The lengthy anticipated legislation of seven June 2023 implementing the European Directive on restructuring and insolvency brings a couple of main reform of Belgian insolvency legislation. Amongst varied different improvements, it introduces a brand new judicial reorganisation via collective settlement for giant enterprises.
The brand new legislation will apply to all procedures opened as from 1 September 2023.
On this second of two weblog posts (see first here), we’ll look at to which extent collectors can search to impose a debt-to-equity swap on shareholders inside the new judicial reorganisation for giant enterprises.
For reference: debt-to-equity swaps previous to 1 September 2023
Beneath the previous regime, debt-to-equity swaps have been uncommon. Though a debt-to-equity swap was talked about within the legislation as a doable reorganisation measure, the process was not designed to have an effect on shareholders with out their consent. The debtor was the one social gathering in a position to provoke the process and to attract up and file a reorganisation plan. In apply, the debtor was unlikely to suggest a measure that might end result within the dilution of the shareholders with out their consent. In any case, shareholders may at all times block a debt-to-equity swap given the company legislation requirement of approval by a shareholders’ assembly.
The brand new regime: shareholders now not immune
Beneath the brand new regime, shareholders are allotted to a category and might be affected by the restructuring plan. The restructuring plan might be voted opposite to the desires of the shareholder class (cross-class cram-down) if, amongst different situations, the plan doesn’t deviate from the conventional rating of liquidation priorities. Contemplating shareholders come final within the regular rating of liquidation priorities, this situation will usually be happy.
The brand new legislation additional gives that shareholders’ conferences could not unreasonably block the implementation of the restructuring plan. Upon request by any social gathering, the court docket will order the shareholders’ assembly to take the choices required to implement the restructuring plan.
Which measures might be imposed on shareholders?
The precise nature of the measures that may be imposed on shareholders pursuant to a cross-class cram-down isn’t completely clear. The parliamentary works state that “withdrawing the monetary rights hooked up to the shares is the obvious choice”, that “[i]n sure instances it could even be mandatory to switch the governance rights hooked up to a (specific class of) shares, for instance when such class has the facility to determine upon a dividend distribution” and that such “modification of governance rights could make a debt-to-equity swap extra engaging for collectors”.
I’m not positive that withdrawing the monetary rights to the shares is certainly the “most blatant” choice. It can in any case not be doable to fully withdraw all monetary rights to the shares (articles 5.14 and seven.16 Corporations and Associations Code). Maybe the extra apparent answer is a debt-to-equity swap mixed with the cancellation of half or all the shares of the present shareholders in order that the collectors can get hold of as much as 100% of the share capital of the debtor firm?
However quite a few exceptions
The brand new legislation expressly permits shareholders to retain their shareholding in the event that they (i) present new financing or (ii) they’re essential for the continuity of the debtor and commit themselves to retain their shareholding for an inexpensive time period. The parliamentary works rephrase these guidelines as enabling the shareholders to retain the extra worth that shall be dropped at the restructured debtor on account of the additional implication of the shareholders.
Additionally, the parliamentary works validate the apply of “gifting”. This implies for instance that secured collectors could “give” a part of the worth that accrues to them to the shareholders (even when intermediate courses, resembling unsecured collectors, are bypassed).
The above exceptions could possibly be utilized by the board of administrators to attract up a restructuring plan that’s unduly beneficial to shareholders. Certainly, the board of administrators typically retains accountability for initiating the judicial reorganisation process and drawing up the restructuring plan. Collectors can after all refuse to vote an unbalanced restructuring plan. If the choice is chapter, collectors could nonetheless want to go over a part of the reorganisation worth to shareholders.
Appointment of a practitioner within the subject of restructuring
Alternatively, the brand new legislation introduces a brand new manner for collectors to affect the restructuring plan, and thereby keep away from a switch of worth to shareholders. Certainly, as soon as the debtor has efficiently filed for a judicial reorganisation via collective settlement, any creditor will obtain the fitting to petition the court docket to nominate a practitioner within the subject of restructuring.
If a majority of the collectors help the request and comply with pay the prices of the practitioner within the subject of restructuring, the court docket should approve the request. Provided that the parliamentary works require the vast majority of collectors to be decided by headcount of collectors (somewhat than by quantities owed), it could be impractical to attain this majority. Nonetheless, even when this majority isn’t achieved, the court docket should appoint a practitioner within the subject of restructuring if that is required to guard the pursuits of the events involved.
If appointed, the practitioner within the subject of restructuring will help the debtor and the collectors within the negotiation and preparation of the restructuring plan. The practitioner within the subject of restructuring can’t file the restructuring plan with out the consent of the debtor. The debtor could nonetheless not refuse its consent unreasonably. If the debtor refuses its consent unreasonably, the court docket could determine to permit the practitioner within the subject of restructuring to file the restructuring plan unilaterally.
There could possibly be conditions during which secured collectors might be able to strategically use a practitioner within the subject of restructuring to affect the content material of the restructuring plan and maybe impose a debt-to-equity swap on shareholders.
Initiation of a silent judicial reorganisation
The brand new legislation goes even additional and permits collectors to petition the court docket to nominate a practitioner within the subject of restructuring even when the debtor has not (but) filed a request for judicial reorganisation. This petition shall be granted if the continuity of the actions of the debtor is threatened within the brief or medium time period, except this may not be “within the collective curiosity of the collectors together with the staff”. The pursuits / preferences of the debtor will not be taken into consideration.
If the petition is authorised, a practitioner within the subject of restructuring shall be appointed with a view to confidentially making ready a silent judicial reorganisation via consensual or collective settlement. The practitioner within the subject of restructuring will help within the negotiations. Once more, the practitioner within the subject of restructuring can’t file the restructuring plan with out the consent of the debtor. The debtor could nonetheless not refuse its consent unreasonably. If the debtor refuses its consent unreasonably, the court docket could determine to permit the practitioner within the subject of restructuring to file the restructuring plan unilaterally.
That is definitely not a totally watertight answer provided that the debtor could at any cut-off date terminate the silent judicial reorganisation process and therefore forestall the approval of the restructuring plan. Nonetheless, beneath sure circumstances, it could possibly be a manner for collectors to place a debt-to-equity swap on the agenda.
Conclusion
The brand new legislation considers shareholders as a category that could be topic to reorganisation measures. It additionally grants collectors new means to nominate a practitioner within the subject of restructuring and therefore affect the restructuring plan. In gentle of those two essential developments, there could also be extra scope for collectors to impose a debt-to-equity swap on shareholders. If that’s the case, this might develop into a helpful different to a share pledge enforcement.
Eric Blomme
Associate
Simmons & Simmons
