Legal issues in corporate debt restructuring

Abstract

The global financial crisis grappling the world's economy has become an 'endurance test' for many companies worldwide. Outstanding corporate debts are on the rise and an increasing number of companies, unable to service their debt burden, appear to be close to insolvency. The scope of this thesis is to analyse the various options available to troubled companies in restructuring their distressed debt. Chapter One begins with a discussion on the interplay between debt, equity and hybrid financing - this provides the bedrock for a thorough understanding of the more complex issues discussed in ensuing chapters. It then progresses to a cursory overview of the rules buttressing local insolvency and is concluded by an analysis of director liability within the context of corporate debt restructuring. Chapter Two commences with an introduction to the notion of restructuring. This chapter subsequently entertains a comparative analysis, whereby the fundamental tenets of efficient corporate reorganisation are explored and challenged by way of analogy with UK and US law. Novel hybrid rescue procedures are elucidated, and their congruity with Maltese law, assessed. The scope of Chapter Three is twofold. The first part attempts to anticipate future litigation which may arise locally, in view of recent UK developments. This exposition centres on two main issues, namely: (1) the possibility of excluding junior claimants from the ambit of a restructuring plan; and (2) the potential implications of a 'compromise' or 'arrangement' on bondholders, sureties and proprietary claimants. The latter part of Chapter three entertains a critique of the company recovery procedure. Its flaws are analysed and scope for change (or the lack thereof) is identified. Chapter Four examines novel modes of debt restructuring through out-of-Court workouts. The debate centres on a tri-pronged discussion of debt for equity swaps, bond repurchases, and the restructuring of distressed syndicated debt.