Debt-to-equity conversion in bankruptcy reorganization and post-bankruptcy firm survival

Cepec, Jaka; Grajzl, Peter

doi:10.1016/j.irle.2019.105878

Cited by 26 publications

(27 citation statements)

References 37 publications

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“…With respect to both management turnover and ownership change we distinguish between instances prior to and during the proceedings. Concerning management turnover, we further draw a distinction between occurrences when the incoming manager is an insider versus 49 See, e.g., Chatterji and Hedges (2001); Cepec and Grajzl (2020). Notably, ownership changes that occur during the proceedings are in principle unrelated to instances of debt-to-equity conversion, for two major reasons.…”

Section: Empirical Approach and Hypothesesmentioning

confidence: 99%

“…Within the same context, Cepec and Grajzl ( 2021 ) examine the impact of managerial turnover and ownership change for the post-bankruptcy failure of small businesses. Cepec and Grajzl ( 2020 ) assess the effect of debt-to-equity conversion in bankruptcy reorganization for the post-bankruptcy survival of Slovenian businesses. This last contribution draws on the same underlying data source as the present paper, but unlike the present paper does not examine the determinants of the creditors’ plan confirmation decision, does not estimate the extent of socially costly filtering failures, and does not utilize newly-included data on managerial turnover and ownership changes as well as on details of the proposed reorganization plans.…”

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confidence: 99%

“… 27 As noted by Cepec and Grajzl ( 2019 , 2020 ), the limited role of the courts in Slovenian reorganization proceedings is best understood as a reflection of the legislator’s long-standing mistrust in the judiciary when it comes to substantive decisions pertaining to corporate bankruptcy. …”

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confidence: 99%

“… See Gray and Stiblar (1993);Cepec (2014).7 Cepec and Grajzl (2019) measure the extent of filtering failures in Slovenian simplified financial reorganization proceedings used by small businesses. Within the same context,Cepec and Grajzl (2021) examine the impact of managerial turnover and ownership change for the post-bankruptcy failure of small businesses Cepec and Grajzl (2020). assess the effect of debt-to-equity conversion in bankruptcy reorganization for the post-bankruptcy survival of Slovenian businesses.…”

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confidence: 99%

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Creditors, Plan Confirmations, and Bankruptcy Reorganizations: Lessons from Slovenia

Cepec

Grajzl

2021

Eur Bus Org Law Rev

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Creditors often critically shape the fate of bankruptcy reorganizations, yet the drivers and implications of creditors’ reorganization plan confirmations are still not completely understood. Exploring micro-level data on bankruptcy reorganization proceedings in Slovenia, we find that creditors, above all, demand a credible change in the exercise of control rights. The prospects of plan confirmation are positively associated with debt-to-equity conversion as well as those majority ownership changes that occur during the proceeding and feature a domestic incoming owner. In contrast, we find no evidence that plan confirmation is related to management turnover, majority ownership transfers involving a foreign incoming owner, pre-bankruptcy financial indicators other than leverage, the number of creditors, the value of different types of claims, and even the contractual details for the repayment of claims. The incidence of creditor-induced socially costly filtering failures is quite high, with estimates ranging between 41 and 78% based on the ex-post approach and between 40 and 61% based on the ex-ante approach. Confirmations of plans from non-viable businesses are more prevalent than rejections of plans from viable businesses. Our results provide a novel perspective on the creditors’ role in the resolution of business bankruptcy.

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Section: Empirical Approach and Hypothesesmentioning

confidence: 99%

mentioning

confidence: 99%

mentioning

confidence: 99%

mentioning

confidence: 99%

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Creditors, Plan Confirmations, and Bankruptcy Reorganizations: Lessons from Slovenia

Cepec

Grajzl

2021

Eur Bus Org Law Rev

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“…One of the options available for restructuring may be to convert some of the company’s debt into equity. This will have the effect of reducing the company’s debt burden, allowing it to operate its business in a solvent manner (Cepec and Grajzl, 2020). In return for releasing the debt, the converting creditor will gain some control over the company’s operations [2].…”

Section: Debt-to-equity Conversions and Their Benefitsmentioning

confidence: 99%

Converting debt into equity in private limited companies in Thailand

Reekie

2020

IJLMA

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Purpose The purpose of this paper is to critically examine the prohibition on debt-to-equity conversions for private limited companies in Thailand, resulting from an interpretation of Section 1119 of the Thai Civil and Commercial Code (TCCC) adopted by academics and the regulator. Design/methodology/approach This paper critically examines the interpretation of Section 1119 of the TCCC made by academics, the Thai Supreme Court and the regulator. Taking an approach, which draws on debate in the EU over the past two decades, this paper presents a new understanding of the rules relating to legal capital in Thailand. This new understanding is applied to challenge the orthodox interpretation of Section 1119. Findings The interpretation proposed by this paper is that debt-to-equity conversions may be permitted when viewed as shares issued in return for payment in kind. This proposed interpretation is consistent with existing Thai Supreme Court jurisprudence. In addition, a close reading of the provision, further supported by a historical investigation into the legislative drafting process, reveals that it reflects the original intention behind this provision. Originality/value This paper presents a view of Thai legal capital rules, which challenges the orthodox understanding of their nature, purpose and categorisation. Furthermore, the proposed interpretation of Section 1119 of the TCCC, if adopted by the regulator, would permit Thai private limited companies to engage in debt-to-equity swaps without further legislative intervention.

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The legal restructuring framework in Poland: Does it help indebted enterprises avoid bankruptcy?

Dzyuma-Zaremba¹

2021

Intl Insolvency Rev

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The purpose of the article is to present the latest research regarding the usefulness of restructuring proceedings in Poland, which enterprises threatened with insolvency or already insolvent may use to avoid bankruptcy. Changes in the legal system in Poland in 2015 were ground‐breaking, as not only the bankruptcy law was amended, but also the legal system was enriched with a new Restructuring Law (in force from 2016). The contribution of this article is threefold. First, the specifics of the four types of restructuring proceedings and the main actions to be carried out during the proceedings are discussed. Second, an analysis of the phenomenon of enterprise restructuring in Poland has been conducted on the basis of statistical data published by the Ministry of Justice. Third, the effects of 533 restructuring proceedings opened against capital companies in the period 2016–2018 have been assessed. The results achieved have allowed for the formulation of initial conclusions on the usefulness of the legal debt restructuring framework in Poland for business entities experiencing temporary financial difficulties.

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Debt-to-equity conversion in bankruptcy reorganization and post-bankruptcy firm survival

Cited by 26 publications

References 37 publications

Creditors, Plan Confirmations, and Bankruptcy Reorganizations: Lessons from Slovenia

Creditors, Plan Confirmations, and Bankruptcy Reorganizations: Lessons from Slovenia

Converting debt into equity in private limited companies in Thailand

The legal restructuring framework in Poland: Does it help indebted enterprises avoid bankruptcy?

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