Second chance for your company
In May this year, an introductory article was published on the PMR Restructuring S.A. website on the issue of proceedings to amend the arrangement.
The topics presented were of interest to you and revealed, that not all entrepreneurs who are in the process of implementing an arrangement adopted in restructuring proceedings are aware of the existence of such a solution and the possibilities and benefits it entails.
It is necessary to start by explaining the consequences of a delay in the implementation of the approved agreement, which may crystallise even in a situation where the entrepreneur will have only one arrears in the payment of the due agreement instalments. In such a case, among other things, the creditor and the supervisor of the implementation of the arrangement have the possibility of filing an application for the revocation of the arrangement, the successful recognition of which results in the loss of all the benefits deriving from it, including the redemption earned, and the entirety of the liabilities becoming immediately due and payable, including interest.
It should be borne in mind that the approved layout is not, however, the final construction, which means that these difficulties do not have to end in the realisation of the negative scenario indicated. Any entrepreneur who is currently executing an arrangement and whose income has decreased may submit an application to open the procedure for its modification. Its purpose is to enable such a modification of the arrangement that will be feasible and will allow at least the preservation of the benefits developed under the original arrangement of benefits.
The catalogue of possible directions of changes is very wide, the legislator has indicated several possibilities without limiting entrepreneurs in terms of methods debt restructuring, but only defining the framework of their admissibility. The most intuitive, and also the most common in practice, proposals include postponing the date of execution of the existing arrangement, spreading the repayment into instalments, modifying the number of existing instalments, changing their amount or increasing redemption. It is worth noting that an amendment may comprise one or a combination of several of the proposed modalities, e.g. assume at the same time that repayment of the existing arrangement will be postponed for 12 months from the due date of a particular arrangement instalment, the amount of the outstanding debt under the arrangement will be reduced by an additional 20% and repaid in equal instalments, the number of which will be increased to the desired level.
In progress changes to the system a proposal is also possible within the framework, whose repayment of the arrangement will be taken over by a third party, or will be met from external financing on terms to be determined by them.
In the case of limited companies, the conversion of receivables into shares is an interesting proposition, which causes an extremely beneficial change in the balance sheet structure, where the liability is converted into capital, causing an increase in the parameters required for assessing its financial condition. A solution worth considering, but requiring professional support, so if you are interested, it is worth using an experienced support by recommending the PMR Restructuring team here SA, which has in its portfolio effective implementations of proposals based on conversion.
A liquidation arrangement providing for satisfaction in a variation of the arrangement from the liquidation of the company's assets is also possible. The advantage of this solution is the prospect of obtaining significantly larger amounts to repay creditors than in bankruptcy or enforcement proceedings, because the sale is made on market terms without a discount appropriate for forced liquidation, and the amounts obtained are not reduced by the costs of enforcement by a bailiff or bankruptcy proceedings - and these in the case of economic bankruptcy can be really high. Effective implementation of the liquidation agreement also has the advantage from the point of view of the company that it does not leave it with the "label" of bankrupt.
As already indicated, the Law restructuring imposes certain limits on the freedom to construct proposals in the proceedings to change the arrangement, among other things by specifying that the restructuring conditions are the same for all creditors, with the legislator allowing their division into groups that are then the same within the same group and giving preference to creditors providing financing during the implementation of the arrangement. In addition, the act imposes certain restrictions on the restructuring of the Social Insurance Institution's receivables, secured receivables, in terms of public aid received, or employee receivables.
When analysing possible scenarios at each stage of the projection, it is important to bear in mind, that the arrangement proposals must anticipate the possibility of being accepted by a qualified majority of creditors, as well as correspond to the real possibility of fulfilling the obligations.
To conclude, an important note – the above content is presented with the reservation “as a rule”, because it has been presented at a certain level of generality facilitating understanding of the essence, without going into the intricacies of exclusions and legal complexities. Restructuring proceedings, as well as proceedings for changing the arrangement, are a product made to measure. The Act defines certain frameworks and a range of possibilities that the skilled restructuring advisor can be tailored to individual situations and needs, which is why any decisions should be preceded by a consultation with a professional.
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