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Advanced Restructuring - Step by Step

Practical guidance on navigating the critical issues facing debtors, creditors, advisors & management at each stage of the process; strategies for managing existing and aggressive out-of-the money creditors and the pros and cons of implementing the various restructuring options

Advanced Restructuring – Step by Step Course

A one-day course

  • The trainer has deep experience of restructuring having been involved in restructurings for over 30 years
  • The trainer has had exposure to restructuring from a global perspective having been involved in restructurings in the UK, Europe and Africa
  • The trainer has been involved in restructurings from both debtor and creditor side and his career also includes stints in commercial and investment banking, accountancy, tax and law thus providing insight from a wide range of perspectives
  • The trainer has provided restructuring training to a wide range of blue-chip clients including the EIB, the EBRD, Deloitte, Robeco
  • Through the trainers role as a Senior Consultant to Grant Thornton and as a Senior Advisor to KPMG Finland, he retains exposure to restructurings

  • Triggers & Smoke signals – being able to identify the early warning signals of distress will enable parties to prepare for the restructuring process. The Loan has various EoDs which could enable a lender to Accelerate and Enforce their collateral so gaining control of the debtor but identifying early signals of distress is vital to both lender and borrower to maximise the chance of a recovery
  • What is the insolvency and the “zone of insolvency” - Directors are most at risk of personal when the company enters the zone of insolvency. Identifying these two inflexion points is vital to avoid this. Moreover, many loans contain legal terms which directors might not fully appreciate (e.g. the definition of ’Insolvency’ in the LMA leveraged precedent).
  • Advising the Board – the Board face enhanced personal risk when firms enter the ‘zone of insolvency’. Taking the wrong approach can entail both civil and criminal liability. Lawyers play a key role in identifying those risks and advising management on how best to mitigate these risks. Note: Wrongful Trading rules have been suspended wef 1 March 2020
  • Advising the Lenders - An overly aggressive approach by lenders (e.g. a draw-stop on the RCF) can jolt management to file for formal protection to avoid personal liability which will destroy value and reduce recovery. Conversely, adopting a timid approach can increase loss as the debtor falls into insolvency with no prospect of recovery. Striking the right balance requires judgement
  • The Liquidity challenge - Liquidity is one of the main challenges facing debtors in distress. Lawyers can assist the financial advisors by reviewing the existing relevant documents to ascertain whether and to what extent the company/group can; (a) incur incremental debt, (b) secure or guarantee the additional debt (c) approach new other / lenders and (d) sell assets (free of collateral) to raise cash
  • Intercreditor issues – Intercreditor agreements play a vital role in restructuring and lawyers are best placed to advise the various lenders on their rights and options to maximise recovery (q.v. European Directories case)
  • Creditors’ Committees and Standstills - Creditors’ committees make restructuring more efficient and less costly for both creditors and debtors. Lawyers are best placed to advise on a range of issues conflicts of interest and on documenting the Creditors’ committee agreement. Standstill agreements play a valuable role in giving a debtor and creditors the opportunity to collate information, form a plan of action and implement the restructuring but Lawyers play a key role as there is no standard and each one is tailored to the specific situation
  • Why & how ESG issues can affect restructurings - in considering restructuring options, ESG has moved up the agenda and is now a key issue for all stakeholders; staff and owners and especially lenders (can they continue to lend and if so at what cost, credit ratings impact?)
  • Financial Restructuring options – the programme considers the main financial restructuring options, Debt for Equity and Debt for Debt swaps together with the pros, cons and other issues to consider. Sticking plaster options (e.g. covenant and amortisation resets are not covered)
  • Restructuring pathways – the last 12 months have witnessed major innovations in restructuring tools available in Germany, Holland and France which, to some extent have adopted and, in some cases surpassed, the advantages under English schemes. Meanwhile, the UK introduced Restructuring Plans as another tool to facilitate restructuring

NOTE: The key legal and commercial issues of Schemes of Arrangement and Restructuring Plans are covered in a separate course: “Schemes of Arrangements”

