the enterprise has been of advantage to the employees, the commercial community and the general public.
See Cork (1982), at para.495 p. 17.
- 65.
Goode (2011), at para 10–05 (“banks that were over-secured had little incentive to ensure that receivers they appointed kept costs and fees down.”).
- 66.
On the prohibition of floating charge holders to appoint the administrative receiver, see s. 72A, IA, 1986. The exempted transactions on which the floating charge holder may be allowed to appoint an administrative receiver relate to capital markets; public private partnerships, utilities, project finance; certain financial markets; and registered social landlords and housing authorities. See ss. 72B-72G, IA, 1986.
- 67.
The German Bond Act was first passed in 1899. See generally, Tschauner and Wolfram (2010) (on the original legislation and its overhaul).
- 68.
Bork (2012), at para 1.13, 6 (noting that the amendment of the Act allows for the “suppression of dissenting creditors against decision taken by majority of creditors.”).
- 69.
See s. 5 of the German Bond Act. But see also the decision of the German Federal Court of Justice 9 BGH, 01.07.2014 – II ZR 381/13 = BGHZ 202, 7 = NZG 2014 1102 para. 11 (deciding that even in the absence of a provision prescribing the majority that may alter the terms and conditions, such a provision may be inserted by a creditors’ meeting, where an super majority of the creditors (75%) vote in favor of it).
- 70.
Skeel and Ayotte (2013), p. 1564.
- 71.
Id (In the individual pursuit of their claims in “a self-interested way, creditors can dismantle a firm that is worth more together than in pieces.”).
- 72.
The creditor bargain theory is a normative theory justifying the existence of corporate bankruptcy law. Its proponents are Professors Thomas Jackson and Douglas. G. Baird. For the most part, the theory emphasizes the valuable role corporate bankruptcy plays in ensuring a collective action for creditors thereby preventing the inefficiency that may arise from individual enforcement by multiple, uncoordinated creditors of a financially distressed corporate. See Jackson (1982), pp. 861–868 (author developed the Creditors Bargain Theory); Baird and Jackson (1984), pp. 116–125 (authors suggested that the role of bankruptcy law ought to be designed in such a way that it prevents individual actions against the assets of the debtor, so that it does not interfere with the use of the assets favored by the investors as a group); see also Jackson (1986), pp. 11–12.
- 73.
- 74.
This stay is automatic in the US, as it comes into effect by operation of law, upon the filing of the bankruptcy petition and unless one of the limited exceptions provided for under the law arises, or the court varies the stay, it continues until the end of the bankruptcy case. See 11 USC 362. In UK company law, the stay of creditor actions and claims come into effect only after the making of a winding up order by the court and commencing or continuing proceedings against the debtor may be continued with the leave of court and subject to the limitations the court imposes. See s. 130 of the IA, 1986. The stay does not however apply to secured creditors by preventing them from enforcing their claims. (See In re David Lloyd & Co (1877) 6 Ch D 339, 343–6). German law on its part affords the insolvency court the discretion to stay or forbid the execution of claims against the debtor upon the commencement of insolvency proceedings. See s.21 InsO.
- 75.
See The Insolvency Service (2016) (On the need for a pre-insolvency restructuring procedure, two-thirds of the respondents agreed to the introduction of a stay of creditor enforcement action (temporary moratorium). See Articles 5(c), 6(c) and 10 of the EU Recommendation on Business Failure (recommending the design of a court-ordered stay in the context of corporate restructuring enabling the preservation of the assets of the distressed debtor and avoiding a piecemeal liquidation by the creditors).
- 76.
UNCITRAL Legislative Guide on Insolvency Law (2005).
- 77.
See COMMENTARY TEXT on post-commencement finance as it appeared in WP. 70, the draft before Working Group V (Insolvency) at the session in New York from March 29, 2004 through April 2, 2004, 241. Available at: https://www.iiiglobal.org/sites/default/files/media/Post-Commencement%20Finance%20Excerpts.pdf (last accessed 20 Nov 2016). The Working Group recognizes that the automatic stay as well as (temporary) cessation of payment on pre-commencement obligation of the debtor which is provided for in formal restructuring legislations may provide a means through which the debtor may finance its business.
- 78.
- 79.
Benjamin (2007), at para 8.38, 166. As Cranston points out, this consideration by lenders captures the essence of the negative pledge when it originated in the US early in the twentieth century. He states that:
In its basic form, it is simply a promise by a borrower that it will not grant security to a third party (the “basic negative pledge”). In another form, there may be a promise on the part of the borrower to grant equal and rateable security in the same asset to the [lender], or matching security in other assets, if it does grant security to a third party (the “equivalent security” negative pledge). Some negative pledge clauses go further and provide that the [lender] shares in any security the borrower grants in breach of the clause, or that security is automatically conferred in the same asset should breach occur (the “automatic security” negative pledge).
