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Blog 2019

2019-04-doc6 Restructurings and workouts

In less than a decade, the topic of restructuring and workout has risen to the top of the legislative agenda of many countries, in the EU and beyond. In the same period insolvency practice has gradually grown into its renewed role: understanding the diversity in creditors’ interests, to think (allow me) outside the narrow box of insolvency liquidation and get away of applying its principles and approaches unamended to out-of-court consensual restructurings, the entry into the market of hedge funds and purchasers of claims which indeed have different interests compared to unsecured creditors. The biggest hurdle is attitude and culture: shaking of moral feathers (debt is 'sin') and embrace a market response: insolvency is a business risk as any other. In their renewed role, insolvency lawyers should develop their skills in contract negotiating outside the shadow of insolvency law. In the third edition of ‘Restructuring and Workouts: Strategies for Maximising Value’, edited by Graham Lane, Globe Law Publishing, London, 2019, several of these aspects are touched upon, such as contributions on the restructuring and workout environment in Europe, the view of the World Bank Group on these themes in the light of economic development, valuation of distressed businesses, pre-packs at an operational level ( including ‘post-packs’ with a buy-back option)) and restructuring in specific industries (shipping and offshore, retail). In this edition the spotlight is on legislative developments in France, Spain and the US. The World Bank authors see common themes across jurisdictions when reforming insolvency legislation: addressing the need to acknowledge that insolvency is an important and integral part of the business cycle, to ensure proper implementation on an institutional level (practitioners, courts, advising agencies of committees), facilitating business restructuring not being shut by tax consequences of debt write-off, extending social protections to those affected by business failure. An interesting topic underlines the skills practitioners need to succeed in the area of pre-insolvency, ie maximising stakeholder value, that is how to understand and deal with all diverging interests during a restructuring process, and how to find common ground between stakeholders with conflicting agendas? The chapter on the global Lehman bankruptcy provides an instructive account of the specific topics to the bankruptcy of the world’s fourth-largest investment bank, including the use of a global protocol, bar dates, secondary trading, the ‘waterfall’ of different claims, ranking of subordinated claims and currency conversion.
This third edition is timely as Europe is on the brink of implementing (in 2 or in 3 years, when a Member States encounters particular implementing difficulties) the Preventive Restructuring Directive in national legislations. In new or renewed legislation, the key word is rescue of viable business. The third edition of the book provides useful practical tools to maximise value in restructuring situations.

Graham Lane (consulting editor), Restructuring and Workouts. Strategies for Maximising Value, 3rd ed., Globe Law and Business 2019. ISBN 9781787421882

Book information via:

Note: this book I received free of charge from the publisher with the request to announce it or to review it on my blog at

2019-04-doc5 Turnaround Management

A decade ago, none of us could have imagined just how much business and economic dimensions we would see in the restructuring and insolvency industry world of today. It may be bad news for the companies affected; however, we could not have imagined the creativity and dedication of schol­ars and practitioners in the field in presenting broader perspectives and leg­islation or the practice growing closer and converging. It may be bad news for the lawyers, as they have to get themselves acquainted with non-traditional legal subjects and develop certain skills. Many of the lawyers I know, however, fully embrace their renewing thinking and working environment where an alignment of legal approaches is since a few years is becoming visible over time. Where the world indeed grows smaller every day, legislations converge to common positions, at least on several key points. Against the backdrop of the recent financial crisis, the past years have witnessed developments of a stunning speed and sophistication in the attempt to find suitable responses to a widely endorsed policy of rescuing economically viable but financially distressed businesses. The EU Restructuring Directive, to be fully accepted in a few weeks is just a signpost underway.

This European (even worldwide) gulf will roll out in the coming years. It will not so much shake, but surely stir business advisors, legislators, insolvency practitioners, and judges. It will require these advisors and turnaround managers to deepen their knowledge and skills to assist corporate management. Along the way, influenced by US Chapter 11 and its feature of keeping the business management in place (‘debtor in possession’), insolvency and restructuring professionals are seeking better ways to enhance value preservation. As a result, consensual turnaround and restructuring ahead of insolvency is becoming Europe’s new default position, Alan Tilley, in his recent book on Turnaround Management, argues. It is a down to earth, practical book drawing upon the author’s 25 years’ experience in turnaround management. It guides the reader through the key issues including the role of turnaround managers in business rescue, basic requirements for a successful turnaround, identifying viable business elements and eliminating loss-making sectors and excess cost. The book is a very useful tool when addressing underlying business problems, managing managers’ overconfidence, developing a turnaround business plan, identifying a revised strategy and what it needs to get the management team to implement these plans, including some war stories, e.g. La Seda de Barcelona. The importance of stakeholder management is emphasised and covers the role of creditors, suppliers, customers and employees, as well as a comprehensive explanation of how new sources of finance. Although an interesting read for lawyers, they should be aware that the author could have done much better (confusing the Insolvency Regulation Recast and the ‘directive’, issued in ‘2015’, and mentioning that the Netherlands ‘has introduced’ new legislation with a version of UK’s scheme of arrangement, the unexplained Appendix with Guidelines and Policy Recommendations). However, for the non-legal stuff, the book has enough to offer: the benefit of a practical explanation of many topics of turnaround, including experiences regarding conflict management and stressing the importance of independent, unconflicted professional advice.

