Answer ... Under the new Insolvency Law, a formal restructuring process includes an automatic stay (‘freezing’) order and/or the appointment of a court officer.
A stay order itself will also not prevent the company’s use or sale of its assets, but only certain proceedings taken with respect to the company or its assets.
A court officer appointed to a company to which a stay order has been issued may use or sell the company’s assets, including any asset pledged or under a reservation of title, unless the court is convinced that such use or sale is not required for the recovery of the company, or that the secured creditor or holder of reservation of title was not assured proper protection.
However, there are other available proceedings which do not have such a severe effect on the company’s operations.
The newly introduced ‘protected negotiation’ chapter includes built-in creditor protections, such as the appointment of a creditors’ representative to conduct negotiations and to attend board of directors’ meetings, who is entitled to information regarding the corporation other than with respect to the protected negotiation.
The creditors’ representative shall report to the creditors with respect to any action of the corporation which is not for the benefit of the corporation or which may cause damage to the creditors, with its recommendation of the possible actions to be taken by the creditors.
Furthermore, a court may deny any of the protections prescribed under the law at the request of a creditor if:
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there are real concerns that the corporation is trying to:
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- deceive its creditors;
- transfer an asset illegally; or
- make improper use of the protections granted; or
- there is a real concern of damage to the value of an asset charged in favour of a creditor.
Under the new Insolvency Law, a public corporation may commence a process of protected negotiation as long as it is not breaching its payment obligations and can fulfil those obligations for an additional nine months. This process does not require a court process and provides protection from immediate repayment and freezing orders for six months.
This is not a mandatory pre-statutory process, but a means to encourage any such corporation to commence negotiations at earlier stages in order to increase its chances of recovery.
If a material debt arrangement plan is being negotiated between traded bond holders and the issuing company, the bond trustee (or the company in the absence of a trustee) must seek the appointment of a court expert.
The court expert will provide an opinion with respect to the proposed arrangement, the distribution between the different creditors, the value of the proposed arrangement as opposed to liquidation and so on.
The plan of arrangement must be approved in court in creditors’ meetings.
A plan of arrangement between a company and its stakeholders may be approved without opening insolvency proceedings and be subject only to approval by its stakeholders’ meetings. The court may appoint a court officer for the implementation of the arrangement.