Читать книгу Retos y desafíos de las garantías reales - Abel B. Veiga Copo - Страница 25

In principle, each class of affected creditors must accept a restructuring plan before it may be approved by a judicial or administrative authority58. If there is no unanimity within the class then the dissenting members of the class are said to be “crammed down”. The plan becomes binding on them even though they have not given their individual consent. In some cases however, judicial or administrative approval for the plan may be given even if all the affected classes of creditors have not given their consent to the plan. This is referred to as cross-class creditor cram-down59. The Directive envisage the cram-down of affected parties within a class and also the cram-down of whole classes of creditors. This is not a traditional aspect of the European restructuring scene but is a feature of the US Chapter 1160.

Dissenting creditors must receive at least as much under the plan however, as they would receive in an alternative scenario – the “best interests of creditors” test. Article 2(6) defines the “best interest of creditors test” as meaning that no dissenting creditor should be worse off under the restructuring plan than they would be in the event of liquidation of the business, whether in piecemeal form or by means of a going concern sale or in a next-best-alternative scenario if the restructuring plan were not confirmed61. Intuitively, one would expect to receive the least value in a piecemeal sale with more recovered in a going concern sale and the most value if another restructuring plan were before the court rather than the one being considered at the moment. Before opting for the going concern approach, the court would need to be satisfied that this was the most likely alternative to approval of the restructuring plan62. For a different, alternative, plan to pass muster as a comparator there would need to be convincing evidence that the alternative plan would be put to the vote should the present plan fail to secure sanction. The Article 10(2)(d) proviso suggests however, that compliance with the best-interests-of-creditors test need only be examined by a judicial or administrative authority if the restructuring plan is challenged on that ground. This is to avoid the need for a valuation of assets having to be being made in every restructuring case63.

Article 10 of the Directive lays down certain minimum conditions for approval of a restructuring plan such as that “creditors with sufficient commonality of interest in the same class are treated equally and in a manner proportionate to their claim”. These conditions include passing the “best interests of creditors” test and a feasibility review. Judicial or administrative approval of the plan is necessary where the plan affects the claims or interests of dissenting affected parties; where it provides for new financing; or where it provides for the loss of more than 25% of the workforce.

In the US, a class of creditors, including secured creditors, can be “crammed down” provided that at least one other class of impaired creditors has accepted the plan.

Creditors in Chapter 11 are protected by the “best interests test”64 and also by an extensive list of conditions set out in s 1129. The restructuring plan must not discriminate unfairly and has to be fair and equitable65. This requires that creditors who are similarly situated should be treated in a comparable fashion. Prima facie at least, it would seem, for example, to be unfair discrimination for a one similarly situated creditor to receive a higher interest rate than that imposed on another similarly situated creditor. The fair and equitable standard means that an unreasonable risk of the plan’s failure should not be imposed on the secured creditor. Secured creditors are effectively entitled to payment of the amount secured in full over time66.

Unsecured creditors are protected by the absolute priority principle67. This means that shareholders cannot, in principle, be paid before the creditors unless the creditors consent or the shareholders are providing some new or additional value68. Section 1129(b)(2)(C)(ii) provides that the “holder of any claim or interest that is junior to the claims of such class [of unsecured creditors] will not receive or retain under the plan on account of such junior claim or interest any property”.

The “absolute priority” principle was explained in detail by the US Supreme Court in Czyzewski v Jevic Holding Corp69. The court said that the Bankruptcy Code sets forth a basic system of priority that ordinarily determines the order in which the court will distribute assets of the debtor’s estate. Secured creditors are highest on the priority list in that they must receive the proceeds of the collateral that secures their debts70. Special classes of creditors, such as those that hold certain claims for taxes or wages, come next in a particular order followed by lower priority creditors, including general unsecured creditors. Equity holders are at the bottom of the priority list and they receive nothing until all previously listed creditors have been paid in full71. In the liquidation of a debtor’s assets under Chapter 7 of the Bankruptcy Code, a distribution must follow this prescribed order72. There is somewhat more flexibility for distributions in Chapter 11 plans, which may impose a different ordering with the consent of affected parties. Nevertheless, the court may not confirm a plan with priority-violating distributions over the objection of an impaired creditor class73.

In short, the absolute priority principle requires that unless creditors are to be paid in full, or unless each class of creditors consents, the company’s “old” shareholders are not entitled to receive or retain any property on account of their old shares. They may obtain an equity interest, however, in the restructured entity if they provide “new value”.