Cranston (2002), p. 315.
- 80.
Cranston goes on to list the cause of actions open to the initial lender when a negative pledge is violated:
… The first, is that it can obtain an injunction to prevent breach of the basic negative pledge clause, not to give security; the second is that it can obtain specific performance of an “equivalent security” negative pledge; and the third is that, if an “automatic security” negative pledge is in place, this will give it security which trumps any security taken by the third party.
Ibid, 317.
- 81.
Bjerre (1999), p. 306 (“… a negative pledgee’s remedies are purely contractual; the covenant confers no rights in the property.”).
- 82.
Skeel and Ayotte (2013), p. 1591.
- 83.
See Garrido (2012).
- 84.
See Sect. 3.4.1 above.
- 85.
Shutter and McLaughlin (2011), at para 6.4, 150 (on the need to seek waivers).
- 86.
Garrido (2012) at para 60 (“[S]ome creditors may be tempted to enforce their claims against the debtor while other creditors grant the debtor a grace period before enforcing their claims.”).
- 87.
Shutter and McLaughlin (2011), at para 6.09, 151 (on the effect of a standstill on creditor’s right to accelerate their loans).
- 88.
Goode (2011), at para 12-06, 479 (“There may, indeed, be no standstill agreement at all, merely a general understanding among creditors to refrain from enforcement action for a given period.”).
- 89.
11 U.S.C. § 362 (a) (1).
- 90.
See generally 11 U.S.C. § 362(a) (2)-(6).
- 91.
H.R. REP. No. 95-595, at 340 (1977).
- 92.
Skeel and Ayotte (2013), p. 1591.
- 93.
Id, authors stated as follows:
Inside bankruptcy, by contrast, any threat of suit that would come from violating the negative pledge clause would be nullified by bankruptcy’s automatic stay. And no court, to our knowledge, has limited or conditioned [DIP financing], or granted a lien to a pre-bankruptcy lender, based on a negative covenant violation by a [DIP financing] or granted a lien to a prebankruptcy lender, based on a negative-covenant violation by a DIP loan. Emphasis supplied.
- 94.
See U.S.C. § 502 (b). See In re Energy Future Holdings Corp., 540 B.R. 109, 111 (Bankr. Del. 2015) (“It is well-established that when a debtor files for bankruptcy, the accrual of interest on its loans is suspended, and any subsequent claims brought by unsecured creditors for the amount of this “unmatured interest” is prohibited ….”).
- 95.
In terms of safeguards, the court will lift a stay where there is no adequate protection afforded the secured creditor. The other factors to be considered by the court will be whether the distressed debtor has an equity in the asset which is the subject of the stay, as well as whether the asset is necessary for the restructuring effort. See 11 U.S.C. § 362(d).
- 96.
Baird (2010), p. 199. Segal succinctly captures the three policies that capture the treatment of the secured creditor in a Chapter 11 restructuring as follows:
… first, they are entitled to either the collateral or its full value. Second, for the benefit of their debtor or other creditors who might be injured by the repossession of their collateral, they may be required to wait for that to which they are entitled. Third, if secured creditors are required to wait they may be “adequately protected” against loss during their wait. There remains a fundamental policy difference between the English and the U.S. systems. The secured creditor’s interest in the collateral is commandeered by the bankruptcy system primarily to prevent two kinds of losses.
See Segal (2007), p. 928.
- 97.
Id.
- 98.
See 11 U.S.C. § 506(b).
- 99.
Ibid. It is often a contentious issue in practice to determine the secured creditor’s entitlement to interest, as well as the applicable rate of interest. For an analysis of the issues surrounding these determinations, see the Prudential Insurance Co. of America v. SW Boston Hotel Venture LLC (In re SW Boston Hotel Venture, LLC), 748 F. 3d 393 (1st Cir. 2014).
- 100.
Gilson (2012), p. 27.
- 101.
Moratorium is used here in the sense of a statutory stay as envisaged in Sch. B1 paras 42-43, and Sch. A1 Part III, IA, 1986 and not in the more general sense of a period when debt is considered not due and payable.
- 102.
To be qualified for a moratorium, the company needs to meet at least one three criteria: (1) have a turnover of £6.5m; (2) asset balance sheet below £3.26m; (3) employees not exceeding 50. See para 3(2)(a) of Sch A1, IA 1986 and s. 382 (3) English Companies Act, 2006.
- 103.
Para 42, Schedule B1, IA, 1986. The same applies to CVAs for small companies. See Sch.A1 paras 12–23 IA 1986.
- 104.
