Debt Restructuring – How to Access the Agreement?

Debt Restructuring – How to Access the Agreement?

Felix Stadler February 2, 2020

A corporate debt restructuring must have as its starting point the objective of allowing the business in crisis to be able to continue operating and consequently avoid bankruptcy (according to the provisions of article 182 bis of the bankruptcy law). So as a ‘conditio sine qua non’ there must be a state of crisis that can lead to a bankruptcy situation, to which other requirements are added.

 

What is it for?

debt consolidation

The restructuring must concern the debts incurred by a company. This can be of any type (including agricultural) and size (an individual firm is also provided). As already mentioned, the debt exposure must be such as to be able to lead the company to the cessation of its activity. It is not sufficient for access to debt restructuring but it is also essential that creditors adhere to the plan, reaching at least 60% of the total coverage of the debt exposure. This percentage may be made up of both privileged and unsecured or ordinary creditors.

If this situation occurs, creditors who do not join (as long as they do not exceed 40%) are nevertheless entitled to full repayment of the receivables claimed, but cannot oppose the completion of the debt restructuring. The above calculation is made on the “weight” of the credit (by share and not by “heads”).

In addition to the requirements just highlighted, it is also necessary for the company that wants to use debt restructuring to turn to a qualified professional who must certify the truthfulness of the company’s economic data and the feasibility of the plan that underlies the restructuring. In this plan, the methods and times of return must be specified.

 

What’s it about?

It is a proposal for an agreement with which the company presents its creditors with a plan to reduce the pressure of debt and, consequently, allow the business to emerge from the moment of crisis. If an agreement is reached, it must then be entered in the commercial register. Given the technical times, in many cases quite dilated, it is possible to draw up the agreement and, on the basis of the approval by creditors, to use it to avoid the aggression of some assets belonging to the company’s assets, pending fulfillment the various formalities.

 

What debts are allowed?

debt loan

In general, the following can be included in the debt restructuring agreement:

  • the financial debts (for example mortgages, loans, leasing, etc.) which are claimed by credit institutions;
  • trade payables (to various suppliers of goods and services);
  • payables to the tax authorities (those against Qualtalia were also foreseen);
  • debts towards INPS.

 

How can debts be paid off?

In the plan, the debtor must specify how he intends to meet his debts. In this sense, it can make different types of proposal, remembering that it is always the right of the creditor to decide whether to accept the conditions or not. In particular, it may propose:

  • the transfer of assets to or from creditors. With this solution it will be necessary to proceed with the transfer from the financial statements as the book value of the debt which will be extinguished (or reduced);
  • the conversion of debts into shares and their transfer from debtors: the corresponding capital increase must be made (equal to the book value of the debt without carrying over the related profit or loss due to the restructuring operation);
  • the issue of a bond loan convertible into shares for an amount corresponding to the book value of the debt;
  • an extension of the payments due (especially with the Tax and INPS).

 

Advantages and disadvantages

The disadvantage is related only to the part linked to the credits not included in the restructuring which must however be paid in full. For the payment of these there are times that must be respected, namely:

  • if the credits left out of the agreement have expired on the date of approval of the restructuring agreement, the creditor will not be able to request payment before 120 days have passed;
  • if they have not yet expired on the approval date, the term always remains 120 days but starts from the date of their expiry.

Regarding the advantages, there are several noteworthy points:

  • creditors may decide to waive all or part of the credits claimed, or accrued interest, etc .;
  • suspension of any pending attachment proceedings in progress. The request for suspension is to be made to the court and is possible if a pre-agreement has already been reached with the sufficient quota of creditors;
  • continuation of business management;
  • compliance with the few legal constraints for drafting the debt restructuring plan;
  • during the agreement period, loans may be requested to help overcome the crisis;
  • once the agreement is found, no new foreclosures or precautionary actions can be promoted;
  • exemption on the application of the rules that can lead to the reduction of capital due to the losses and the relative dissolution of the company;
  • possibility of closing agreements or transactions with the tax authorities or with INPS.

 

How does the procedure take place?

debt loan

The process for the debt restructuring to be valid must follow the following steps:

  • restructuring request to the territorially competent court. For this first stage, two paths can be followed, namely that of the ordinary agreement (filing of the application for approval of the agreement with the support of the majority of creditors) or through a proposal for an agreement to obtain the time necessary to formalize it;
  • filing of the agreement and its entry in the commercial register;
  • hearing for the approval that serves to verify the veracity and existence, for example of the agreement with 60% of creditors;
  • Execution material of the agreement.

 

The agreement with the banks

debt credit

The debt restructuring with banks was introduced in 2015 (to date, 2017, no changes have been made) and provides for some more specific conditions. In fact, if the minimum percentage is reached (creditors-banks) then the agreement also extends to banks that did not wish to join. Given the possibility of requesting the court that the conditions of the agreement reached be extended to all credit institutions with which there are debts, there must be two requirements during the negotiation phase:

  • all creditors (banks) must be enabled to participate according to the principle of good faith;
  • all interested parties must have been informed of the start of the negotiation to reach the agreement.

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