FORMAL AND INFORMAL ARRANGEMENTS

• What are the different options for a company in financial difficulties?

  Informal agreements, pre-insolvency moratorium, company voluntary arrangements, and restructuring plans
• Why might a company choose to negotiate informal agreements with creditors?

  To avoid the time and cost of formal insolvency arrangements
• Are informal agreements regulated by insolvency statutes?

  No, they are not regulated by IA 1986 or CIGA 2020
• What might a company do to obtain creditor agreement for an informal arrangement?

  Grant new security or sell profitable subsidiaries
• What is a Standstill Agreement in the context of informal arrangements?

  • A preliminary step to negotiate with creditors
  • Creditors agree not to enforce their rights for a specified period
  • Provides time for the company to resolve financial issues
• What does CIGA 2020 introduce for struggling companies?

  A new pre-insolvency moratorium
• What is the purpose of a pre-insolvency moratorium?

  To buy time for a company to reach an informal agreement with creditors
• What actions are restricted by a pre-insolvency moratorium?

  No creditor can enforce security against the company's assets
• How long does a pre-insolvency moratorium last initially?

  20 business days
• What must a company file to obtain a pre-insolvency moratorium?

  A statement of inability to pay debts and a statement from a licensed insolvency practitioner
• What debts does a company not have to pay during a pre-insolvency moratorium?

  Pre-moratorium debts
• What are moratorium debts?

  Debts that fall due during or after the moratorium
• What are the main advantages of formal arrangements?

  • Legally binding if requisite majorities vote in favor
  • Can proceed even if some creditors do not vote
  • Provides a structured approach to debt resolution
• What is a Company Voluntary Arrangement (CVA)?

  A compromise between a company and its creditors
• What is the essence of a CVA?

  Creditors agree to part payment of debts or a new repayment timetable
• Who supervises the implementation of a CVA?

  An Insolvency Practitioner known as a Supervisor
• What happens if a CVA is approved?

  It becomes binding on all unsecured creditors
• What is a major disadvantage of the CVA procedure?

  Secured or preferential creditors are not bound without consent
• How are CVAs commonly used in the retail sector?

  • To reach compromises with creditors
  • Particularly landlords for rent reductions
  • Allow companies to continue trading
• What is the purpose of the Restructuring Plan introduced by CIGA 2020?

  To compromise a company’s creditors and restructure its liabilities
• What is a key feature of the Restructuring Plan?

  It requires court approval to bind all creditors
• What is a cross-class cram down in the context of a Restructuring Plan?

  Forcing a Plan on a dissenting class of creditors
• What are the advantages of a Restructuring Plan compared to a CVA?

  • Can bind secured creditors and shareholders
  • Court can sanction even without majority approval
  • More flexible in restructuring liabilities
• Compare the initiation and approval processes of a CVA and a Restructuring Plan.

  CVA:

  • Initiated by directors, liquidator, or administrator
  • Requires 75% approval of unsecured creditors and over 50% of shareholders

  
  

  Restructuring Plan:

  • Initiated by company, creditor, member, liquidator, or administrator
  • Requires court sanction and 75% approval in each affected class
• Summarize the key points regarding informal and formal arrangements for companies in financial difficulties.

  • Informal agreements can be negotiated without regulation
  • Pre-insolvency moratorium provides breathing space
  • CVA allows restructuring of unsecured debts
  • Restructuring Plan can bind all creditors with court approval