Alan Tilley, Turnaround Management. Unlocking and Preserving Value in Distressed Business. Globe Law and Business 2019. ISBN 9781787421684

Book information via:

Note: this book I received free of charge from the publisher with the request to announce it or to review it on my blog at

2019-04-doc4 Pre-insolvency proceedings - last try to the book. Tollenaar has a clear, as well as a tenacious style of writing, with which he develops, consistent with his basic notions, his own framework re pre-insolvency proceedings. He, I know, generally agrees with the new EU Restructuring Directive’s restructuring procedure. However, he has voiced its unaligned characteristics and basic flaws. European politicians (as far as they read academic studies) have not been convinced by Tollenaar’s high-level framework for a pre-insolvency plan proceeding. Politicians’ (in charge of ‘making law’), when coming to a legislative result that faces businesses in difficulties, will take into account less rational or calculable considerations, such as protecting jobs, ensuring economic market stability or prevention of fraud. In my experience these desiderata often cloud any rational debate even when it would be focused on the debtor’s circumstances – as in nearly all legislations. My prediction is that the same would take place when political debate will start about a systems based on the author’s proposition of a fundamental right of any creditor to enforce and secure payment in cash. I did not got the impression that the author demonstrated to be aware of this reality.
Where Tollenaar in his last chapter formulates six suggestions for further research (a few less than in his PhD) and acknowledges that his framework (as also the results of any implementation of the Directive, I would argue) necessitates further research in areas as securities law, corporate law and tax law, the topic will remain on the European and the Member States’ agendas. A very readable, thought-provoking and clearly written study makes the book worth examining and presents sophisticated choices for legislators, academics and practitioners dealing with restructuring.

Nicolaes Tollenaar, Pre-Insolvency Proceedings. A Normative Foundation and Framework, Oxford University Press 2019. ISBN 978-0-19-879992-4

Book information via:

Note: this book I received free of charge from the publisher with the request to announce it or to review it on my blog at

2019-04-doc3 Pre-insolvency proceedings (final lines)

It appears that the last lines of my review of Nico Tollenaar's book on Pre-insolvency proceedings have not been posted on my blog. Please see, the final text should have been like this:

Back to the book. Tollenaar has a clear, as well as a tenacious style of writing, with which he develops, consistent with his basic notions, his own framework re pre-insolvency proceedings. He, I know, generally agrees with the new EU Restructuring Directive’s restructuring procedure. However, he has voiced its unaligned characteristics and basic flaws. European politicians (as far as they read academic studies