Day One

Restructuring roadmap – summary of the major milestones in restructuring

  • Warning signals
  • Initial review: gather information on debt & financials -> what went wrong
  • Create Group structure
  • Review loan docs, the lenders & the lender’s rights, identify ranking
  • Valuation … where’s the fulcrum capital - who will drive the restructuring
  • Review restructuring options/ pathways & develop a credible plan … but can management deliver the plan
  • Implement the restructuring

Restructuring Triggers & early warning signals

  • Early warning signals - summary
    • Macroeconomic factors (the virus)
    • Financial performance indicators
    • Management behaviour
    • Operational issues
    • Red flags
  • Payment breach – what does this cover – de minimis exceptions?
  • Financial covenant
    • Role of equity cures
    • Why & how deemed cures matter
    • What are the borrowers' options if there is no equity cure?
  • Can lenders accelerate when an event of default is not ‘continuing’
  • Case Study: Ideal Standard case
  • Other covenant breaches
  • “Insolvency” EoD – covers a range of issues
  • Case Study: Hotelero Urvasco case re Insolvency event
  • MACs – do they matter
  • Case Study: Hotelero Urvasco case re MAC
  • Refinancing cliff – potential strategies

Advising Lenders and Borrowers on how best to manage the situation

  • Advising lenders
    • What steps can lenders take before covenants are breached
    • Steps after the borrower is in default
    • Reservation of rights letters
      • How effective are they?
      • Potential disadvantages for the lenders
      • Lessons from Tele2 case
    • Advising Debtors / borrowers
      • What strategy should borrowers adopt
      • Draw all facilities first or advise the lenders of potential EoDs?
      • Discussion on different scenarios

When is a Company insolvent? – the main tests

  • The Cashflow test
  • The Balance sheet test
  • Case Study: Re Cheyne Finance case
  • Failing to comply with a Statutory demand
  • Failing to satisfy enforcement of a judgment debt.
  • Review of Directors’ statutory obligations
  • EU – Share Capital Test

Directors’ personal liability in distress (why it matters)

  • Directors’ duties under the Companies Act
  • Do they change when the Company is in the ‘zone of insolvency?
  • Company indemnification
    • Pros & cons
    • The Companies Act - what is NOT covered
  • Review Directors’ & Officers (D&O) Insurance
    • Interaction with Directors’ statutory duties under the Companies Act
    • Key areas of risk in distress
    • What are the key issues to review in the D & O policy
    • Meaning of “Loss”, “Damage(s)”, “Insured”, “Claim”, “Wrongful Act”
    • D&O Policy Construction – Side A, B, C
    • Typical exclusions

Checklist for in-house lawyers when the Company experiences financial distress

  • Are Directors in compliance with their statutory obligations in terms of financial and other matters
  • How to respond to any final or other demands or other threats of litigation
  • Advice on the content of Board minutes & frequency of meetings
  • Remind directors of potential personal liability and advise on steps to avoid or mitigate this
  • Advise the board on any directors’ loans & reimbursement of expenses
  • Review any planned transactions which could later be challenged by Liquidators/courts
  • Encourage the Board to take immediate prompt and appropriate advice
  • Review D&O insurance

How to advise the Board / Directors in distress

  • Review the Articles of Association (does the Company have the powers to act swiftly)
    • Meetings – frequency, on the phone?
    • Committees – are they set up
  • Who is a Director & who can incur personal liability
    • Shadow Directors
    • De facto Directors
    • Non-Executive directors
    • Protection for parent companies (§251.3 CA)
    • Protection for Advisors (§251.2 CA)
    • Supervisory boards in civil jurisdictions
  • When Lenders & other creditors are at risk of being deemed to be shadow directors
  • Wrongful trading
    • What is it
    • Liability and remedies
  • What is "insolvent liquidation" or "insolvent administration" in the context of wrongful trading?
  • Advising directors when “wrongful trading” is a risk – key issues
  • Board meetings
    • Best-practice tips
    • Dealing with conflicts of interest – directors on board of multiple group companies
  • Financial information
    • What is required
  • When should the company cease trading?
  • Why resigning as a director may be dangerous
  • Fraudulent Trading
    • Liability & Remedies
    • When does liability accrue?
  • Misfeasance or breach of fiduciary duty
  • Fraud and misconduct offences
    • Fraud in anticipation of winding up
    • Transactions in fraud of creditors
    • Misconduct in the course of winding up
    • Falsification of company's books
    • Material omissions from statements relating to the company's affairs
    • False representations to creditors
  • Breach of common law duties
  • Reviewable transactions in the context of insolvency (summary)
    • Transactions at an undervalue
    • Preferences
    • Extortionate credit transactions
    • Invalid floating charges
    • Transactions defrauding creditors
    • Contribution from past directors and shareholders

