The Future of Reorganization Procedures in the Era of Pre-insolvency Law

Gurrea‐Martínez, Aurelio

doi:10.1007/s40804-020-00191-y

Cited by 16 publications

(6 citation statements)

References 35 publications

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“…The BRP is considered an orchestrator of a successful business rescue. In preparing the BR plan, seeking post-commencement finance (PCF) is a crucial task for the BRP (Gurrea-Martinez, 2023). In spite of its importance, obtaining PCF is challenging; thus, most BRPs will not undertake a business rescue appointment without securing PCF (Mayr et al, 2023).…”

Section: Stakeholders and Decision Makers In Business Rescuementioning

confidence: 99%

“…They may use their power to extract information, conclude favourable contracts and use litigation to maintain a positional advantage (Gant, 2022). These creditors typically form a lenders' committee early in the process to negotiate the terms of the proposed rescue effort with the BRP, including negotiations around advancing PCF (Gurrea-Martinez, 2023). Moreover, the inability of the business rescue regime to minimise losses for financial creditors may increase the levels of non-performing loans in the banking sector, posing a systemic risk with real economic consequences (Gurrea-Martinez, 2023).…”

Section: Creditorsmentioning

confidence: 99%

“…2.4 Business rescue plan 2.4.1 Nature of the business rescue plan. The BR plan is multifaceted and has been likened to a fundable business plan (Tron et al, 2018), a governance framework for the provision of Enhancing creditor decisionmaking PCF (Gurrea-Martinez, 2023), as well as a strategic informative tool for decision-making by stakeholders (Ferri and Ricci, 2021). According to Section 150(2) of the Act, a BR plan is a legally binding document that must be prepared in the prescribed manner and contain all the information necessary for the affected party to decide whether to accept or reject the plan (RSA, 2008).…”

Section: Creditorsmentioning

confidence: 99%

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Enhancing creditor decision-making in South African business rescue proceedings: a comprehensive analysis of information requirements in business rescue plans

Kekana,

Pretorius,

De Abreu

2024

IJLMA

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Purpose Business rescue, as a mechanism to aid financially distressed companies in South Africa, has received considerable academic and practical recognition. However, the business rescue plan is an overlooked and, perhaps, underdeveloped aspect of the regime. For stakeholders, this is the ultimate decision-making document. Creditors are the most influential stakeholders in business rescue proceedings owing to their voting rights. For creditors to make informed decisions and exercise their votes meaningfully, the business rescue plan should be transparent and adequately disclose relevant and reliable information. This study aims to identify creditors’ primary information needs to enhance the sufficiency and decision-usefulness of business rescue plans, not only to entice the vote of creditors but to enforce accountability from practitioners. Design/methodology/approach Using a qualitative research design, semi-structured interviews were conducted with 14 executives from 10 South African financial institutions. Findings The findings reveal that comprehensive disclosure of financial, commercial and legal information in business rescue plans was a critical antecedent for stakeholder decision-making. Additionally, leadership and social impact information were influential determinants. This study advances academic knowledge and, for practitioners, adds value to the development of business rescue plans. This can enhance creditors' confidence in supporting the rescue effort and approving the plan. Practical implications This study advances academic knowledge and, for practitioners, adds value to the development of business rescue plans. This can enhance creditors' confidence in supporting the rescue effort and approving the plan. Originality/value The originality of this article lies in its investigation of how creditors assess the information in BR plans as a precursor to supporting the company’s reorganisation in a creditor-friendly business rescue system such as South Africa. This study provides novel insights into the decision-making process, particularly how creditors assess BR plans, address information asymmetry and vote on the plan.

