INSOL%20International%20and%20The%20Institute%20of%20Company%20Secretaries%20of%20India%20%20Educational%20Programme%20New%20Delhi

1
INSOL International andThe Institute of Company
Secretaries of IndiaEducational Programme New
Delhi
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Welcome

• Ms.Preeti Malhotra,
• President,
• The ICSI

3
Proposed Insolvency Law

• Mr. Sumant Batra
• Vice-President INSOL International

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Special Address

• Mr. Robert O. Sanderson
• President INSOL International

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INSOL International

• Independent
• Non-governmental Organization
• Recognized authority
• Knowledge repository
• Membership ascribes highest ethical standards and
  professional excellence

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Membership

• Over 9,500 members
• Over 40 Member Associations
• Members from over 70 countries

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INSOLs Mission

• to take the leadership role in international
  turnaround, insolvency and related credit issues,
  facilitate the exchange of information and ideas
  and encourage greater international co-operation
  and communication amongst the insolvency
  profession, the credit community and related
  constituencies

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INSOLs goals are

• Implement research into international and
  comparative turnaround and insolvency issues
• Liaise and participate with Governmental,
  Intergovernmental and NGO advisory groups
• Develop cross border insolvency policies,
  international codes and best practice guidelines
• Leadership in international turnaround and
  insolvency education

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INSOL Collaborates

• World Bank, UNCITRAL, OECD, ABD etc.
• Judicial Colloquium
• Hawkamah

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Publications

• INSOL World Quarterly
• Electronic Newsletter - Monthly
• Regular specialist publications
• Treatment of Secured Claims in Insolvency and
  Pre- insolvency Proceedings 2007
• Credit Derivatives in Restructurings 2006
• Directors in the Twilight Zone 2005
• Employee Entitlements 2005

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Technical Series

• Economics and Geographical Implications of Hedge
  Funds in Distressed Debt Sandra A. Larrat-Smith,
  Swing Bridge Capital Steven P. Ordaz, BMC
  Capital
• Formalities for the Transfer of Business in
  Insolvency David Burdette, University of
  Pretoria, INSOL Scholar
• Securities Law Claims in Insolvency Proceedings
  Professor Janis Sarra, University of British
  Columbia

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INSOL Shanghai

• INSOL Annual Regional Conference
• 14-17 September, 2008
• Shanghai, PRC

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INSOL One Day Seminars

• Brussels, 4th March 2008
• Buenos Aires, 17th April 2008
• Chicago, 10th July 2008

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INSOL Fellowship

• Global Insolvency Practice Course
• Launched 1st October
• First Course starts 2008
• Intensive Programme
• Unique international learning experience
• Facilitates future networks

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Bob Wessels, Professor University of Leiden, The
NetherlandsIan Fletcher, Professor University
College London, UKJanis Sarra, Associate
Professor and Associate Dean, Faculty of Law,
University of British Columbia, CanadaGareth
Hughes, Ernst Young LLP, INSOL Treasurer
Core Committee
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Course Committee

• University of Pretoria, South-Africa
• University of Cologne, Germany
• University College London, UK
• China University of Politics Law, PRC
• University of Sussex, UK
• Queensland University of Technology, Australia
• University of British Columbia, Canada
• University of Leiden, The Netherlands.
• University of Texas, Austin, USA

