Law Notes Debt Restructuring Notes
Debt Restructuring Law notes recently updated for exams at top-tier British Universities. These notes, written at King's College London, cover all the LLB banking law cases and so are perfect for anyone doing an LLB in the UK or a great supplement for those doing LLBs abroad, whether that be in Ireland, Hong Kong or Malaysia (University of London). These were the best Debt Restructuring Law notes the director of Oxbridge Notes (an Oxford law graduate) could find after combing through over a hundr...
The following is a more accessible plain text extract of the PDF sample above, taken from our Debt Restructuring Notes. Due to the challenges of extracting text from PDFs, it will have odd formatting:
Overview:
Group structures
Domestic solutions
International approaches
Group structures:
Vertical integration:
Greater centralisation of decision-making and running of the group’s business.
Horizontal integration:
Number of sub-groups that can be run more independently.
Greater decentralisation and independence.
Governance patterns:
Single economic unit.
Conglomerate with independent sub-groups.
Management along product lines, geographically, or regionally.
Such management often leads to obfuscation of the accounts of the different companies in the group.
Ownership and control through equity ownership, contract, and partnership- type arrangements.
Specific governance arrangements: appointment right, overlapping personnel.
Restructuring options:
Where is the problem?
A single subsidiary or a sub-group?
A holding company?
Or the entire group?
Strategies:
Removing the ailing subsidiary?
Restructuring the sub-group in question?
Comprehensive restructuring of various group entities?
The more integrated the group, the more likely comprehensive restructuring is likely to rescue the group.
Separate legal personality and limited liability:
Separate legal personality:
The entity in question is the allocative end point of its assets and liabilities
Its assets and liabilities belong to it only
There is no link between the company’s assets and its members
The personal creditors of the company’s members do not have access to the company’s assets
Limited liability:
Creditor has access to the company’s assets only
Members’ assets are shielded from the company’s creditors
Ex ante compensation for creditors in the form of higher interest rates on the loan
Ex ante and ex post opportunism
Ex ante = The company misrepresent that a particular assets belongs to the company when it, in fact, belongs to, say, its shareholders
Ex post opportunism = The shareholders manipulate the risk profile of the company after securing the loan
These are the two principles that make it difficult to come up with solutions for group restructurings.
Domestic solutions:
Procedural consolidation:
Joint administration of multiple proceedings
Concentrated in a single court
Single office-holder for all proceedings
Assets and liabilities of each member of the group remain separate
Substantive consolidation:
Pooling of assets and liabilities of different entities
Disregarding of the companies’ separate legal personality
There is a much higher threshold for substantive consolidation
Who are the winners and losers?
Winners and losers:
Sub1 is reasonably well capitalised, whilst Sub2 is not.
Nobody else other than C3 could reach Sub1’s assets until C3’s claims are satisfied in full.
Substantive consolidation = Everyone can now share ratably in Sub1’s assets.
C3 = Loser, and Everyone else = Winner.
Requirements for consolidation:
Procedural consolidation:
US:
Bankruptcy Rule 1015(b)
Debtor and affiliate
Joint petition and joint administration
Protection against conflicts of interest
UK:
No formal rule
Appointment of the same administrator for all the entities within the same group
Proceedings concentrated in the High Court
Substantive consolidation:
US:
Equitable remedy
Recognised since Sampsell v Impartial Paper & Colour Corp
Separate legal entities are treated as having merged into a single survivor
Last resort, meaning all other related remedies have to first be exhausted
Ex ante: Debtor treated the groups as one legal entity. The assets of the companies are so mixed up that it is impossible to see where one ends and where another begins.
Ex post: Amalgamation of assets and liabilities.
UK:
Salomon’s Case: The doctrine of separate legal personality is very strong in English law
Exceptions? Where the affairs of group entities are so “hopelessly intertwined” that they are impossible to disentangle and unravel, such that pooling is the only sensible way to proceed.
Scheme of arrangement as a substitute? Identical schemes for different group companies, as in Bluebrook? This effect is identical economically, although the companies remain legally separate.
International solutions:
UNCITRAL Legislative...
Buy the full version of these notes or essay plans and more in our Debt Restructuring Notes.
Debt Restructuring Law notes recently updated for exams at top-tier British Universities. These notes, written at King's College London, cover all the LLB banking law cases and so are perfect for anyone doing an LLB in the UK or a great supplement for those doing LLBs abroad, whether that be in Ireland, Hong Kong or Malaysia (University of London). These were the best Debt Restructuring Law notes the director of Oxbridge Notes (an Oxford law graduate) could find after combing through over a hundr...
Ask questions 🙋 Get answers 📔 It's simple 👁️👄👁️
Our AI is educated by the highest scoring students across all subjects and schools. Join hundreds of your peers today.
Get Started