Out-Of-Court Reorganization Agreement

Feltman: The reintroduction of the Trust Indenture Act and judgments such as Marblegate have deferred some of the bargaining powers of borrowers that improve the trading position of bondholders in general, and holdouts in particular. These factors have complicated the out-of-court process, but maintaining something valuable for holdouts could be the non-consensual way forward, at least for now. Spray rains: Companies and their consultants should evaluate and be careful to contact creditors at the right time – early enough not to face an impending liquidity event, but not until time constraints can put pressure on stakeholders – and thus avoid an alternative to the downside. Due to reasonable time constraints on their stakeholders, either through natural time constraints or contractual triggers, companies can motivate parties to engage in constructive discussions in order to reach an out-of-court settlement. Negotiations between stakeholders are more likely to be problematic when a company has countless parties with whom it must reach consensus. In particular, problems arise when a company`s stakeholders pursue different objectives or work on different timelines than others or with the company. An important factor that has led companies to enter into negotiations with their creditors earlier than in the past is the further limitation of a company`s ability to offer a recovery plan exclusively in bankruptcy proceedings. The Bankruptcy Abuse and Consumer Protection Prevention Act 2005 (BAPCPA) limits the period during which a company must submit its plan in accordance with Chapter 11. A company must now submit its plan within 120 days of submission or risk losing the exclusive right to propose such a plan to other interested parties, such as lenders or committees. For this reason, the bankruptcy court may extend the company`s exclusive period of time to 18 months. An investigation into the significant bankruptcy proceedings submitted to BAPCPA shows that many companies have chosen to negotiate their restructuring plans well in advance of the declaration of insolvency, allowing them to obtain approval of their plans almost immediately after submitting their plans. Recent examples, such as CIT and the Texas Rangers also suggest that this seems to be the trend.

Rain of sprays: out-of-court restructuring has the advantage of being implemented at a lower cost and faster than in court. They also avoid increased advertising obligations, public scrutiny and the risk of litigation by interested parties. Of course, there are drawbacks to out-of-court restructuring. Disadvantages include the loss of the many instruments offered to debtors by the Bankruptcy Act, including the ability to tie holding handles and refuse unfavourable contracts, and the protection of automatic stay – which is particularly important if the parties have not reached a consensus before being submitted to Chapter 11.

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