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Practitioner Advisory CommitteeStephen
Adamson INSOL Past President, Chair, UKSumant
Batra Kesar Dass B. Associates, IndiaDavid
Cowling Clayton Utz, AustraliaJames
Garity Shearman Sterling LLP, USAAdam
Harris Bowman Gilfillan, South AfricaDetlef
Hass Lovells LLP, GermanySijmen de Ranitz De
Brauw Blackstone Westbroek, The
NetherlandsBob Sanderson KPMG, Canada
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Structure of CourseModule A Three day face
to face meetingDate 16th 18th June
2008Venue Faculty of Law, University of Leiden,
The Netherlands.Module B Three day face to
face meetingDate 12th 14th September 2008
Venue Pudong Shangri-La, Shanghai, China.
Module C Five days on line sessions
Date 3rd 7th November 2008 In association
with and organised by the National Centre of
Business Law University of British Columbia,
Vancouver, Canada
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Mahesh Uttamchandani Senior Counsel and Head of
Global Insolvency Initiative, World BankThe
fellowship programme will be a very rewarding
investment towards a successful career, both
through helping the development of professional
skills and through fostering a greater
understanding of different jurisdictions'
cultures and systems.
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Special Address

• Mr. Robert O. Sanderson
• President INSOL International

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Address by Chief Guest

• Mr. Shri Prem Chand Gupta
• Honorable Minister of Corporate Affairs

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Vote of thanks

• Mr. N.K. Jain,
• Secretary CEO, ICSI

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Networking Coffee Break
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Directors in the Twilight Zone Mr. UK
Chaudhary, Senior Advocate Past President
ICSIMr. Gordon Stewart, Allen Overy LLP
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DIRECTORS IN THE TWILIGHT ZONE

• AGENDA
• Director duties and the Twilight Zone in context
• The key areas of concern
• Practical problems and solutions
• The position in India

U.K.CHAUDHARY, SENIOR ADVOCATE
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DIRECTORS IN THE TWILIGHT ZONE

• IN CONTEXT
• The role of insolvency law
• NB there is not enough money to go round
• recycles the assets
• avoids a free-for-all
• The role of directors
• the veil of incorporation and risk-taking
• piercing the veil personal liability of
  directors
• Consensual restructuring -v- formal insolvency
• restructurings avoid stigma and insolvency
  dislocation
• when would formal insolvency be better?
• pre-pack insolvency to force through
  restructuring

U.K.CHAUDHARY, SENIOR ADVOCATE
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DIRECTORS IN THE TWILIGHT ZONE

• IN CONTEXT II
• Insolvency laws history and pro-creditor or
  pro-debtor bias
• world maps

U.K.CHAUDHARY, SENIOR ADVOCATE
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DIRECTORS IN THE TWILIGHT ZONE
U.K.CHAUDHARY, SENIOR ADVOCATE
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DIRECTORS IN THE TWILIGHT ZONE
U.K.CHAUDHARY, SENIOR ADVOCATE
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DIRECTORS IN THE TWILIGHT ZONE
U.K.CHAUDHARY, SENIOR ADVOCATE
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DIRECTORS IN THE TWILIGHT ZONE

• IN CONTEXT II
• Insolvency laws history and pro-creditor or
  pro-debtor bias
• world maps
• The insolvency timeline
• the Twilight Zone
• keeping everyone honest
• restoring the pot (of assets)

U.K.CHAUDHARY, SENIOR ADVOCATE
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DIRECTORS IN THE TWILIGHT ZONE

• IN CONTEXT -
• THE INSOLVENCY TIMELINE

Start of clawback vulnerability period
Duty to commence insolvency (?)
Financial Health
Dissolution

Administration/Liquidation
Twilight Zone
Formal insolvency commences
U.K.CHAUDHARY, SENIOR ADVOCATE
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DIRECTORS IN THE TWILIGHT ZONE

• KEY AREAS WHO IS A DIRECTOR?
• Directors
• de iure
• de facto
• shadow directors
• non-executive directors
• Who else is in the firing line?
• banks?
• parent and sister companies?
• shareholders?
• counterparties in the Twilight period?