Para 43, Schedule B1, IA, 1986.
- 105.
Ibid. see Re Paramount Airways Ltd, Bristol Airport plc v. Powdrill [1990] BCC 130, where the court held that the assertion of a statutory lien (considered a proprietary interest) over the airplane of the debtor was caught by the moratorium provision of the IA, 1986. See also Re Sabre International Products Ltd [1991] BCC 694, where the court also held that the goods in the possession of a haulage contractor over which it had a lien, was caught by the moratorium. For a discussion on the now expansive scope of security interest under the IA, 1986 and how it interacts with the moratorium in administration proceedings, see De Lacy (2010), pp. 37–42.
- 106.
Recall that the administrator may be appointed by the directors of the company or the company itself (para. 31, Schedule B1, IA, 1986), the holder of a floating charge (paras 14 and 19, Schedule B1, IA, 1986), or by the court (para 13(2), Schedule B1, IA, 1986).
- 107.
Ibid, for the UK position. In the US, see 11 U.S.C. § 362(a).
- 108.
Para 44, Schedule B1, IA, 1986.
- 109.
See Keay and Walton (2008), p. 106. It is however worthy of note that the interim moratorium does not prevent the holder of a qualifying floating charge from appointing an administrator over the debtor or (in appropriate situations), appointing an administrative receiver, who is also not prevented by the interim moratorium from carrying out its functions.
- 110.
See Para 71, Schedule B1, IA, 1986.
- 111.
See Re Atlantic Computer Systems plc [1990] B.C.C.859.
- 112.
See Yeowart (2009), p. 527.
- 113.
Astor Chemical Ltd v Synthetic Technology Ltd [1990] B.C.C. 97.
- 114.
But see Yeowart (2009), p. 523 (“Negative pledges commonly exclude charges arising by operation of law. Even if a negative pledge is silent on this question, a court might construe it to exclude charges arising by operation of law through no act on the part of the company, depending of course on the terms of the contract containing the negative pledge construed as a whole.”).
- 115.
See re Olympia & York Canary Wharf Ltd [1993] BCC 154, 158 (holding that a notice for termination following a repudiatory breach does not require the consent of an administrator or the leave of court).
- 116.
See generally, The Insolvency (Protection of Essential Supplies) Order 2015.
- 117.
Such creditor takes advantage of the powers of the administrator to make payments outside of the ordinary distribution order if “he thinks it is likely to assist the achievement of the purpose of the administration” and to make “any payment which is necessary or incidental to the performance of his functions.” See IA 1986, Sch. B1, para. 66 and Sch. 1, para. 13.
- 118.
Finch (2009), p. 485 (noting that between the period of formulating the scheme and the approval of same by the court, each creditor may take steps to enforce their rights and remedies against the company).
- 119.
Insolvency Service (May 2011), at para 4, 5. (“It is generally felt that the existing UK insolvency framework is coping and adapting well to the challenges that the current round of restructurings are posing, and the urgency of the case for introducing a new moratorium is not fully made out.”).
- 120.
[2012] EWHC 164, 209 (Ch).
- 121.
The company would have become illiquid by German law standards, imposing an obligation on the directors to open insolvency proceedings.
- 122.
Bluecrest Mercantile BV v. Vietnam Shipbuilding Industry Group [2013] EWHC 1146 (Comm.).
- 123.
See ibid at para 41.
- 124.
S.21 (1) InsO.
- 125.
Bork (2012), at para 10.15, 135.
- 126.
Ibid, 10.16, 136.
- 127.
See for instance s. 80 InsO, which takes from the debtor the right to dispose of assets in the estate of the debtor. Any transfer from the estate by the debtor is legally invalid, by s. 81 InsO.
- 128.
S. 89 InsO.
- 129.
S.166 InsO.
- 130.
S. 21(2) (5) of the InsO. See also s. 172 InsO.
- 131.
Ibid. This is known as compensation for use. The German Federal Court of Justice ((September 8 2016, IX ZR 52/15) has had to decide on whether the insolvency administer need pay compensation for the use of the property subject to segregation within the first 3 months of the order of the court. Holding in the affirmative, the court clarified that the provision of the law only pertained to the free use of the asset and not for use without the compensation of the secured creditor (or its successor in title) for the deterioration of the asset whether arising from standard or excessive use of same. See also, Bork (2018). In: McCormack (2018), at para 191, 227 (emphasizing the ability of a secured creditor to claim for compensation from the insolvency estate for loss of value that affects the collateral).
- 132.
Bork (2012), at para 10.24, 139. See also S. 21(1) InsO.
- 133.
Ayer et al. (2003).
