Can a debtor in restructuring proceedings obtain new financing and are any special priorities afforded to such financing (if available)?
Restructuring & Insolvency (2nd Edition)
A debtor in restructuring proceedings is not prevented from obtaining new financing.
A creditor does not automatically become better secured but he may be if a proposal to this effect is made in a restructuring proposal that is approval. The claim may also rank second in the order of priority in subsequent insolvency proceedings if the financing is obtained with the consent of the restructuring administrator officer.
Public loans obtained for the financing of employees’ salaries in the restructuring period will automatically rank second in the order of priority in any subsequent insolvency proceedings.
A debtor in restructuring proceedings is allowed to obtain new financing. As the Enterprise Bankruptcy Law provides, where a debtor or its administrator takes out a loan for the purpose of continuing the debtor’s business during the restructuring period, the debtor or the administrator may create a security interest for the loan. In addition, although the law does not expressly categorize loans raised during restructuring as collective debts, some court decisions have treated such loans as collective debts, and this practice is garnering wider acceptance in the judicial sector. New financing that is secured with a debtor’s assets ranks higher than its bankruptcy expenses, collective debts and unsecured claims, while new financing that is not secured and deemed as a collective debt takes precedence over unsecured claims but is subordinate to bankruptcy expenses. On a whole, Chinese legislation on new financing obtained during restructuring is sketchy. No detailed provisions can be found as to the ranking and priority of claims and purposes of new financing, and loan seems to be the only way for a debtor to get new financing.
A debtor can obtain financing and otherwise use its assets as security in a scheme of arrangement and informal voluntary reorganisations. This is solely a matter for agreement between the company and its creditors. There are no special priorities given to new debt as of right and such priorities have to be negotiated and agreed with any existing creditors who already hold some form of priority.
Yes. Under certain conditions, these new debts are qualified as debts of the estate, and have (subject to certain limitations) absolute priority if the debtor subsequently goes bankrupt.
There is no DiP-financing framework under Dutch law. Such financing is provided on a case by case basis and requires the cooperation of the trustee or administrator in case of suspension of payments.
A debtor-in-possession is permitted to obtain new financing. A debtor may obtain post-petition unsecured financing in the ordinary course of business and does not need the approval of the court in order to do so. Such financing will be treated as an administrative expense under 503(b)(1) of the Code. A debtor-in-possession may also obtain secured credit and the court may authorize liens that are junior, senior or equal to existing liens if the debtor can demonstrate that it is unable to obtain credit elsewhere. The debtor must also provide “adequate protection” to any other creditor with an existing lien over the collateral being pledged in order to compensate the creditor for any diminution in value of the collateral.
When a conciliation agreement is approved (homologué) by the court, creditors that have provided new money, goods or services during the conciliation proceeding to ensure the continuation of the business will benefit from a “new money” priority (“privilège de conciliation”) which will allow them to enjoy priority of payment over all pre-petition claims (except for certain employee-related liabilities) and post-filing claims (except for post-filing procedural fees) in the event of subsequent insolvency proceedings. Such creditors cannot be subject to rescheduling or waiver provided by a safeguard or reorganisation plan, unless they accept it.
In conciliation proceedings, guarantors may claim rescheduling or waiver of debt contained in the agreement against creditors.
In safeguard proceedings, only guarantors who are natural persons benefit from favorable rules: an automatic stay on claims against during the observation period, a halt to interest rates and the possibility to claim rescheduling or waiver of debt contained in the safeguard plan.
Neither in bankruptcy nor in controlled management proceedings is the debtor entitled to borrow money or grant a guarantee or security except with a prior authorization of the court and at the request of the receiver/insolvency practitioner.
A debtor in a receivership or voluntary administration process may agree arrangements (executed through the relevant receiver or administrator as applicable) for new or extended financing for a specific purpose or in connection with a rehabilitation strategy for continued trading (including pursuant to an approved deed of company arrangement (DOCA)), subject to appropriate limitations on the personal liability of the relevant receiver or administrator. Arrangements for additional finance are also possible as part of a Part 14 or 15 compromise/scheme of arrangement, However for the following reasons, the prospects for an insolvent entity to borrow further funds are usually limited.
New Zealand insolvency law does not have a process to provide priority to 'debtor in possession' (DIP) financing (as is the case, for example, under the US Chapter 11 bankruptcy process). DIP financing will not have priority to existing indebtedness unless all creditors agree voluntarily to subordinate their claims or such financing is part of a deed of company arrangement (DOCA) or Part 14 or 15 compromise/scheme of arrangement (which is approved by and binding on creditors).
A company in insolvency may take an emergency credit in the observation period to preserve the assets, with the creditors’ consent or even with the syndic judge’s consent. Afterwards, in the reorganization period financings may be obtained, the condition being that such financings are provided by the reorganization plan. Both forms of financing obtained by the company in the insolvency are returned with priority, the law instituting in fact a super priority in this case.
Yes, this is possible. The administrator's consent and in case of posting of collateral, court approval will have to be sought and, if granted, the claim for repayment of the financing party is granted a super-priority in the form of an obligation of the estate which will be satisfied ahead of all other claims. Administrators in Switzerland are generally rather cautious to take out new financing, though.
An amendment introduced to the Israeli Companies Law in January 2013, allows the court officer to charge the company's assets in charges that may be in a rank that is inferior, equal or even in priority to existing charges, in order to enable receiving new credit, which is essential for the operation of the company.
The creation of such charges is subject to the court's approval and ensuring "Proper Protection" to the existing secured creditors. Such "Proper Protection" means preserving the value of the debt secured by the charge. Such value of debt relates to the sum that would have been repaid from the sale of the charged asset in liquidation; i.e., the reference point is not the original debt but the value under liquidation.
Repayment of such new credit shall be treated as recovery expenses and therefore as priority creditor, unless otherwise determined by the court.
In spite of the favorable terms allowing the court officer to obtain such credit, we are not aware to any actual usage made in such provision.
A similar provision exists also in the new Insolvency Law.