2019-04-doc2 pre-insolvency proceedings

The subject of a compulsory settlement outside of formal insolvency proceedings has been the focus of attention in Europe and several of its Member States, including the Netherlands, for quite some time. In the preface of his book ‘Pre-insolvency proceedings. A Normative foundation and Framework’ (OUP, 2019), the author, Nicolaes Tollenaar, signals this strong development in Europe with focusing on business rescue. Since the end of March 2019 (finalisation of the Restructuring Directive) we know for certain that Member States within two years have to fulfil the duty to introduce for a new generation of pre-insolvency restructuring proceedings with the aim of rescuing viable businesses and preventing formal insolvency proceedings or amend their existing rules. Tollenaar, a partner at Dutch law firm Resor and a familiar face at many international conferences, presents his view on the whole matter.
The book itself is a translation of his PhD, obtained the end of 2016 at the University of Groningen. It leaves out, however, the chapter on the Dutch bill regarding the Continuity of Enterprises II (‘WCO II’). It may have been the wish of its international publisher or the choice of the author itself, as that chapter then had to be bought into line with the WCO II-replacement bill, presented in September 2017, regarding Private Homologation Agreement for the Prevention of Bankruptcy (‘WHOA’). The whole Dutch legislative process which already lasts for seven years is awkward and sticky.
His study is well organised, with – after introduction of his work – chapters on the objective and the justification of insolvency law and pre-insolvency proceedings respectively, plan governance (proposing a ‘hybrid model’ with contractual and judicial elements) and initial observations on valuation and its accompanying terminology. It is rather apparent from the title of his book that the author also deals with US Chapter 11 (including the American Bankruptcy Institute 2014 proposals for change) and the UK’s Scheme of arrangement. This all leads to the centre piece of his book, Tollenaar’s Framework for a pre-Insolvency Plan Procedure.
In his opinion, justification for his ideas are three preconditions that a restructuring system should meet: (i) the debtor must be in a state of insolvency or pre-insolvency, (ii) a restructuring can only be imposed on creditors if a majority of them have agreed, or if the creditors who do not agree to it, have the option of receiving a cash amount equivalent to the amount they expected in the event of liquidation, and (iii) if the majority of creditors did not agree with another distribution, the added value that the restructuring aims to achieve (the ‘reorganization value’) is distributed according to the rank of the creditors. An agreement, laying this all down, must above all be fast, cheap and efficient, should respect these preconditions and must contain sufficient guarantees to protect the rights of creditors.
The author then elaborates on who can propose such an agreement, which also should serve the interests of the creditors and not per se as such the continuity of the debtor, the binding force of such an agreement, who may vote (also shareholders) and the organisation of classes. Disagreements between all involved as well as homologation of the agreement is in the hands of the court, specifically assessing the formal aspects of the conclusion of the agreement, for example regarding the question: has the decision-making been taken place properly and careful and have the relevant parties been involved in the process to come to an agreement.
Tollenaar’s framework reflect clearly the preconditions developed and to focus on speed and to achieve deal certainty. Judicial interference should be kept to a minimum, and there should not be an appeal against the approval decision. It includes the absence of an ex lege (automatic) stay and a limitation of the possibilities for the debtor’s counterparty to change, suspend or terminate obligations under existing agreements as a result of the plan, without there being any reasonable grounds for this. This refers to so-called ipso facto or change of control provisions, which can come into effect by offering a plan of an agreement or the further execution of it.
The book, the preface says, is based on a translation of his PhD. Going through it, however, I note that on several occasions the author has updated his research to November 2018. The book does not mention or discuss more recent post-2016 ideas, expressed for instance by prof. Stephan Madaus and myself, in the Instrument of the European Law Institute – Rescue of Business in Insolvency Law, available at, see also or those in the Codire report, although it seems fair to say that finalising his text and the publication of the latter report may have coincided. It may be the case, that these studies do not align with the approach fundamentally taken by the author, ie development of a framework based on the notion of the creditor’s collective enforcement rights, which evidently includes the non-homogenous group of creditors, including their priorities and pressures.
More important, I think, is the rather poor development of matters of contract law. The study, for instance, does not go into the rules that apply to negotiating and renegotiating (obligations in) a contract or these that apply to hardship or force majeur. Freedom of contract, or better: freedom to negotiate, is applied in all Member States, though freedom is not always fully free. For instance, the Italian Civil Code provides that during contract negotiations parties have a mutual duty of good faith conduct and in the Netherlands such a duty may follow from case law. In other countries there may be a duty for the parties to negotiate, e.g. based on a rule regarding ‘hardship’ or: force majeur (in France since 2016). Such kind of rules may also follow from soft law, such as the Principles for European Contract Law or the UNIDROIT Principles of International Commercial Contracts. Now it seems fair (further study should be made) to presume, that financial distress and/or operating in circumstances close to insolvency generally will not be regarded as ‘hardship’. Such a risk is to be borne by the party affected by it, the debtor. However, in an individual contractual context any ‘plan’ rules may indirectly influence the background within which (re)negotiations take place.
A second issue in this regard is that a ‘plan’ is an agreement or a contract of a special type, namely a multi-party contract. In such a case, may a debtor individually agree with one creditor or a group of them? What is the interrelationship between the earlier contract (between one creditor and the debtor) and the obligation to perform in good faith in concluding a new contract? Is there for instance a duty to hear the other party and/or for this party to (at least) take part in restructuring negotiations? What are the consequences for such a multiparty contract as a ‘plan’ for the rules on good faith or misrepresentation? It seems evident, however, that a multi-party plan will naturally be influenced by the restructuring and insolvency laws to which the debtor may become subject. Parties will negotiate restructuring terms ‘… in the shadow of insolvency law’. This all means, as Madaus and I suggested in the study mentioned, that parties will negotiate their position against the backdrop of the possibility of these insolvency proceedings being opened and with regard to their interests and their entitlements in them. In these contracts they may ‘borrow’ tools available in formal proceedings, such as an inter-creditor agreement or an ad-hoc standstill agreement, because as such, formal restructuring and insolvency proceedings, in as far as they are efficient and promote the interests involved with the continuation of viable businesses, can promote restructuring within a contractual setting. To conclude matters for now: in the near future I think national rules for contracts will certainly be influenced by the provisions in the EU Restructuring Directive. It’s unfortunate that the study discussed here missed the chance to further develop this area.
Back to the book. Tollenaar has a clear, as well as a tenacious style of writing, with which he develops, consistent with his basic notions, his own framework re pre-insolvency proceedings. He, I know, generally agrees with the new EU Restructuring Directive’s restructuring procedure. However, he has voiced its unaligned characteristics and basic flaws. European politicians (as far as they read academic studies