This article considers eight main areas:
1. Key Issues to consider when the company is in financial difficulties, including:
- What duties and potential liabilities should the directors/managers have regard to when managing a company in financial difficulties? Is there a specific point at which a company must enter a restructuring or insolvency process?
- Which other stakeholders may influence the company’s situation? Are there any restrictions on the action that they can take against the company?
- In what circumstances are transactions entered into by a company in financial difficulties at risk of challenge? What remedies are available?
2. Restructuring options:
- Is it possible to implement an informal work-out in your jurisdiction?
- What formal rescue procedures are available in your jurisdiction to restructure the liabilities of distressed companies? Are debt-for-equity swaps and prepackaged sales possible?
- What are the criteria for entry into each restructuring procedure?
- Who manages each process? Is there any court involvement?
- How are creditors and/or shareholders able to influence each restructuring process? Are there any restrictions on the action that they can take (including the enforcement of security)? Can they be crammed down?
- What impact does each restructuring procedure have on existing contracts? Are the parties obliged to perform outstanding obligations? Will termination and set-off provisions be upheld?
- How is each restructuring process funded? Is any protection given to rescue financing?
3. Insolvency procedures:
- What is/are the key insolvency procedure(s) available to wind up a company?
- On what grounds can a company be placed into each winding up procedure?
- Who manages each winding up process? Is there any court involvement?
- How are the creditors and/or shareholders able to influence each winding up process? Are there any restrictions on the action that they can take (including the enforcement of security)?
- What impact does each winding up procedure have on existing contracts? Are the parties obliged to perform outstanding obligations? Will termination and set-off provisions be upheld?
- What is the ranking of claims in each procedure, including the costs of the procedure?
- Is it possible for the company to be revived in the future?
4. Does a restructuring or insolvency procedure give rise to tax liabilities?
5. What is the effect of each restructuring or insolvency procedure on employees?
6. Cross-border issues:
- Can companies incorporated elsewhere restructure or enter into insolvency proceedings in your jurisdiction?
- Is there scope for a restructuring or insolvency process commenced elsewhere to be recognised in your jurisdiction?
- Do companies incorporated in your jurisdiction restructure or enter into insolvency proceedings in other jurisdictions? Is this common practice?
7. How are groups of companies treated on the insolvency of one or more members? Is there scope for co-operation between officeholders?
8. Are there any proposals for reform of the corporate rescue and insolvency regime in your jurisdiction?
This article first appeared in the 2017 edition of The International Comparative Legal Guide to: Corporate Recovery & Insolvency; published by Global Legal Group Ltd, London.
The ICLG to Corporate Recovery and Insolvency 2017: Q&As on English Law