(“Such changes [in the financial and business structure of the debtor] may include sales of assets, cancellation or refinancing of debt(or conversion of debt to equity), curing or waiving of defaults, satisfaction or modification of liens, amendment of the debtor’s corporate charter, or changes in the amount, interest rate or maturity of outstanding debt.”).
- 134.
Dhillon et al. (2007), p. 241 (Pointing out that the restructuring plan determines whether the distressed debtor seeks the infusion of cash to continue operations and how the firm reorganizes its capital structure).
- 135.
The management of the debtor in distress may be the pre-distress management (as in a debtor-in-possession), a new management as in a trustee or administrator appointed by the court, or a kind of supervised management. See Sect. 3.7 below.
- 136.
Payne (2018), p. 130 (“the ability of the restructuring to be imposed on a dissenting group leads to the possibility of abuse of that group by the majority, and of wealth transfers between creditors as a result of the restructuring process.”).
- 137.
Paterson (2014), p. 335. The British Bankers Association has also described the London Approach in quite similar terms. It describes the London Approach as ‘a non-statutory and informal framework introduced with the support of the Bank of England for dealing with temporary support operations mounted by banks and other lenders to a company or group in financial difficulties, pending a possible restructuring’. Quoted in Armour and Deakin (2001), p. 31.
- 138.
Armour and Deakin (2001), p. 33 (“The Bank [of England] was able to transfer the expertise it had developed in dealing with the banking crisis to the orchestration of support operations for non-financial firms.”).
- 139.
Westbrook et al. (2010), p. 177.
- 140.
Ibid.
- 141.
Finch (2008), p. 771.
- 142.
Gudgeon and Joshi (2013), p. 11.
- 143.
Armour and Deakin (2001), p. 31 (noting that they did not find evidence of such policing).
- 144.
Paterson (2014), p. 336.
- 145.
Armour and Deakin (2001), p. 21.
- 146.
Ibid 46.
- 147.
Ibid. See also Paterson (2014), p. 336.
- 148.
See for instance, INSOL International, Statement of principles for a Global Approach to Multi-Creditor Workouts (October 2000).
- 149.
See BGHZ 116, 319, 321 (The Budesgerichtsof restated that a creditor is not obliged to take part in an agreement which requires it to compromise its debt).
- 150.
See Bork (2012), at para 5.03, 46.
- 151.
Bitter (2010), p. 172 (arguing that there exists a duty of care between creditors even though they are not connected, in view of the intensity of the power to affect the legal and financial position of others and a corresponding duty to sacrifice one’s legal position (“Aufopferungspflicht”)).
- 152.
See Brikom Investments Ltd. v Carr [1979] Q.B. 467, at 484-485per Lord Denning MR.
- 153.
See Moss et al. (2011), p. 165 (on the importance of consideration for forbearance).
- 154.
Id (“The mutual release of rights by the lenders and the debtor company is sufficient consideration for both the compromise and the new rights created.”).
- 155.
Creditor here refers specifically to providers of loan i.e. lenders.
- 156.
Moss et al. (2011), p. 166.
- 157.
For instance, English case law imposes a duty on the majority in a syndicated lending to exercise good faith and ensure that it has exercised its powers for the purpose for which it was conferred. On improper use of power, see British America Nickel Corporation v. O’Brien [1927] AC 369. See also Redwood Master Fund Ltd. v. TD Bank Europe Ltd [2002] EWHC 2703 (Ch).
- 158.
Ibid. This approach is not unusual, even when the loan is not provided pursuant to a syndicated loan and even when there is no prior inter-creditors agreement. Responding to an unstructured interview, an insolvency and restructuring lawyer familiar with restructuring by German lenders noted that many times, the pre-distress financing is not provided by a syndicate. In restructuring the distressed borrower, the dissenting lender may be a senior creditor but with a low exposure and basically wants out. Another senior lender will have not much of an option but to buy out the lender to enable the restructuring process to go on unhindered.
- 159.
See Franks and Sussman (2005), p. 65.
- 160.
Ibid at 90–91.
- 161.
Ibid at 89.
- 162.
Section 176A (2) IA, 1986.
- 163.
11 U.S.C. § 1121.
- 164.
Either of the criteria yet need to meet an additional layer of requirements. Amongst others, the Bankruptcy Code imposes the good faith requirement (11 U.S.C. § 1129(a)(3)); the disclosure of identities, and affiliations of post confirmation directors, officers and voting trustees, including those with insider status and that such participation is consistent with public policy and the interests of the creditors and equity security holder (11 U.S.C. § 1129(a)(5)(A)(i) & (ii), (5)(B); and that the plan meets a feasibility test (11 U.S.C. § 1129(a)(11).
- 165.
