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  • Restructuring is a tool to work out the problems of a borrower that is facing financial difficulties, without pursuing collateral execution or legal process.

  • If the borrower fails to repay the Facilities in compliance with the facilities agreement’s terms and conditions, the Bank may request the repayment of Facilities. If necessary, the Bank may initiate legal procedure and/or collateral execution. It is in all parties' best interest the Borrower contacts the Bank as soon as possible when financial difficulties are identified, to start the discussions with respect to restructuring of Facilities.

  • The restructuring should start when the Bank believes that a stable repayment schedule might be established, and the Borrower will be able to pay the restructured Facilities in accordance with the new terms and conditions.


Early Signs of Debt Restructuring

  1. Breach of covenants

  2. Missing debt repayment or interest payment

  3. Refinancing challenges

  4. Unpaid overdue creditors

  5. Unsustainable debt

  6. Operational loss or net loss

  7. Unpaid salaries


Debt Restructuring – Reasons

  1. Absence of financial planning and execution.

  2. Tougher market conditions.

  3. Borrower is not able to generate enough cash flow for debt serviceability.

  4. Spiralling out of control of Debt burden.

  5. Missing repayments and breach of covenants and conditions of banking facilities.

  6. Avoidance of an open and candid engagement with Banks.

  7. The financial situation is not timely managed.


Key Stages of Debt Restructuring

The key stages of a debt restructuring are usually:

  1. stabilising the borrower by ensuring that its creditors enter into a standstill agreement

  2. preparing valuations and the information needed to show that the restructuring will result in a viable borrower – this often includes due diligence, business plans and forecasts etc., and

  3. signing and implementing the restructuring agreement (the form of which will depend upon the type of restructuring which is to be adopted)


Restructuring Takeaways:

  1. Restructuring provides the Borrower the possibility to successfully handle the financial difficulties and continue fulfilling its obligations.

  2. Restructuring avoids the negative macroeconomic effects which might arise from the execution of properties/assets pledged as collateral.

  3. Restructuring reduces encumbered court procedures, by reducing the number of cases and the prolonged court sessions.

  4. Restructuring is more effective than a legal process (the dispute is resolved more rapidly and provides for the recovering of a higher percentage of the debt).


Debt Restructuring Approaches


1. Break-up/Sale of non-core assets:

A borrower may be able to alleviate its position by selling non-core assets or parts of the business and using the proceeds to pay down its debt (leaving the equity in place as is). A secured lender will need to give its consent to any break-up plan and be comfortable that (1) the amount realised from the sale is appropriate and (2) the remainder of the business will generate sufficient profits to repay its debt.


2. New Equity Injection:

The starting point for many borrowers facing financial difficulty is likely to be to look to raise additional equity to fund the business through a downturn. This might be an attractive solution where it is felt that the business is fundamentally viable but is suffering temporarily from poor trading conditions and constrained cashflow. Any existing equity holder that does not participate in the new round risks being diluted as a result.



3. Debt for Equity Swap:

In a debt-for-equity swap financial creditors receive shares in the restructured borrower in return for reducing or cancelling their debt claims. The debt-for-equity swap reduces the borrower’s balance sheet liabilities and potentially allows a lender to take some of the upside once the restructured borrower returns to profit – either through being entitled to dividends or in the event of any subsequent sale or exit. The pre-existing equity holders will, of course, be diluted as a result of the swap. 


4.  Transfer to Newco:

A variation of some of the above ideas is for all debt and equity stakeholders to agree to a plan to transfer the borrower’s good or performing assets or business to a newly formed company (Newco). In return for reducing or cancelling their debt claims against the borrower, financial creditors may take: (i) debt in Newco, (ii) equity in Newco or (iii) both.



Other Restructuring Options


Scheme of Arrangement:


  • It is effectively a court-sanctioned compromise, between a company and its creditors or members. The subject of a scheme of arrangement may cover anything that the company and its members or creditors would otherwise be able to agree between themselves.


  • The scheme of arrangement process allows a compromise to be implemented without the support of all the interested parties. Because of their flexible nature, schemes of arrangement are often used in more complex restructurings involving different tiers of debt and equity that would struggle to achieve agreement otherwise.


  • A valuation in the context of a scheme of arrangement is used to estimate the value that would be obtained for the business if the scheme of arrangement were not to happen. The context and manner in which a business is sold can of course drastically affect the amount, or value, realised in a sale.





  • It is a sale of a company’s business or assets, or both, which has been arranged in advance of a company entering administration.


  • Once an administrator is appointed over the company, they will quickly close the sale so that the company should either not need to incur the costs of trading in administration, or if so, this is for a very limited time. The purchaser is identified, and the terms of the sale are agreed before the administrator is appointed, although the proposed administrator will usually be involved prior to their appointment.

  • Sales in pre-pack situations are generally subject to far less due diligence than a standard corporate sale. Warranties or guarantees are rarely, if ever, given, and assets will be sold as seen. It is commonly used as a way of obtaining value from assets when the publicity of a formal insolvency may devalue those assets, such as goodwill.

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