A very thorough discussion on the restructuring options available for companies in the BVI took place on December 7, during the final installation of the ‘Insolvency 101 Practice and Procedure’ webinar series.
The webinar, ‘Restructuring Remedies in the BVI,’ was hosted by the Recovery and Insolvency Specialists Association (BVI) Limited (RISA BVI) and BVI Finance.
Moderator, Sharon Mungall - Managing Director, Little Bay Consulting first explained that restructuring occurs when a company wants to make significant changes to its financial or operational structure.
She said, “[The company] doesn’t need to be in financial distress. Sometimes companies will restructure when preparing for a sale, a buy-out, merger, a change in the overall goals, or transfer of ownership.”
Ms. Mungall, who also serves as RISA BVI’s current Chair, added, “Following a restructure, hopefully the company will operate in a more economically sound manner.”
James Drury - Director, Kalo, gave an overview of the restructuring options available; those being, Plans of Arrangement, Schemes of Arrangement, Company Creditors Arrangement (CCA), and Light Touch Provisional Liquidation.
Regarding the CCA, he said the objective is to make it relatively simple for a majority of unsecured creditors of an insolvent company to reach an agreement for the company to compromise its debts.
“The CCA is a flexible process and doesn't affect the rights of a secured or preferential creditor without their written consent,” said Mr. Drury.
Nathan Mills - Director, R & H Restructuring, pointed out the main differences between Plans of Arrangement and Schemes of Arrangement. Plans of Arrangement, he explained, is a process whereby a company restructures its affairs with its members and/or creditors. ‘Arrangement’ includes reorganisations, mergers, consolidations, separations of business, and disposition of assets.
“As such, a plan is a very useful and flexible tool that can be employed in a number of situations.”
On the other hand, a scheme of arrangement, Mr. Mills explained, “is generally less wide ranging in scope than a plan, and also less subject to amendment by the court,” adding, “the purpose of the scheme is for the company to agree or compromise with its creditors or shareholders to enable it to carry on its business, without it going into formal insolvency proceedings.”
Mr. Mills also expounded on the term ‘Debt for Equity Swaps,’ another remedy for restructuring. He said, “Debt for equity swap involves the creditor converting debt owed to it by the company into equity in that company, so the effect of the swap is the issue of equity by the company and the effective satisfaction of the debt through discharge or release, or it’s extinguished.”
Grant Carroll - Partner, Ogier, covered the Light Touch Provisional Liquidation, which happens when the company is in financial distress.
Mr. Carroll said, “The provisional liquidator would work with a company and the creditors to pursue a consensual means of restructuring, and the debts, and trying to get a better outcome than a fire sale at the end of a liquidation.”
The five-part insolvency webinar series began on September 29 and covered various topics including creditor and debtor focussed insolvency, and director’s duties.
To watch video click here.