Law and Economics scholars have argued that deviations from the priority rules that apply outside insolvency are costly and will increase the cost of borrowing since lenders adjust their rates to reflect the fact that shareholders retain some value that would otherwise have gone to the lenders74. Put another way, the failure to enforce the absolute priority rule will affect investment decisions; drive up the cost of capital and distort allocations between equity and debt. On the other side of the argument, it may be the case that these propositions are based on perfect market theories that are not necessarily sound in practice75.

In the Directive, the conditions for cross-class cram-down are laid down in Article 11 supplemented by Article 2 though some of the relevant language is difficult to interpret and problematic to apply in practice. In general terms however, the “best interest of creditors” and “feasibility” tests must be met. No creditor class may obtain more than the full value of its claims or interests76. Moreover, a majority of voting classes of affected parties must approve the restructuring plan provided that at least one of the approving voting classes is a secured creditors class or is senior to the ordinary unsecured creditors class (Article 11(1)(b)(i)). By way of contrast, the test for cross-class creditor cram-down under the US Chapter 11 only requires one “impaired” class to accept the plan before the plan can go forward for judicial scrutiny and approval.

The plan must also adhere to “relative” or “absolute” priority requirements. The original Commission Restructuring Directive proposal favoured the absolute priority principle i.e. senior classes of creditors should be paid in full under a restructuring plan before junior classes or shareholders receive or retain any value. The final version however, which was heralded in an October 2018 draft agreed by the Council of Ministers77,introduces the possibility of “relative priority” i.e. a restructuring plan may be approved if a senior class is treated more favourably than a junior class even if the senior class is not paid in full78. The introduction to the October 2018 draft explained the revised provision on the basis that the cross-class cram-down mechanism was new to a number of Member States and this mechanism raised some concerns about the consequences of the absolute priority rule. These fears were therefore addressed by a compromise text which provided an alternative option for Member States allowing them to incorporate a different benchmark –a “relative priority rule”– so as to protect dissenting creditor classes79. Accordingly, Member States are given more flexibility in implementing cram-down.

Continued adherence to the absolute priority principle remains a possibility open to Member States in the text of Article 11(2) ultimately adopted. But Member States are also given the freedom to deviate from absolute priority in order to achieve the aims of the restructuring plan and where the plan does not unfairly prejudice the rights or interests of any affected parties. The prima facie test under Article 11(1)(c) is however, one of relative priority rather than absolute priority. Affected creditors do not have to be paid in full before a junior class received anything. All that is needed is that “affected creditors are treated at least as favourably as any other of the same rank and more favourably than any other junior class”80.

There is also specific provision in Article 12 to deal with equity holders and cross-class cram-down. Equity holders may be exempted from Article 11 but in those circumstances, they must not be allowed to prevent or create obstacles to the implementation of a restructuring plan81.

In general, the court may have to carry out a valuation exercise putting a value on the debtor’s business where the restructuring plan is challenged on the basis that either the “best interests of creditors” test or more general cram-down conditions have not been met. In this scenario, the court may be assisted by properly appointed experts82.

The Restructuring Directive provision on “relative priority” ensures however, that junior classes can get much more than they would do in a US Chapter 11 regime. The Directive entails that a secured creditor dissenting class can be bound to a plan provided that the class is treated “more favourably” than any lower ranking class. Article 11(1)(c) provides that “dissenting voting classes of affected creditors are treated at least as favourably as any other class of the same rank and more favourably than any junior class”. The relative priority rule compromises rather that respects priority. It allows for plans giving value to shareholders without trade creditors receiving payments in full, or plans that make provision for payment to unsecured creditors before preferential or secured creditors receive a full distribution. There is a reshuffling and curtailing of pre-existing rights. The provision is clearly different from relative priority as envisaged even in the proposed revamping of the US Chapter 11 advocated by the US Bankruptcy Institute.

The 2014 report from the American Bankruptcy Institute (ABI) on Chapter 11 reform suggested some changes to the “absolute priority” principle by giving the “out of the money” stakeholders “redemption option value”83. The report pointed out that “valuation may occur during a trough in the debtor’s business cycle or the economy as a whole, and relying on a valuation at such a time my result in a reallocation of the reorganized firm’s future value in favour of senior stakeholders and away from junior stakeholders in a manner that is subjectively unfair and inconsistent with the Bankruptcy Code’s principle of providing a breathing spell from business adversity”84.