Although the Bankruptcy Code does not define “interest”, it is argued that it could be read to mean the right of an equity holder. See Riesenfeld (1987), p. 391(fn5) (“The right of an equity security holder is an interest, as can be seen from § 501(a) and § 101(15), but the legislative history supports the conclusion that any ownership interest is an interest for purposes of Chapter 11.”).
- 166.
11 U.S.C. § 1129(a) (8). What amounts to an impairment is covered in 11 U.S.C. § 1124.
- 167.
11 U.S.C. § 1126(f).
- 168.
11 U.S.C. § 1126(c).
- 169.
11 U.S.C. § 1126(d).
- 170.
“Cram down” is not expressly used in the US Bankruptcy Code. It is the name by which the plan binding mechanism provided for in the Code was called in the cause of legislative development. See H.R. Rep. No. 595, 95th Cong., 1st Sess. 411, 413 (1977). See also Bonner I, 2 F.3d at 906 (The confirmation of the plan in this manner is called a cram down because “the plan is crammed down the throats of the objecting class(es) of creditors.”).
- 171.
11 U.S.C. § 1129(b).
- 172.
Ibid.
- 173.
5 Collier on Bankruptcy ¶ 129.03(3)(b) (15th ed. 1989) (“… a dissident class must … also receive treatment which allocates value to the class in a manner consistent with the treatment afforded to other classes with similar legal claims against the debtor”).
- 174.
Given that 11 U.S.C. § 1129(b) (2) states that the concept of fair and equitable “includes the following requirements .... [Emphasis supplied]”, it is suggestive that the provisions that follow are not exhaustive of what may be considered as fair and equitable.
- 175.
This rule is a legislative requirement for the purpose of confirming a plan in the face creditor objection, requiring that creditors be fully paid the value of their claim before equity claimants receive anything. See generally, s. 1129(b)(2)(i)(B)(ii). On the possible rationale for designing this rule, see Watson (2000), p. 1197 (“Congress apparently designed the absolute priority rule so that the only way a class of unsecured creditors could be excluded unwillingly from receiving full compensation is if the reorganization value of the debtor, when distributed in order of seniority, runs out prior to the unsecured claims being fully paid.”).
- 176.
Sch B1 para 12(1) (c) IA, 1986.
- 177.
Sch B1 para 49(5)(a) and (b). The rules on timing have been tightened from the 3 months previously provided for to 8 weeks. The idea is to accelerate the process of administration. See Goode, at para 11–109, 467.
- 178.
See Goode (2011), at para 11–17, 393.
- 179.
See Rule 1. 19, IR 1986.
- 180.
See Rule 1. 20, IR 1986.
- 181.
See re Wisepark [1994] B.C.C. 221 at 223 (“The effect of an approval of a scheme of arrangement by creditors in the normal case is effectively to subsume the claims of creditors in the arrangement where there is a contractual release of those claims against provisions in the scheme to pay a dividend on those claims from assets which have been placed in the scheme”).
- 182.
English Companies Act 2006, s. 899(1).
- 183.
- 184.
See generally, Paterson (2017), pp. 611–15 (on the notions of fairness that arise with the use of twinning schemes and pre-pack administration).
- 185.
Sch. B1 para. 73(1).
- 186.
See s. 1 InsO, which in providing for the objectives of insolvency proceedings states that they “shall serve the purpose of collective satisfaction of the of a debtor’s creditors by liquidation of the debtor’s assets and by distribution of the proceeds, or by reaching an arrangement in an insolvency plan, particularly in order to maintain the enterprise [emphasis supplied].”
- 187.
See Klein (2012), p. 303.
- 188.
Dimmling (2017), p. 86 (noting that although the insolvency plan procedure has been in place since 1999, between 1999 and 2012, it had been used only in approximately 1% of corporate bankruptcies).
- 189.
See ss. 245 (1)(1) and 251(1)(2) InsO on the ways in which the minority dissenting creditors can sidestep the majority decision and derail the plan procedure.
- 190.
Finch (2005), p. 375.
- 191.
Id.
- 192.
See 5 Collier on Bankruptcy 10, 1104.01, at 1104-21 (“The philosophy of Chapter 11 is to give the debtor a ‘second chance’....”). Whether the retained management is still the norm in practice is analyzed in Chap. 5.
- 193.
11 U.S.C. § 1107.
- 194.
See Butler Jr. et al. (2010), p. 338 (“A debtor’s incumbent directors and officers bring to bear experience and institutional knowledge, which would be squandered if they were automatically replaced at the commencement of each chapter 11 proceedings ….”).
- 195.
See generally, Westbrook et al. (2010), p. 133.
- 196.