U.K.CHAUDHARY, SENIOR ADVOCATE
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DIRECTORS IN THE TWILIGHT ZONE

• KEY AREAS PENALTIES FOR DIRECTORS
• Personal liability for losses
• wrongful/fraudulent trading
• negligent management?
• Disqualification as a director
• removing the privilege of limited liability
• the badges of unfitness, eg
• responsibility for insolvency
• implication in preferences, undervalues etc
• failures to provide information

U.K.CHAUDHARY, SENIOR ADVOCATE
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DIRECTORS IN THE TWILIGHT ZONE

• KEY AREAS RESTORING THE POT
• Clawbacks
• preferences
• undervalue transactions
• other security vulnerabilities
• voidness for non-registration
• invalid floating charges

U.K.CHAUDHARY, SENIOR ADVOCATE
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DIRECTORS IN THE TWILIGHT ZONE

• PRACTICAL PROBLEMS AND SOLUTIONS
• Groups of companies
• directors and conflicts of interest
• group benefit/interlocking fates of group
  companies?
• Foreign corporations
• subject to local insolvency?
• conflicts of laws
• Insurance
• a panacea, a help or a mirage?
• limits on cover
• Practical steps
• take professional advice
• board minutes of decisions and reasons

U.K.CHAUDHARY, SENIOR ADVOCATE
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INDIAN POSITION
Special provisions Under SICA 2002
Provisions Under Companies Act 1956
Start and duration of Twilight Period
On what does Twilight zone depend
Issues on Twilight Zone.

• Actions giving rise to liability

Impact on counterparties
Who may be Liable

• Orders Passed by
• the court / Tribunal

Enforcement
Remedies
U.K.CHAUDHARY, SENIOR ADVOCATE
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Introduction to Twilight Zone

• Twilight Zone with respect to Indian Companies is
  a period of financial distress for a company
• A Period after which either the sun finally sets
  for a company, or efforts for its revival gets
  approval in a case of a Sick Industrial Company,
  by the Board for Industrial and Financial
  Restructuring (BIFR) or its Appellate Authority
  and in case of a company under winding up by the
  High Court concerned.
• The Twilight Zone starts from the day when
  obligation to file reference under section 15 of
  the Sick Industrial Companies (Special
  Provisions) Act, 1985 (SICA) finally arises in
  case of a Sick Industrial Company after loss of
  its 50 Net worth and in case of any other
  company on the presentation of a creditors
  winding up or any other winding up petition under
  the provisions of Companies Act (section 433) for
  its inability to pay debts or for any other
  reason. That such proceedings are governed by the
  provisions of Companies Act,1956 or SICA as the
  case may be.
• During Twilight Zone in essence, Directors
  responsibilities change from protecting
  shareholders or the companys interest to
  protecting the interest of creditors.

U.K.CHAUDHARY, SENIOR ADVOCATE
39

• ISSUES ON COMPANIES (SECOND AMENDMENT) ACT 2002
  SICA

• In December 2002, the Parliament passed the
  Companies (Second Amendment Act 2002) paving the
  way for a new insolvency regime providing for a
  composite law dealing with both re-organization
  and liquidation proceedings.

• A new Part VIA was inserted in the 1956 Act for
  the purpose However, the second amendment has yet
  to be implemented apart from limited provisions
  facilitating the setting up of National Company
  Law Tribunal.

• SICA was first enacted in the year 1985 and is
  amended from time to time till its repeal, which
  is not yet notified Consequently, the repeal of
  SICA remains unnotified until the NCLT is
  constituted, and until then the old SICA
  continues in operation

• Once the Amended or New Companies Act is
  implemented all reference in this chapter to the
  words Court and BIFR will then have to be
  read as NCLT

