Turnaround Management 2

The issue is mainly about uneven treating of creditors, to pay the loan back or interest in a time when the bankruptcy already is clear or assumed and so not all creditors will receive their full credits and interests back.

For the company:

- High level of free reserves

- Transfer of revaluation reserve to share capital

For the shareholder:

- Partial realization of substance with equal dividend rate

- AGM gives order to BOD

- BOD has 2 years to perform the capital increase

- Can't be bigger than 1/2 of existing shares

- Change of statutes necessary

- For convertible resp. option bonds

- Step by step capital increase parallel to conversion / option exercises

- Can't be bigger than 1/2 of existing shares

- Change of statutes necessary

- Opinion of independent accountants (yearly)

- Yearly announcement of current level of share capital

- Written form highly recommended

- Not cancelable

- No time restrictions

- No strict legal restrictions as under SCHKG

- The corporation needs to find an agreement with every single creditor (so not viable in case of many creditors)

- Advantage: No equal treating of creditors needed

- But: The coporation is not protected against claim enforcement actions of creditors

- Other issue: The suppliers change the payment term to pre-payment

- A judge is involved - a majority of the creditors and the judge need to agree

- Very costly

- The endorsement (Bestätigung) is published in the SHAB and no creditor can start enforcement actions

- A solicitor is managing and controlling the company

- The company or creditor requests from the judge to grant a suspension of the bankruptcy proceedings

- Prerequisite: Fair chance for the company to be restructured

- In practice: Only granted for a very short time period

- Advantage: No publication needed

Make the composition agreement more attractive.

- For silent restructurings without solicitor

- For silent restructurings lasting more than 4 months

- Moratorium would lead to an interruption of the operation

- ... but provisional moratorium will become the normal case

- Endowment pauliano (new: related parties bear the burden of proof)

- Over-indebted pauliano (Favoured treating of a creditor in situations of over-indebtness)

- Purpose pauliano (all actions that harm the creditors on purpose are disputable)

- Form of debt

- Limit / loan amount

- Mutual rights and obligations

- Use for

Pricing Grid

- Compulsory rights (apply amongst parties from a contract)

- Quasi-physical rights (Compulsory rights are reinforced by reservation)

- Physical rights (are effective against anybody)

- Credit worthiness/soundness

- Borrowing capacity

Financial instrument that derives its value from another (financial) instrument.

- Options are contingent contracts

- Forwards, futures and swaps are unconditional contracts

Because they give a right and not an obligation

- Salary cuts

- Transition to more flexible working times

- Redundancy (Entlassung)

- Employee works less and is paid only 80 %. Part of it is paid from federal unemployment insurance.

- Employer needs to apply for short time work at the cantonal employment office

It is accepted when short time work is temporary and is supporting the long term preservation of the respective jobs

- Mass redundancy (New general obligation to present a social plan)

- RC as a subsidiary

   - First possibility: RC is founded and subsequently the assets are transferred

   - Second possibility: RC is founded by way of contribution in kind

- RC as an independent company

  - The assets of the company in default are sold to an independent company. This leads to cash inflow in the defaulting company and furthermore the independent shareholders are to provide sufficient financing for the acquiring company.

Direct leasing - The leaser is usually the producer and seller of the leasing goods

Indirect leasing - A separate leasing company is the intermediary between the producer of the asset and the buyer

- Operating leasing (Treated as rental agreement - disclosed in the notes)

- Financial leasing (Treated as 100 % debt financing of assets - capitalized)

- Treasury

- Operations

- Tax

- Regulatory Compliance

- Especially sale and lease back transactions may play an important role in restructurings

- Cash is generated by selling assets

- The usability of the asset is secured by the lease agreement

- Watch out! What softens the stress on the cash position today could lead to more stress in the future

- Liabilities are shifted out of the balance sheet