See Louisiana World Exposition v. Fed. Ins. Co., Inc., 858 F.2d 233 (5th Cir. 1988) (a DIP “both enjoys the rights and must fulfill the duties of a trustee.”) In re Devers, 759 F.2d 751, 754 (9th Cir.1985) where the court pointed out that the DIP “has a duty to preserve and conserve property in his possession for the benefit of creditors.” There has been some debate on whether the DIP is a separate entity separate and distinct from the distressed management. See for instance, Kelch (1992), p. 1331 (highlighting the increasing resistance to the “new entity” theory); also, Schwarcz (1999), p. 527 (noting cases where the courts have held that the “new entity” theory in refusing waivers in bankruptcy).
- 197.
See 11 U.S.C. § 1104.
- 198.
Berdan and Arnold (1984), p. 471.
- 199.
In re Sea Queen Kontaratos Lines, Ltd., 10 Bankr. 609, 610 (Bankr. D. Me. 1981).
- 200.
Berdan and Arnold (1984), p. 471 (“… merely establishing that the debtor exercised poor business planning will not suffice to overcome the presumption that the debtor shall remain in possession.”).
- 201.
See for instance, Frost (1992), p. 118 (highlighting the conflict of interest of the pre-distress management in relation to its new role as fiduciary for creditors); Dickerson (2004), p. 135 (arguing that the pre-petition directors of the debtor ought to be presumed unfit to serve on boards and should be disqualified from taking up future roles as board members); Rotem (2008) (proposing the appointment of a monitor by the bankruptcy judge who supervises the business activities of the debtor, in conjunction with the pre-commencement management of the debtor, as it is the case in Canada).
- 202.
See for instance, Goode (2005). (noting that insolvency is the result of management failure and the last people to leave in control of the business are those who have caused the failure); Moss (1998), pp. 18–19 (arguing that leaving the management of a distressed business in place is tantamount to leaving an alcoholic in a pub); Schiessl (1988), p. 247 (noting the doubts of the German Law Reform Commission of the value of the management skills and the creditors’ reliance on the old management).
- 203.
See Chap. 5 for more on this.
- 204.
- 205.
Schiessl (1988), p. 247.
- 206.
McCormack (2007), p. 524 (“… the management personnel who originally precipitated the company’s financial difficulties have not only an incentive but also the power and authority to initiate high-risk strategies.”).
- 207.
McCormack (2018), at para 113, 348 (noting that administration proceedings involve the appointment of an insolvency practitioner and the displacement of the existing board of the company from their management functions). See also Bork (2012) at para 5.08, 48 (“Restructuring is usually the job of a neutral, court-appointed insolvency administrator….”).
- 208.
The provisions of this restructuring regime largely adopted the recommendations of the Cork Committee Report of 1982. See Cork (1982). The Committee did recommend the introduction of the formal corporate restructuring procedure known as the administration procedure. See McCormack (2007), p. 518 (“Cork recommended the introduction of a wholly new corporate insolvency mechanism primarily designed to facilitate the restructuring and rehabilitation of the viable parts of the company in financial difficulties—the administration order procedure”); note that the Enterprise Act 2002 further introduced new changes to the administration procedure, to better serve the goals of rescue. For a detailed analysis of these changes, see Finch (2009), p. 380 ff.
- 209.
This will follow from the application of the company, its directors, one or more of the creditors of the company, or a combination of these parties. See Sch. B1, para 11-13 IA 1986.
- 210.
This is the case where the holder of a qualifying floating charge exercises its right to appoint the administrator (see Sch. B1, para 14-21 IA 1986) or the company or directors choose to do so (see Sch. B1, para 22-34 IA. 1986). On the chances of non-recognition of out-of-court-appointed administrators beyond the UK, see Moss (2004).
- 211.
On the assumption underlying the administration as a management displacing procedure, see Goode (2011), at para 11–18, 394 (“Administration … is predicated on the assumption that where a company becomes insolvent, this is usually due to a failure of management and the last people to leave in control are those who were responsible for the company’s plight in the first place.”).
- 212.
See para 59(1) of schedule B1, IA, 1986: “The administrator of a company may do anything necessary or expedient for the management of the affairs, business and property of the company.”
- 213.
See generally paras. 14 and 15 Schedule 1, IA 1986.
- 214.
Sch. B1 para 59(1), IA, 1986; Sch. B1, para 3(1) (a), IA, 1986.
- 215.
Sch. B1, para 3, IA, 1986.
- 216.
Para 70(1) Schedule B1, IA, 1986.
- 217.
Para 71 Schedule B1, 1986.
- 218.
See generally, s. 80 InsO on the administrative powers of the insolvency practitioner.
- 219.
Bork (2012), at para 10.25, 140.
- 220.