U.K.CHAUDHARY, SENIOR ADVOCATE
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Start and duration of Twilight Period
Under SICA 1985 No definite period has
been prescribed during which transactions
entered into by a company are vulnerable to
attack or liable to give rise to personal
liability on the part of directors and / or
others involved in the management of the
company
The Period and liability of the directors and
other officers will vary depending up on the
following factors
When 50 of companys Net worth is eroded at the
end of any financial year BOD is required to
intimate BIFR by filing a mandatory reference
under section 23 of the Act within 60 days from
the finalisation of Annual Accounts and hold a
general meeting of the shareholders to report
such erosion with a proper report with causes
for such erosion.
In case where BIFR forms the opinion that the
company cannot be revived and that it to be
wound up. The recommendation to wind up is sent
to High Court concerned.
If the company fails to notify the BIFR as above,
all the directors and other officers are liable
to imprisonment of not less than six months and
up to two years and a fine.
Contnd.2
U.K.CHAUDHARY, SENIOR ADVOCATE
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When entire net worth is eroded under the
definition of Section 3(1)(o), BOD is required
to file reference under Section 15 of the Act,
within 60 days from the finalisation of the
Annual Accounts or earlier, if BOD has reason to
believe that net worth has been eroded.
BIFR will make suitable enquiry under section 16
and on completion of inquiry make suitable
orders under section 17 and sanction a scheme
under section 18 and take steps to revive the
company. The Directors are bound by all
directions, obligations and conditions imposed by
BIFR in doing so.
If BIFR is of the opinion that Sick Industrial
company is not likely to make its net-worth
positive with in a reasonable time and its not
likely to become viable, it can frame its opinion
for winding up of the Sick Industrial Company
under section 20 and refer the matter to High
Court concerned and winding up will then start
under the provisions of Companies Act 1956.
The violation of the Act, including not filing of
reference under Section 15 is a punishable
offence with simple imprisonment which may
extend to 3 years and also fine.
U.K.CHAUDHARY, SENIOR ADVOCATE
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Directors Responsibilities in Twilight Zone
Under SICA

• Under Section 24 of the Act, any person, who has
  taken part in promotion, formation or management
  of the Sick Industrial Company or its
  undertaking, including any past or present
  directors, Manager or officer or employee of Sick
  Industrial Company, if found guilty of
  Misfeasance, regarding its property, assets or
  funds, BIFR by order may direct him to repay or
  restore the money or property to the Sick
  Industrial Company.
• Similarly if BIFR has evidence, in its possession
  that any person, who is or was a director or an
  officer or an employee of a Sick Industrial
  Company, who has diverted funds or property with
  out bonafide purpose or managed the company in a
  manner highly prejudicial to the interest of the
  company, BIFR by order may direct that such
  person shall not received any financial
  assistance from any Financial Institution and
  bank as may be specified.

U.K.CHAUDHARY, SENIOR ADVOCATE
43
Companies Act, 1956
ALLEN OVERY
U.K.CHAUDHARY, SENIOR ADVOCATE
44
Directors Liabilities Various Issues Under the
Companies Act 1956

• Maintenance of Proper Accounts

Under Section 446A, inserted by Companies (Second
Amendment) Act, 2002 and 541 directors and other
officers of the company are under Legal
Obligation to ensure that books of accounts are
to be completed/ audited up to date of the
winding completed order and submitted to the
tribunal failing which such directors and
officers shall be liable for punishment for a
term not exceeding one year and fine not
exceeding one lakh rupees.

• Filing of Statement of Affairs

Under Section 454 of the Act, a statement of
affairs shall be submitted to the official
liquidator duly verified by one or more persons,
who are at relevant date are the directors,
manager, secretary or other chief officer of the
company. The responsibility can also be cast
up-on ex-directors or persons associated with
formation of the company, ex- employees or
officers with in one year of the relevant date.
The offence is punishable by imprisonment not
exceeding two years or fine.

• Falsification of Companys Books

• Under Section 539, any officer or contributory of
  a company, which is being wound up, if with
  intent to defraud or deceive
• any person,
• destroys, mutilates, alters, falsifies or
  secrets, or is privy to the destruction,
  mutilation, alteration, falsification or
• secreting of any books, papers or securities or
• b) makes or is privy to the making of, any false
  or fraudulent entry in any register, books of
  account or document belonging
• to the company. He shall be punishable with an
  imprisonment for a term of 7 years and shall be
  liable to fine.