Under the Chapter 11 reform proposals, a class receiving no distribution under a restructuring plan but was next in line to receive such a distribution is given a “redemption option value” that equals the value of an option to purchase the entire company and pay in full or “redeem” all the outstanding senior debt. The proposals were designed to reflect the possibility that within 3 years the value of a restructured company might be such that the senior creditors can be paid in full and there is incremental value for the immediately junior class of stakeholders. Nevertheless, the detailed rules proposed increase the complexity of Chapter 11 and there appears to be little prospect of the proposals being implemented in the near future85.

The 2017 Report of the European Law Institute argued for a European-style relative priority rule86. It stated: “A more flexible (relative) priority rule would better reflect pre-insolvency entitlements as it allows to create a new capital structure that also keeps everyone in the picture”. European relative priority may leave the shareholders fully or partly in place, whereas relative priority US style freezes out the old equity but leaves them with the option of regaining their stake in exchange for payment in full of the creditors at a later date.

European style relative priority may be said to rest on three main and related foundations; 82 firstly, the debtor is not actually insolvent at the time that it enters the restructuring process; secondly, encouraging existing managers and shareholders to make use of the restructuring process and thirdly, the valuation uncertainties and the realities of business. On the first justification, according to Article 1(1), the Directive is intended to lay down rules when there is “likelihood of insolvency with a view to preventing the insolvency and ensuring the viability of the debtor”. But one has to distinguish between likely and actual insolvency. If a debtor is insolvent when it enters the restructuring procedure, then the economic argument would seem to be that the debtor’s assets belong fully belong to the creditors since the creditors are entitled to these assets if they have recourse to an enforcement mechanism. Shareholders are not to receive any value due to their subordinated status in a liquidation and therefore they should not be allowed to hold up or veto any restructuring plan that provides for a reorganisation of the debtor’s affairs. This is basically the rule in the US Chapter 11 – absolute priority – even though the debtor, technically speaking, does not have to be insolvent before it files for Chapter 11 relief such as where it faces large, but uncertain, tort liabilities and use of Chapter 11 is an expeditious and convenient way of bringing about a settlement of the claims particularly where the debtor anticipates liquidity issues in meeting the claims. Applications however, must be made in “good faith” and with the genuine reorganizational objective and petitions have been dismissed where this is not the case87.

If the debtor is not yet insolvent however, then from a purely economic point of view, the equity still has a value and the debtor is still “owned” by shareholders and not creditors. There may be constitutional protections for the property rights of shareholders; their rights to conduct a business and their rights establish and govern a company. Expropriating shareholders when the insolvency of a company is not fully established may conflict with the due process and substantive rights that lie behind the protection of private property88.

Professor Wessels has argued that because the Restructuring Directive is designed to prevent insolvency, then applying the logic and rules of insolvency law, including absolute priority, is not justified. Where there no insolvency, the case for altering the debtor’s capital structure and wiping out shareholders and junior creditors is not convincing89.

The response to this is that the Directive alters existing contractual rights of affected parties, especially those of creditors, and is a (solvent) restructuring procedure in name only. De Weijs et al, for instance, have argued that inclusion of the relative priority principle jettisons perhaps the most fundamental principle of corporate restructuring law from the EU framework90. Tollenaar made essentially the same point that the proposed procedure, in terms of its consequences, is an insolvency procedure. In his view, “if it’s not called a duck, but looks like a duck, swims like a duck and quacks like a duck, it probably is a duck”91.

On the other hand, the Restructuring Directive is not intended to be an insolvency procedure and therefore it makes sense to have non-insolvency distributional norms, at least as an alternative. It is intended to bring about a balanced system of business restructuring and having an absolute norm, such as absolute priority, set in stone may effectively turn a debate from one of giving opportunities to viable businesses into that of protecting the vested rights of strong secured creditors such as banks and powerful investors. Having the two norms in play of relative priority and absolute priority appears more in keeping with the social considerations of protecting employment and maintaining business activity. The Restructuring Directive is essentially about a careful balancing exercise between all the parties involved - debtor, creditors, shareholders, employees with a view to broader societal interests and that of the economy as a whole.