Consistent with the ideas justifying the retention of the pre-filing management, German practitioners have opined that the continuation of the pre-distress management “allows the debtor’s management to widely maintain control over the process of insolvency, it provides for continuity of business administration, and thus might help to retain the confidence of business partners”. See Westpfahl and Schonen (2015), at 13.72, 350.
- 221.
S.270b para 2 sentence 2 InsO.
- 222.
Bork (2012), at para 10.26, 140.
- 223.
See Kann and Redeker (2012).
- 224.
- 225.
S.270b para 2 sentence 2 InsO.
- 226.
Bork (2012), p. 140.
- 227.
For a thorough analysis of both procedures, see Adebola (2013).
- 228.
S. 389(1)(a)-(b) CAMA.
- 229.
See s. 393(1) CAMA.
- 230.
Ibid. The Nigerian Court of Appeal in The Court of Appeal in Ponson Enterprises Nigeria Ltd and ors v. Njigha (2001) F.W. L.R (pt. 61) 1685 at 1699 clarified the difference between a mere receiver and a receiver/manager. The court pointed out that while a receiver halts the business of the debtor, calls in debts and realize on assets of the debtor, the receiver who is also a manager may continue to run the business of the debtor.
- 231.
S. 390(1) CAMA.
- 232.
S. 390 (2)(a) CAMA.
- 233.
S. 390(2(b) CAMA.
- 234.
Adebola (2011), p. 248.
- 235.
See LoPucki (2004), p. 1342. On the criticism that led to reform of the English receivership and the consequent reform under the Enterprise Act, 2002, see Armour et al. (2008), p. 158 (“…receivership led to excessive piecemeal liquidations and inflated costs on the theory that secured creditors (and, by extension, the receivers that they appointed) lacked the correct incentives to encourage them to maximise recoveries by favouring “going concern” outcomes and minimise the costs of their interventions.”) A somewhat related problem, albeit on a larger scale, is faced by unsecured creditors in the case of big businesses that file under Chapter 11 (on corporate reorganization) of the US Bankruptcy Code. It has been argued that the consequence of the control exerted by secured creditors and their actions in exercising this control often results in the lack of incentive for those with power to recover any value for claims with lower priority. See Kuney (2005), p. 28.
- 236.
Armour (2012), p. 105 (“Where the value of the firm’s assets was greater than the amount of secured debt owed, then the secured creditor was not the residual claimant and hence the receiver did not have strong incentives to maximize value.”).
- 237.
Monitoring is a means by which lenders are able to check their exposure to the risk that a debtor will be unable to keep up with its obligations under a loan agreement, especially as it pertains to keeping up with the payment of the principal or interest thereon. It is generally the case that the more the monitoring by the lender, the lesser ‘the degree of information asymmetries about the firm and with the nature of its assets.’ See Rajan and Winton (1995), p. 1115.
- 238.
See McCormack (2008), p. 66 (“[…] schemes of arrangement under the Companies legislation [are] complex and difficult to organize, demanding of expensive legal resources and generally the preserve of larger companies.”).
- 239.
- 240.
Adebola (2015), p. 9.
- 241.
See Idigbe and Kalu (2015).
- 242.
See AMCON Act 2010. The Act was amended in 2015.
- 243.
Margin loans are loans collateralized by the stock of the borrower trading on the Nigerian stock exchange. This was particularly a major cause of the spike in NPLs during the period leading up to the creation of AMCON. See Transcript: Interview with Nigeria’s new central bank governor FT (21 Jun 2009). Available at: https://www.ft.com/content/9b5955c4-5e5d-11de-91ad-00144feabdc0. Last accessed 8 Oct 2016.
- 244.
See Igbokwe M, Receivership under the AMCON Act: Scope and Application. Text of paper presented at the 6th AMCON interaction with Federal High Court, Court of Appeal, and Supreme Court Justices held on March 27–28 at the National Judicial Institute, Abuja.
- 245.
See s. 61 of the AMCON Act for the definition of the Eligible Financial Institution.
- 246.
See s.34 (1) AMCON Act. The earlier legislation required AMCON to also assume the obligations of the lenders, however any reference to obligations have been deleted in the amended legislation.
- 247.
See generally s.48 AMCON Act.
- 248.
Prior to the reliance on the management displacing regime under AMCON, in 2012, the Nigerian Central Bank (CBN) directed the prohibition of new lending to defaulted borrowers. See CBN Circular, Prohibition of New Credit Facilities the Debtors of Asset Management Corporation of Nigeria (BSD/DIR/GEN/AMC/05/048) 17 Sept 2012 (on file with author). Such funding came through AMCON where necessary, yet the challenges persisted. The AMCON Chairman summarizes this point as follows:
To place the companies in a position to recover and generate adequate cash flow, we gave additional on-lending facilities (in collaboration with Central Bank of Nigeria and Bank of Industry) of almost N40bn on very good terms.