U.K.CHAUDHARY, SENIOR ADVOCATE
ALLEN OVERY
45
Directors Liabilities Various Issues Under the
Companies Act 1956

• Fraudulent conduct of Companys Business

Under Section 542 officers or persons are guilty
of fraudulent conduct of business if, in the
course of winding up of a company, it is found
that any business of the company has been carried
on with intent to defraud creditors of the
company or any other person , or for any
Fraudulent purpose. Persons engaged in the
conduct of the business shall be personally
responsible, with out any limitation of
liability, for all or any of the debts and other
liabilities of the company.

• Delinquency, Breach of Trust Misfeasance
  Directors and others

• Under Section 543 any Person who has taken part
  in the formation or formation of the company, or
  any past or present
• director, manager, Liquidator or officer of the
  company shall be guilty of delinquency, if he
• He misapplied or retained or become liable or
  accountable for any money or property of the
  company or
• Has been guilty of any misfeasance or breach of
  trust in relation to the company
• Liability under this provision is civil

• Transactions defrauding Creditors

Under Schedule XI of the companies act 1956
directors can be punished for such activities,
which amount to malfeasance and misfeasance.
ALLEN OVERY
U.K.CHAUDHARY, SENIOR ADVOCATE
46
Directors Liabilities Various Issues Under the
Companies Act 1956

• Handing over assets and properties of the
  company..

Under Section 450 and 456, the directors are
under obligation to hand over all assets and
properties and actionable claims, to a
provisional liquidator or the official liquidator
as the case may be. In case of final winding up
order, and in case of provisional liquidator
under section 47 all books of accounts and
statutory registers and books and papers will be
handed over to the official Liquidator.
Violation is punishable with imprisonment not
exceeding 5years or with fine or both or for the
period of imprisonment not exceeding two years
or fine or both. as the case may be under the
section 538.

• Fraudulent Preferences

Under section 531 of the Act, any transfer of
Property, movable or immovable, delivery of goods
by or against the company With in six months
from commencement of winding up would be
fraudulent preference and in the event of company
being wound up be deemed a fraudulent
preferences of its creditors and be invalid.
Similarly under section 531A, any Transfer of
property or delivery of goods made by a company,
not being a transfer or delivery in the ordinary
course of its business or in favour of a
purchaser in good faith and for valuable
consideration made with in one year before the
presentation of the petition for winding up or
passing of a resolution for voluntary winding up
shall be void against the liquidator. Similarly
under Section 532 of the Act, any transfer or
assignment by a company of all its properties to
trustees for the benefit of all its creditors
shall be void.
U.K.CHAUDHARY, SENIOR ADVOCATE
ALLEN OVERY
47
Counter Parties Dealing with the company during
the Twilight Period

• The Potential heads of Challenge which may lead
  to transactions being set
• aside relate to transactions are
• Transactions which are at an undervalue
• Fraudulent Preferences
• Defrauding creditors
• Extortionate credit transactions
• Avoidance of floating charges for past value.
• Disclaimer of onerous property
• Disposition of Companys property made after the
  commencement of winding up.
• Failure to register a charge
• Avoidance of Voluntary transfer

ALLEN OVERY
U.K.CHAUDHARY, SENIOR ADVOCATE
48
Orders which may be the court / Tribunal

• To Pay compensation to company
• To discharge Liability to creditors
• Disqualifying from acting as director
• Imprisonment or fine or both
• Setting aside "tainted" transaction
• Postponing any debt owed by company to director

ALLEN OVERY
U.K.CHAUDHARY, SENIOR ADVOCATE
49
Pros and cons

• Pros
• Stop recklessness before too late
• Encourages responsible management
• Incentive to hire professionals
• Cons
• Accelerates collapse
• Inhibits workouts
• Weakens enterprise initiative
• Increases risk to lenders introduces uncertainty

ALLEN OVERY
U.K.CHAUDHARY, SENIOR ADVOCATE
50
Obligation to co-operate in investigation of
affairs of the company.