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Section: Stakeholders and Decision Makers In Business Rescuementioning

confidence: 99%

Section: Creditorsmentioning

confidence: 99%

Section: Creditorsmentioning

confidence: 99%

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Enhancing creditor decision-making in South African business rescue proceedings: a comprehensive analysis of information requirements in business rescue plans

Kekana,

Pretorius,

De Abreu

2024

IJLMA

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“…Insolvency Law as international reference systems that can be seen as facilitators of screening processes designed to recover viable companies and liquidate those that are not (Hotchkiss et al ., 2008; John et al ., 2013). Corporate reorganization is one of the most commonly accessed insolvency procedures when the economic recovery appears to be a strong choice for leveraging resources and minimizing costs at the social and private levels (Gurrea-Martínez, 2020a).…”

Section: Literature Reviewmentioning

confidence: 99%

Duty calls: prediction of failure in reorganization processes

Abínzano

Bonilla

Muga

2023

JRF

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PurposeUsing data from business reorganization processes under Act 1116 of 2006 in Colombia during the period 2008 to 2018, a model for predicting the success of these processes is proposed. The paper aims to validate the model in two different periods. The first one, in 2019, characterized by stability, and the second one, in 2020, characterized by the uncertainty generated by the COVID-19 pandemic.Design/methodology/approachA set of five financial variables comprising indebtedness, profitability and solvency proxies, firm age, macroeconomic conditions, and industry and regional dummies are used as independent variables in a logit model to predict the failure of reorganization processes. In addition, an out-of-sample analysis is carried out for the 2019 and 2020 periods.FindingsThe results show a high predictive power of the estimated model. Even the results of the out-of-sample analysis are satisfactory during the unstable pandemic period. However, industry and regional effects add no predictive power for 2020, probably due to subsidies for economic activity and the relaxation of insolvency legislation in Colombia during that year.Originality/valueIn a context of global reform in insolvency laws, the consistent predictive ability shown by the model, even during periods of uncertainty, can guide regulatory changes to ensure the survival of companies entering into reorganization processes, and reduce the observed high failure rate.

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“…In so doing, we draw references from the US Chapter 11. While Chapter 11 is a formal insolvency proceeding, unlike the English scheme which is a pre-insolvency proceeding, 13 as explained in Section 4.1 below, Chapter 11 is much more prescriptive as to the contents of disclosure of financial information and requires disclosure at the filing of the petition, which is at a much earlier than stage than disclosures under scheme explanatory statements. We argue that the disclosure framework in Hong Kong and Singapore should be adjusted to be more prescriptive and explanatory statements reviewed on an ex ante basis.…”

Section: Introductionmentioning

confidence: 99%

Mandatory disclosure in corporate debt restructuring via schemes of arrangement: A comparative approach

Wan

Watters

2021

Intl Insolvency Rev

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Creditors often face significant information asymmetry when debtor companies seek to restructure their debts. In the United Kingdom, it is mandatory for debtor companies, seeking to invoke the courts' jurisdiction to restructure their debts via schemes of arrangement (schemes), to disclose material information in the explanatory statement to enable the creditors to make an informed decision as to how to exercise their votes in creditors' meetings. The English schemes have been transplanted into common law jurisdictions in Asia, including Hong Kong and Singapore. However, due to the differences in the shareholding structures and the kinds of debts that are sought to be restructured in the UK and Hong Kong/Singapore, this transplantation gives rise to the question as to whether information asymmetry is in fact adequately addressed in the scheme process. Drawing from the experiences of Hong Kong and Singapore, we argue that there are three principal concerns in the current disclosure regimes: how debtors disclose the analysis as to the returns pursuant to the best available alternative option if the schemes do not proceed; how debtors disclose advisors' fees; and the equality of provision of information in the scheme process.

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The Future of Reorganization Procedures in the Era of Pre-insolvency Law

Cited by 16 publications

References 35 publications

Enhancing creditor decision-making in South African business rescue proceedings: a comprehensive analysis of information requirements in business rescue plans

Enhancing creditor decision-making in South African business rescue proceedings: a comprehensive analysis of information requirements in business rescue plans

Duty calls: prediction of failure in reorganization processes

Mandatory disclosure in corporate debt restructuring via schemes of arrangement: A comparative approach

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