Unfortunately, notwithstanding this support, the companies could neither pay the old nor new loans. We have, therefore, been compelled to appoint receiver managers over a lot of the companies….
See Dada (2018).
- 249.
See Chap. 5 on how this control is exerted.
- 250.
See s. 48(7) AMCON Act.
- 251.
For instance, it is possible that the claim of some pre-distress lenders has not been taken over by AMCON. Also, there may be lessors, trade creditors, as well as creditors who have retained title to goods. The Act makes no mention of balancing the interests of these creditors against the imposition of the automatic stay.
- 252.
See s. 48(8) AMCON Act.
- 253.
See for instance, Dada (2018) (Noting the challenges faced by AMCON arising from lack of support especially by foreign lenders and trade creditors).
- 254.
See s. 48 (9) AMCON Act.
- 255.
The Draft Bankruptcy and Insolvency Act (BIA) has been passed by the Nigerian Senate but still awaits passage by the Nigerian House of Representatives. Generally, under Nigeria’s written constitution, a draft legislation (bill) only becomes a law following the passage of the bill by its bicameral legislature and the assent of the President. For this, see s. 58 of the Constitution of the Federal Republic of Nigeria (CFRN) 1999 (as amended).
- 256.
Westbrook et al. (2010), p. 121 (identifying the two distinct pathways (liquidation and rehabilitation) which characterize the insolvency systems of many developed countries and an increasing number of developing countries).
- 257.
See s. 26(1)(a) of the draft legislation.
- 258.
See s. 3 of the draft legislation. While it is easy to tell what an extension of time is, it does appear that the draft legislation takes for granted, the meanings of ‘a composition, a scheme, or an arrangement’. An arrangement is however defined in CAMA (s. 537) as ‘any change in the rights or liabilities of members, debenture holders or creditors of a company or any class of them or in the regulation of a company, other than a change effected under any other provision of [the] Act or by the unanimous agreement of all parties affected thereby.’ An arrangement in English law (on which Nigerian corporate law derives), is said to cover a broad range of schemes employed for the purpose of restructuring. These schemes include “conversion of debt into equity, subordination of secured or unsecured debt, conversion of secured into unsecured claims and vice versa, increase or reduction of share capital ….” See Goode (2011), at para 1–46, 40.
- 259.
See s. 26(1).
- 260.
S. 35 of the draft legislation.
- 261.
S. 26(4) of the draft legislation.
- 262.
S. 42 of the draft legislation.
- 263.
S. 41(2) of the draft legislation.
- 264.
See generally, s. 55 of the draft legislation.
- 265.
S.49 of the draft legislation.
- 266.
See s. 49(7), (8), (9) and (10) of the draft legislation.
- 267.
The Long title of the proposed legislation is the A Bill for An Act to Repeal the Companies and Allied Matters Act 1990 (CAP C20, LFN 2004) and Enact the Companies and Allied Matters Act, 2016. (Hereinafter “proposed CAMA”). The text is available at http://new.cac.gov.ng/home/wp-content/uploads/2016/07/Draft-Bill-for-the-Repeal-of-CAMA-and-Enactment-of-New-Act.pdf (last accessed April 10, 2018).
- 268.
See s. 402(2) proposed CAMA.
- 269.
See generally, s. 402(5) proposed CAMA.
- 270.
S. 402 (6) proposed CAMA.
- 271.
For instance, an administration may be adopted for the sake of the moratorium provided therein, and a scheme of arrangement in order to take advantage of its voting procedure. Note that this may not always be the case especially where the scheme is combined with a pre-pack administration, where goal is to effect a sale of the distressed business following the restructuring. See generally, Payne (2016) The Future of UK Debt Restructuring. Available at: https://doi.org/10.2139/ssrn.2848160. Accessed 14 Mar 2017.
- 272.
See Payne (2018), p. 127 (“contractual workouts … operate best when the lenders comprise a small group of like-minded individuals or organizations.”).
- 273.
See Paterson (2014), p. 339 (the author points out that this interest of the state is borne out of its interest in promoting and stimulating economic growth). See also Bork (2012), p. 47 (pointing out that even though the text of German insolvency law does not express this forcefully, it can be gleaned from the provisions of the Insolvency Act that restructuring is a goal of the insolvency process and the parties are required to explore restructuring possibilities and to take advantage of the possibilities).
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Mba, S.U. (2019). Restructuring: Key Elements and the Financing Component. In: New Financing for Distressed Businesses in the Context of Business Restructuring Law. Springer, Cham. https://doi.org/10.1007/978-3-030-19749-0_3
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