• Under the 1956 Act and SICA officers and
  agents, past and present, of the company are
  required to co-operate with investigation into
  affairs of the company.
• The General duty to cooperate where
• Proceedings are pending before BIFR / AAIFR under
  SICA, even though this is an investigation prior
  to recommendation to wind up the company.
• A winding up petition has been presented
• A provisional or official liquidator has been
  appointed.
• The company goes into liquidation or
• A winding up order has been made by the court
• Obligation to provide information
• Obligation to provide companys statement of
  affairs
• Obligation to assist with getting in the
  companys property.

ALLEN OVERY
U.K.CHAUDHARY, SENIOR ADVOCATE
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Directors in the Twilight Zone Mr. UK
Chaudhary, Senior Advocate Past President
ICSIMr. Gordon Stewart, Allen Overy LLP
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Managing Expectations of Stakeholders and Parties
in a Restructuring / Liquidation Mr. B.N.
Bahadur, BBKMr. Robert Hertzberg, Pepper
Hamilton LLPMr. Ashwani Puri, PricewaterhouseCoop
ers
53
Managing Expectations Of Stakeholders And Parties
In Restructuring/Liquidation
54
Agenda

• Section 1
• Context and Issues
• Section 2
• Financial Assessments for Troubled Companies
• Section 3
• Expectations of Stakeholders in Restructuring

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Section 1

• Context and Issues

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Current Indian Situation

• Section 22 of SICA misuse by debtor to thwart
  creditor action. Significantly redressed for
  secured creditor purpose by SRFAESI
• Lead in Restructuring Plan either by Company in
  restructuring under 391-394 or by the lead bank /
  institution under SICA. Lead Institution
  typically Bank / FI
• Emphasis on protection of secured creditor
  interest, particularly Banks / FIs
• Difficult to obtain turnaround finance.
  Reluctance of secured creditors to make room
  for new finance
• Sequential, long drawn liquidation process
  Limited involvement of professionals low
  realization / distribution

57
Irani Committee Key Recommendations

• Balance between rehabilitation and liquidation
  and ease of conversion
• Insolvency process to be overseen by a neutral
  forum (NCLT / NCLAT) in a non-intrusive manner
• Substantial role envisaged for professionals /
  Insolvency Practitioners
• Time bound process One year for rehabilitation
  process (Limit appeals), Two years for
  liquidation process (Stage-wise time limits)

58
Irani Committee Key Recommendations

• Limited Standstill period - not automatic - to
  allow opportunity to explore restructuring
• Rehabilitation Proposal Initiation
• Debtor
• Creditors 3/4th in value
• Governance and Creditors Committees
• Secured creditors committee
• Separate committee for unsecured creditors /
  other stakeholders no right to vote on the plan
  and other decisions

59
Managing Diverse Stakeholder Interests

• Debtor
• Secured Creditors
• Fixed and Floating charge holders
• Other secured creditors
• Unsecured Creditors including inter alia
• Uncovered dues of secured creditors
• Typical Supplier Dues (excluding unpaid supplier
  lien)
• Fixed Deposit Holders
• Others
• Employees
• Equipment Lease Finance Providers
• Government / Utilities
• New Finance Providers

60
Issues

• Unsecured Creditors rights inadequately protected
  ?
• Smaller Creditors be given preferred treatment ?
• Balancing rights of various categories of secured
  creditors and expeditious proceedings
• Access to information to allow creditor
  representative to assess viability and formulate
  restructuring plan
• Facilitating turnaround financing in viable cases

61
Section 2

• Financial Assessments for Troubled Companies

62
Assessing the financial condition of a company
in financial difficulty

• The timeline to disaster
• Healthy Uncertain Stressed
  Distressed

Financial statements look good
Financial statements look poor
Operating Metrics look poor
63
The Early Stages of Difficulty

