Insolvency Restructuring Lecture Recording

There are two types of restricting. We will emphasize informal restructuring. There is another
one subject to the provisions of the Companies’ Act (scheme of arrangements that are subject to
the Act).
This is the first part of the discussion on non-terminal insolvency. By this, we are looking at the
kinds of things (arrangements) that can be put in place in circumstances where the insolvency is
one that will not lead to the death of the company. Assuming that the company or stallholders
thereof are of the view that in the circumstance it is possible for them to rescue the company
from becoming insolvent what are the kind of things they need to do? This is what we are
considering when we are looking at restructuring from the informal standpoint.
Restructuring is used where a company is a good one with a bad balance sheet – COVID 19 has
proved this. Almost all companies involved in hospitality are struggling right now.
NOTE: LOOK AT THE HEADING OF WHY RESTRUCTUING IN THE POWERPOINT.
Liquidation or bankruptcy often produce poor returns to creditors – for example where the
company’s life span is just one year or less.
Where the business is unable to trade, it cannot make profit to keep up with such financial
liabilities.
Considerations-:
- Because we are restructuring in an informal way what it requires is creditors coming
together to negotiate on how the company can be brought back into good financial health
on the basis of contract or agreement that respects the general law of contract.
- By restructuring we are not of the view that it necessarily involves all creditors, in fact
we know it does not. If the company realize it has one dominant creditor who has loaned
lots of money, then the company can informally restructure by trying to agree terms with
that dominant creditor. If there are a few creditors with influence, then the company can
restructure by negotiating with them.
- In most cases, once we are talking about restructuring, it involves the consideration of
moratorium which is a situation where the parties will consider and be adequate for the
standstill period (the time that we can give the company to recover).
- There are also issues surrounding the meeting of creditors where a proposal is submitted
by the debtor company.
- Cash calls usually involves in most cases the requirements of restructuring for the debtor
company to tap the creditors for money.
- Where the arrangement is in the form of a deed it provides information on what the
creditors are to surrender and benefit. In as much as the creditors consider the proposal
being submitted by the debtor, in most cases, it will be put it writing of what the creditors
will get for injecting more cash into the company.
- In most cases the directors will allow their rights to be reduced in the sense that an
independent person appointed by the creditors will come to look at the financial health of
 the company (i.e., a financial adviser or anyone they believe has the capability to act as a
check on the directors of the company).
There are two types of informal restructuring that we will be focusing on:
- The London approach –
- The International Approach – embodies principles that the restructuring must entail:
1. The principle of cooperation of the different creditors (A standstill period) –
the essence is to provide sufficient time. Any restructuring following this
approach must embody this.
2. Once you understand the relevance of the standstill period, you have to
understand the importance of creditors respecting their duties. One of the calls of
these duties will be to make sure that they refrain from making enforcement
claims against the debtor company during standstill.
3. Creditors need to refrain from making enforcement claims and debtors need to
refrain from taking any enforcement claims.
4. Once we are looking restructuring in the international approach the stakeholders/
commercial parties need to understand that there is need for them to appoint
parties outside of the directors with respect to understanding how the restructuring
should proceed.
5. Despite allowing sufficient time talks about the standstill period there is
something that sets this principle about it.
6. With respect to understanding the rights of the parties to the restructuring, the law
that is applicable ought to be made available to all parties interested in the
restructuring process.
7. The information obtained from the debtor company as a result of the restructuring
exercise, once it is not yet in the public domain, such information should be kept
confidential by stakeholders and other invested parties.
8. If you look at a company that is in financial distress, before the company got to
that point, there are stakeholders that have advanced money to the company. If
there are five that has done this to the company for example, assuming before the
company got its restructuring point the company has a debt and money is let for
the debt prior to restructuring what we are trying to say is that once restructuring
is in place and then there is need for further cash call (asking stakeholders to
invest further cash) brings about priority of status for this further funding. Priority
of status means that in trying to repay all the debts, the debt that arose as a result
of the restructuring process where the managers of the company or the debtor
company requested cash calls this would have priority over the earlier debt that
has arisen before restructuring. The reason for this is because the debtor company
and the stakeholders understand that the earlier debts already accrued can be seen
as a bad debt compared to those acquiring because of the cash call.
Article on the London Approach and try to draw the distinction between that and the
international approach.
In understanding the case (formal restructuring) look at what happened and see how it is
different from the informal restructuring process.