The second justification for relative priority is that it encourages managers and shareholders to make use of the restructuring option when the debtor’s financial difficulties have become apparent but its prospects of viability have not yet been fatally damaged. Often the temptation is to leave exploration of the restructuring options until late in the day whereas the Directive is intended to enable debtors to restructure effectively at an early stage. Recital 16 stresses the importance of early stage restructuring stating that the removing the barriers to effective preventive restructuring of viable debtors in financial difficulties contributes to minimising job losses and the loss of value for creditors in the supply chain. It also helps to preserves know-how and skills and hence is beneficial for the wider economy. Having the absolute priority rule as the single possibility creates a disincentive for the management and shareholders and militates against early stage restructuring.

If the future contributions and continued management of equity owners is essential to the business, then the case for giving them an ownership stake in the restructured entity is especially strong. For small and medium-sized enterprises (SMEs), the skills and connections of management and shareholders and their knowledge and understanding of background factors affecting the business, including regional circumstances, may play a crucial role. Recital 58 states that the equity holders in SMEs are not mere investors, but the owners of the enterprise; they contribute to the enterprise in other ways such as by managerial expertise and it is important for them to have an incentive to restructure the business. The absolute priority rule makes it rather difficult to award value under a restructuring plan to “old equity” and, in SMEs, the separation of ownership and control may not be feasible because of the size, nature, or location of the debtor’s business and the necessity of maintaining pre-distress goodwill which in turn depends on some or all of the pre-distress management remaining in place under the restructuring plan92.

It should be noted that the US Small Business Reorganization Act 201993 is also designed to protect the equity interest of the small business owner. The Act introduces a new subchapter V into the US Bankruptcy Code which eliminates the rule that a shareholder cannot retain equity in a business unless creditors are paid in full. The provision allows existing owners of a business to retain their full “equity” ownership without providing any “new value” if the plan provides for the debtor to distribute all of its projected disposable income over at least three years and no more than five from the date the first payment is due under the plan94.

The new Act statutorily reverses a US Supreme Court case, Norwest Bank Worthington v Ahlers95, which held that the US “absolute priority rule” barred confirmation of a restructuring plan where the old owners sought to reclaim the company, as it were, through a contribution of “sweat equity.” Now the new Act specifically validates this approach.

The third justification is based on valuation uncertainties and business cycles. For instance, it gives a measure of protection against certain “loan-to-own” strategies under which buyers of distressed debt use this to acquire a portion of the debtor’s equity that is greater than the present economic value of their debt claims. Putting an exact value on a business is very difficult where valuation takes place during a business downturn that “chills” alternative bids for the business. The business reality is that creditors, managers and shareholders may have to work together to accomplish a consensual restructuring and having a base rule of absolute priority stacks the odds in favour of certain parties to the negotiation. Moreover, having a flexible relative priority rule as the Directive anticipates offers greater flexibility than the complicated pricing methodology envisaged in the US Chapter 11 reform process.

Be that as it may, the relative priority principle in the Directive seems to treat equity owners and junior creditor classes very advantageously. Dissenting senior classes are only entitled to receive more favourable treatment than any junior class.

What exactly constitutes more favourable treatment however, is not spelled out. Prima facie, it would suggest receiving a greater proportion of what is due to them but there is no specification as to what the difference in treatment might be. It could be de minimis. This approach may upset the traditional debt–equity applecart too much. In general, debt holders get a fixed return on their debt holdings whereas shareholders are not entitled to any such fixed return but will profit from the success of the business through dividends and through enhanced capital values. The shareholders get the gains but should also suffer the pains.

At least one commentator has argued that by only requiring that senior dissenting classes be treated “more favourably” than junior classes, the relative priority principle disregards the legal entitlements of the parties and distorts the incentives around negotiating a restructuring plan. Moreover, by explicitly allowing shareholders to preserve part of their stake in the firm at the cost of creditors, the relative priority principle incentivizes moral hazard and weaken the attractiveness of debt investments. Relative priority is not an appropriate solution to the problems caused by absolute priority because it raises a host of new and potentially greater issues such as opportunism and wealth-transfer96.

Member States are not obliged however, to implement a relative priority regime97. They may adopt absolute priority instead. Moreover, the Directive softens the edges of absolute priority and allows for variations on absolute priority where these are necessary to achieve the aims of the restructuring plan and where it does not unfairly prejudice the rights or interests of any affected parties98. Absolute priority tempered with these qualifications may be the best way forward.

