Judicial reorganisation

For a business that is viable but cannot meet its debts as they stand, pressure from creditors can do more damage than the debts themselves. A single seizure of a bank account or of a key machine can halt an operation that would otherwise recover. Judicial reorganisation exists to create room: the court suspends enforcement for a period, so that the company can keep trading and settle its future with its creditors in an orderly way.

The procedure works only if the business arrives prepared, with a credible account of its prospects and a realistic view of what its creditors will accept. Once it has begun, its course is shaped by a sequence of choices and rules:

• the rules on the moratorium — which creditors it binds, what enforcement it halts, and how long the protection lasts;
• the rules on the routes the procedure can take — an agreement with some creditors, a collective plan, or a transfer of the business under court supervision;
• the rules on what a reorganisation plan may propose, and on how creditors are grouped into classes to vote on it;
• the rules on when a court may confirm a plan despite the objection of a dissenting class;
• the rules on protecting a creditor who would receive less under the plan than in a liquidation;
• the rules on management staying in charge during the procedure, and on what it may no longer do without approval;
• the rules on the position of shareholders, whose stake a plan may dilute or cancel;
• the rules on carrying out the plan, on amending it, and on what follows if the business cannot honour it.

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