The instrument of restructuring trusteeship is used in extra-judicial corporate restructuring. In consideration for providing restructuring contributions, lenders typically require additional security or at least own restructuring contributions from the company or its stakeholders. However, often the company or its stakeholders are unable or unwilling to contribute these funds.
Companies in need of restructuring are frequently not without value, and if restructuring promises success, there is substantial potential for future cash flow. In these instances, the shareholdings become the focus of lender interest. However, it is generally preferable to avoid the lenders taking on the status of shareholders, as this would cause thin capitalization rules to come into play. A solution is to transfer the shares to a trustee jointly appointed by the shareholders and the lending banks.
When we act as trustee, we exercise the shareholder rights to monitor the implementation of the restructuring, and if desired will also sell the shares in a professional sale with a view to the realization of the company value, satisfaction of the lenders from the sales proceeds, and transfer of remaining proceeds to the (pre-existing) shareholders.
This form of trusteeship can be used to secure and realize the value from other types of assets as well.
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