In this connection, the UK experience may be relevant. The UK is no longer an EU state and is not obliged to implement the Restructuring Directive. Nevertheless, and in line with the changes mooted in the Restructuring Directive, the UK’s Corporate Insolvency and Governance Act 2020 made certain changes to restructuring law and practice in the UK99. In particular, the Act introduced a new Part 26A in the UK Companies Act with provision for restructuring plans that add additional features to the previously existing schemes of arrangement procedure under Part 26 UK Companies Act. The 2020 Act makes provision for cross class cramdown so long as certain conditions are satisfied.

Under a restructuring plan, a company is enabled to bind dissenting classes of creditors or shareholders, provided at least one class approves the plan by at least 75% by value of those present and voting. A scheme of arrangement under Part 26 however, has to be approved by each class.

Typically, there are two hearings in relation to a restructuring plan or scheme of arrangement. The first is known as the convening hearing where the court principally considers whether the proposed classes have been properly constituted and meetings of those classes ought to be convened to vote on the plan/scheme. There is a second (sanctioning) where the court hears the result of the votes and has to decide whether to sanction the plan/scheme.

In a plan, any creditor or member whose rights are affected by the plan must be permitted to participate in the process, but those who have no genuine economic interest in the company may be excluded. Affected members and creditors must be given sufficient information to be able to vote100. A restructuring plan sanctioned by the court is binding on all creditors/shareholders of the relevant classes and the company.

Valuation issues are likely to be particularly important at the sanction stage (and possibly even at the initial convening stage), including consideration of what is the likely alternative if confirmation is refused101, and whether those with a genuine economic interest have been excluded from participation in the process102.

The exercise of the cramdown power under the restructuring plan procedure was considered by Trower J in DeepOcean103 and by Snowden in the “sanctioning hearing in Re Virgin Active”104. The latter addressed in particular, the restructuring surplus and how this should be distributed among “in the money” creditors. The restructuring surplus refers to the excess over liquidation or alternative values produced by the restructuring process. Essentially the judge took the view that “out of the money” creditors were not entitled to any share in the surplus and it up to the “in the money” to decide on how it should be divided up. He said105:

“That established approach in relation to scheme cases reflects the view that where the only alternative to a scheme is a formal insolvency… business and assets in essence belongs to those creditors who would receive a distribution in the formal insolvency. The authorities take the view that it is for those creditors who are in the money to determine how to divide up any value or potential future benefits which use of such business and assets might generate following the restructuring …”.

In the Virgin Active case dissenting creditors objected to the fact that the old shareholder class had been allowed to retain part of their ownership stake in return for putting up new capital whereas this opportunity had been denied to the dissenting creditors. In support of this objection, reference was made to the US authority, Bank of America v 203 North LaSalle Street Partnership106 where the US Supreme Court refused to confirm a Chapter 11 plan which provided for the existing holders of equity in an insolvent entity to be able to subscribe for new equity in the reorganised entity. The Supreme Court held that the plan violated the codification of the absolute priority rule and the “new money” section in s 1129 US Bankruptcy Code because there had been no opportunity for anyone else to subscribe for the equity.

The judge in Virgin Active however, pointed out that the North La Salle Street turned on the US statutory language and its codification of the absolute priority rule. He added, in relation to the UK, that it was “important to note that although it had been contemplated in the consultation process, an equivalent absolute priority rule was not enacted in any form as a principle for the exercise of the discretion in Part 26A”107.

The UK approach leaves more room for judicial discretion and an open textured approach rather than rigidly fashioned statutory principles. In insolvency and restructuring cases however, the UK has a highly specialist judiciary with well developed expertise, and working against a background of long established precedents. It is questionable whether the UK experience translates well to certain European jurisdictions with less well established and specialist judiciaries.

Be that as it may, the absolute priority/relative priority choice under the Restructuring Directive widens the possibilities of “forum shopping” or regulatory competition, call it what you will, on the European restructuring scene. Existing management may push for a restructuring in a country that has relative priority at its heart whereas creditors may push for an “absolute priority” friendly country. Nevertheless, if the debtor is in need of a fresh financial injection, then the creditors may be able to control the restructuring venue despite the “law on the books”. The creditors, as part of the negotiating process, and to preserve the value of the existing enterprise, may determine that the existing shareholders, and even existing management should be given a stake in the restructured entity.