Relevance and Impact of ESG on restructurings & refinancings

  • Why and how it could affect a restructuring
  • Impact on existing & new Lenders
    • Can / will existing lenders continue lending
    • If so, at what cost (credit ratings, ESG compliance?)
    • What about new providers of debt?
  • Impact on Owners
    • What about their stakeholders
  • Staff & Boardroom issues
  • Other ramifications
    • Distressed disposals

Day Two

Conduct a review of the Loan, Intercreditor & Security documentation

  • First – make sure you have the correct, up-to-date documents
    • Execution copy plus any subsequent amendments
  • Issues to consider re ALL loan facility agreements (senior & junior)
    • Do they have the same or different Restricted Groups
    • Governing law - this could influence the forum (can this be changed q.v. Apcoa case)
    • The key Events of default / MAC
    • Acceleration and cross acceleration provisions – carve-outs
    • Parental, sister or cross-guarantees
    • Enforcement mechanisms
    • (Voting) Consents required to amend lending terms (this may vary for different kinds of amendments)
    • Financial Covenants & cures rights (identify any which have been/are about to be breached and any which can be cured)
    • Review Guarantor Coverage Test
  • Issues to consider re the security documentation
    • What are the assets & where are they located (jurisdiction matters)?
    • Check if the security has been properly registered (is security valid and enforceable)
    • Which assets are secured?
    • Which assets are unsecured (they can be used to secure further debt on advantageous terms)
    • Share pledges / mortgages
    • Parental, subsidiary guarantees / cross-guarantees
  • Intercreditor issues
    • Is there an existing Intercreditor – if so who are the parties
    • How will it affect the new / additional debt
    • Will junior lenders’ approval (waivers) be required for the new debt
    • Will it affect the ranking of the new debt

Key impediments to implementing the restructuring

  • Does the Group have sufficient liquidity / time to implement a restructuring (see below)
  • Management competence / experience of restructuring
    • Are they competent to see the firm through the problems or are they the problem
    • Potential solutions
    • CROs – the good news and the dangers
    • Dealing with aggressive, out-of-the-money creditors
  • Key commercial contracts (the ipso facto issue)
    • Prohibition on ipso facto clauses (UK Corporate Insolvency and Governance Act)
      • Coverage
      • Exclusions

The Liquidity trap – its either new Equity or (incremental) debt

  • Potential new Equity sources – is this available and from whom?
  • Review the group’s ability to raise additional debt finance
    • Incremental facilities / Accordions
    • Other “permitted” debt baskets – how are they structured – grower or hard cap
    • Review historical reclassification of debt
    • Can the debtor reclassify debt between baskets to free up debt capacity
  • Review ‘Permitted Security” and “Permitted Guarantees”
    • Can the debtor group secure or guarantee any additional debt finance
    • Review the “Negative pledge”
    • Review Guarantor Coverage Test
    • Permitted liens vs permitted collateral liens

Creditors’ (Ad-hoc/Steering) committees

  • Role and purpose of the Committee
  • Different types of creditor committees
    • Senior
    • Junior
    • Bondholders
    • Unsecured creditors
  • When to form a Committee
    • Dealing with uncooperative Debtors
  • Who should be on the Committee (primary, secondary, distressed)
  • Obstacles to specific parties being on the /committee
    • Reconciling conflicts and tensions in the on the Committee
    • public vs private (confidentiality)
    • Sub-participations