• Watch the Operating Metrics
• 1. Labor Productivity
• 2. Quality Issues
• 3. Scrap Increases
• 4. On time delivery (Shipment Compliance)
• 5. Employee turnover
• Employee Surveys could be used

64
In the Later Stages of Difficulty

• Financial condition will show in financial
  statements
• Watch the financial ratios on liquidity
• Companies need to restructure due to lack of cash
  not from too much debt

65
Expectations in a Restructuring

• Providers of new funds
• Debtor (the Company)
• Employees
• Customers

66
Sources of New Funds

• Traditional Lending Institutions
• Commercial banks
• Asset Based Lenders
• Private Equity/Hedge Funds
• Equity Investment will require control of the
  company
• Second Lien or B loan
• Private Investors
• Quality Financial Projections

67
Expectations of the Debtor (Management)

• Retain control
• Save his company
• Save his job

68
Expectations of the Employees

• Communication from management
• Continued employment

69
Expectations of Customers

• Continued parts production
• Constant communication
• Resolve the problem

70
What will the parties have to forego in a
restructuring?

• Change of control
• More financial focus
• Some Management Changes

71
Management during the Restructuring

• Extremely busy time

72
The Best Advice

• Hire Qualified Professionals
• Legal Counsel
• Financial Advisor

73
Section 3

• Expectations of Stakeholders in Restructuring

74
Expectations in a Restructuring

• When a company is in a restructuring situation,
  ALL stakeholders have to be considered
• Debtor (the Company)
• Employees
• Secured Creditors
• Unsecured Creditors
• Shareholders
• Providers of New Funds

75
Expectations in a Restructuring

• Debtor (the Company)
• Sufficient time to fix or sell the business
• To be able to evaluate internal operating
  procedures or metrics to determine possible areas
  for improvement
• Responsible for providing information to all
  constituencies to drive a consensual (if
  possible) process
• Viable (fixable) business or sale process
• Plan to exit out of court workout or bankruptcy

76
Expectations in a Restructuring

• Employees
• Assurance that will not lose jobs
• Do not want, but expect, demands for reduced
  wages fewer benefits
• New processes, new technology, re-thinking of
  business and operations
• With good communication, involvement in and
  support of restructuring. With poor
  communication, opposition to needed changes
• Company and other stakeholders commitment to
  long term viability of company

77
Expectations in a Restructuring

• Secured Creditors
• Prepetition lender of company in bankruptcy
• Use of cash collateral if liens on accounts
  receivable
• Possible DIP lender
• Cost of borrowing and interest rates
• Impact on unsecured creditors
• Adequate protection payments
• Compensate for deteriorating collateral (ME,
  cash position, accounts receivable)
• Additional security
• Issue of unsecured creditors any value below
  secured creditors?

78
Expectations in a Restructuring

• Unsecured Creditors
• Expect poor treatment poor communication
• With good communication, however, expectations
  can be changed
• Creditor is valued and needed
• Balance between creditors demands for payment
  and continued supply
• Overcome fears to ensure continued credit
• Continue to ship to company on COD or credit
  terms
• May band together to be more effective
• Official Unsecured Creditors Committee in a
  Chapter 11 - represents all unsecured creditors
  interests
• Suppliers may want long term relationship with
  company after reorganization is completed

79
Expectations in a Restructuring

• Shareholders
• Usually lose any shareholder interest in company
• Unless restructuring very successful,
  shareholders will get nothing
• Often will band together in unofficial committees
  or groups to leverage a recovery
• Unsecured creditors often become the new
  shareholders, replacing the former shareholders
  in debt-for-equity swaps

80
Expectations in a Restructuring

• Providers of new funds
• Want detailed and accurate historical information
• Cash flows
• Expected cash needs
• Debt structure
• Unencumbered assets
• At the same time, company cant give away the
  farm to get new funding

81
Expectations in a Restructuring

• Sources of New Funds
• Banks
• Private Equity Funds
• Hedge Funds
• Private Investors
• Providers of New Funds Want
• Ownership
• Loan to Own strategy
• Rights offering
• Control
• Workable plan for exit from out of court
  restructuring or bankruptcy
• Agreements with suppliers and customers

82
Managing Expectations of Stakeholders and Parties
in a Restructuring / Liquidation Mr. B.N.
Bahadur, BBKMr. Robert Hertzberg, Pepper
Hamilton LLPMr. Ashwani Puri, PricewaterhouseCoop
ers
83
Delegate Lunch
84
Best Practices from Overseas - To Consider in
India Mr. Kirtee Kapoor, Davis Polk
WardwellDr. K.S. Ravichandran, Practicing
Company Secretary Mr. Robert O. Sanderson, KPMG
LLP
85
Networking Coffee Break
86
Global Approach to Insolvency and
RestructuringRobert Lemons, Weil, Gotshal
Manges LLP Sally Willcock, Weil, Gotshal
Manges LLPMr. Justice A.K. Sikri, Delhi High Cout
87
Importance

• Promotion of trade investment
• Greater legal certainty
• Fairness to creditors
• Maximisation of value to protect investments
• Protection of debtors
• Facilitates rescue
• Protects jobs

88
End Game

• Create restructuring plan
• Single distribution mechanism
• Bind all creditors across jurisdictions
• Maximise value
• Identify most advantageous available lead forum
• Determine need for other proceedings to bind
  local creditors

89
Recognition Tools

• Common law jurisdictions comity
• Regional co-operation treaties/statutory
  provisions
• UNCITRAL Model Law on Cross-border Insolvency
• Within Europe EC Regulation on Insolvency
  Proceedings 2002

90
UNCITRAL Model Law onCross-border Insolvency

• Operative characteristics access, recognition,
  relief
• Encourages direct communication cooperation
  between domestic courts foreign courts
  representatives
• Adopted by several nations
• US chapter 15 of US Bankruptcy Code
• UK Cross-border Insolvency Regulations
• Increasing uptake by other nations

91
US Bankruptcy Code Chapter 15

• Allows petition by foreign representative for
  recognition of foreign proceeding
• Court required to recognize foreign proceeding
  unless manifestly contrary to US public policy
• Main proceeding foreign proceeding pending in
  center of main interest
• Non-discretionary relief for main foreign
  representative includes
• Stay applies to debtor US property
• Bankruptcy Code sections regarding use of
  property apply to transfers of US property
• Power to operate debtors business

92
Chapter 15 (continued)

• Court has broad power to order additional
  discretionary relief in main or non-main
  proceeding
• Concurrent plenary proceedings
• Main foreign representative may file voluntary
  chapter 7 or 11 case over US assets
• Non-main foreign representative may file
  involuntary chapter 7 or 11 case (requires
  insolvency showing)
• Court can order provisional relief pending
  chapter 15 petition ruling
• Court must co-operate, may communicate, with
  foreign courts representatives

93
EC Regulation on Insolvency Proceedings 2002

• Mandatory rules to determine
• Applicable insolvency law
• Applicable jurisdiction
• Provisions requiring office holder to cooperate
  where there are main secondary proceedings
• Applies to entities with their centres of main
  interests in EC (presumption that it equates to
  registered office)
• Similar definitions appear in UNCITRAL

94
Co-operation Between Courts Office Holders

• Protocols
• Maxwell
• Federal Mogul
• Communication between courts
• The American Law Institute (ACI) Guidelines
• Cenargo
• TN
• Deference between courts
• Yukos

95
Global Approach to Insolvency and
RestructuringRobert Lemons, Weil, Gotshal
Manges LLP Sally Willcock, Weil, Gotshal
Manges LLPMr. Justice A.K. Sikri, Delhi High Cout
96
Summary and Close of Seminar
97
INSOL International andThe Institute of Company
Secretaries of IndiaEducational Programme New
Delhi