Standstill Agreements

  • Purpose and rationale
  • The parties - which companies in the group are affected?
  • Which lenders are involved - senior (sub-participants?), second lien, mezz
  • Issues to consider - voting thresholds, enforcement standstills
  • Duration and extension
  • Key terms (summary)
  • Company undertakings
  • Termination
  • Potential problems

Financial Restructuring options

  • Debt for Debt swap – What types of debt (pros and cons of each)
    • PIK - PIYW, PIYC
    • Convertibles
    • Preference shares (Convertible, Redeemable etc)
    • How the lender can protect their position in a D4D
  • Debt for Equity swap
    • Equity, warrants or both
    • Solutions if the lender cannot take equity or warrants?
  • New money from existing shareholders
    • Form
    • Ranking?
  • New money from new stakeholders
    • Form
    • Ranking?
    • Other issues

Comparison & review of (new) restructuring pathways in Europe & UK

  • Germany – the new German Restructuring scheme
  • Netherlands – the Dutch scheme (Private Restructuring Plans)
  • France - new accelerated safeguard proceedings
  • UK - UK Restructuring Plans

The trainer is a consultant, public speaker and author with expertise in private equity, debt advisory, restructuring and infrastructure. He is a Senior Advisor to KPMG Finland and a Senior Consultant to Grant Thornton UK.

Training programmes are provided to a wide range of blue-chip clients in Europe, Africa, the Middle and Far East, North America and Australasia. In-house clients include banks (BNP Paribas, Société Générale, ING, Barclays Capital, Bank of China, RBS, SEB); lawyers (Baker & McKenzie, Skadden Arps, Sullivan & Cromwell, Cadwalader, Latham & Watkins, Weil, White & Case); advisory firms (Lazard, PWC, M&A International, KPMG, EY, Deloitte); PE firms (Cinven, Advent, Barings Asia, Waterland); corporates (Siemens, Airbus, Turkcell, Candy Crush, Gunvor, Statkraft) and governmental bodies (the UKLA, the EBRD, the ECGD, Omani Oil Corp.)

He qualified in South Africa both as a Chartered Accountant, with Deloitte, and as a lawyer with Hofmeyr where he was involved in structuring a number of high-profile project financings including BMW 3 Series, Ford Sierra, GM, Sappi and Mondi.

When he moved to London and joined Lazard Brothers as a corporate finance executive he was involved in a wide range of public and private transactions. Subsequently he joined Hoare Govett as an assistant director where he acted as an advisor to smaller listed companies and was involved in several syndicated Euro-Equity Initial Public Offerings.

In 1991 he joined ABN Amro’s cross border M&A team prior to being transferred to MeesPierson Corporate Finance as a Director in Cross-Border M&A where he was also involved in a number of deals in Central Europe. During this time he was a member of the EU-PHARE programme and advised the Estonian government on their privatisation programme.

He is the Programme Director at the City Business School, London, for Infrastructure Finance for the M. Sc. programme in Business Administration and Finance.

He is a member of the Institute of Chartered Accountants in England & Wales and the South African Institute of Chartered Accountants. He completed a BA and an LLB at the University of Natal and a B. Compt. (Hons) at UNISA.

Lawyers occupy a central role throughout the entire restructuring process from preparing the distressed debtor for the storms ahead (review D&O insurance), identifying the various restructuring options (e.g. COMI, Chapter 11) and the legal impediments to each, through to advising on the implementation of the restructuring itself (e.g. Prepack, Scheme).

Their role also means they could be called upon to provide advice to all the players in the process; lenders (senior, junior and even differing factions within the same loan), bond holders (insider trading), the debtor, other companies in the group (e.g. can they support the distressed debtor with guarantees or additional loans), the management other group companies, financial advisors (do the existing loans permit the debtor /group to raise new debt ) and ancillary staff (e.g. Facility Agents). The programme provides practical guidance to lawyers and on the key legal issues and optimal strategy for each of these parties.

  • Engaging presenter, challenging material, enough so that we were not losing focused, but not too hard so that we could understand everything. The new terms were explained clearly. I am usually not able to follow a 30 minutes training because I lose interest but I was able to be focused for 3h30, twice. That's a first for me!

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