Challenges in Managing the Liquidation / Restructuring Estate Mr. Bob Jacobs, Ferrier Hodgson Mr. Alok Dhir

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Challenges in Managing the Liquidation /
Restructuring EstateMr. Bob Jacobs, Ferrier
HodgsonMr. Alok Dhir
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COMPANIES ACT 1956
BIFR
SICA
SARFAESI
CDR
DRT
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Mukand Steel A turnaround
tale (March 18, 2007)
Western India Plywood in
revival mode ( February
08,2007)
SABMiller set to
turnaround ( March15,2007)
Reopening of Hindalco unit unlikely
( March 07, 2007)
BIFR seeks explanation from
Dunlop on transfer and sale
of assets ( August 22, 2007)
Pennar Ind comes out of
bifr fold ( august 07,2007)
Essel Propack to revive Ras
Group Cos ( August 14,2007)
Bengal Champ revamp (January
17,2007)
Modi Rubber working out revival
package ( February 04,2007)
IFCI to sell Arihant Ind unit
( May 18, 2007)
IDPL revival referred to panel
( May 19,2007)
Daewoo plant takeover
(November 08,2007)
SPIC losing Rs. 70 lakh a
day (July 02,2007)
ARCIL consolidating SPIC Loans
(AUGUST 23,2007)
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Overview of External AdministrationOBJECT
SAVE COMPANIES, PRESERVE BUSINESSES AND IMPROVE
RETURNS
Australian Experience
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STEP 1
APPOINTMENT OF ADMINISTRATOR
THE COMPANY ITSELF In writing under common seal
LIQUIDATOR Or provisional liquidator
CHARGEE Charge over whole or substantially the
whole of the companys property
OR
OR

• Takes control of companys business
• property and affairs.
• May terminate or dispose of all or part
• of business and any
• of the property (apart from property subject
• to a charge or owned by someone else
• except in the ordinary course of Business).
• Moratorium extends to secured
• Creditors, owners and lessors of property.

ADMINISTRATOR

• Personally Liable for debts incurred etc. and has
  
• right of indemnity supported by
• statutory lien over companys property.

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STEP 2
WITHIN EIGHT (8) BUSINESS DAYS
COMMITTEE OF CREDITORS
FIRST MEETING OF CREDITORS
By notice to creditors and advertised at least
five business days before meeting.
May also remove administrator and appoint someone
else
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STEP 3
ADMINISTRATORS MAIN TASK
INVESTIGATE COMPANYS AFFAIRS
Directors to provide Report as to Affairs within
seven (7) days.
Administrator to report to ASIC on offences.
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STEP 4
WITHIN TWENTY (20) OR TWENTY FIVE (25) DAYS
MEETING TO DECIDE COMPANYS FUTURE
By notice to creditors and advertised at least
five (5) business days before meeting.
Voting is by majority in number and value on a
poll. Secured creditor may vote in respect of
whole debt, without forfeiting security.
Chairman (Administrator) has casting vote.
report by Administrator to accompany notice.
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STEP 5
OUTCOME OF MEETING
DEED OF COMPANY ARRANGEMENT Administrator of
company becomes Administrator of Deed unless
creditors resolve otherwise.
WOUND UP Administrator becomes Liquidator
ADMINISTRATION SHOULD END Administration also
ends if proposal meeting not convened under
Section 439A or no resolution under Section 439C
or company does not execute Deed
OR
OR
Deed terminates when
- Court orders or -
Creditors resolve by resolution or
- Circumstances exist as specified in Deed.
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Critical Path For Secured Creditor
(Holder of a Charge over the whole, or
substantially the whole, of the property of the
company)
CHARGEE Is notified Administrator has been
appointed before the end of the next business day
Option to enforce charge within 13 business days
(the decision period).
Appoint Receiver and Manager (assuming default
under charge)
YES
First meeting of Creditors within five business
days of appointment (replace Administrator/elect
Committee of Creditors)
NO
Meeting is held to decide companys future within
28 days (may be adjourned for up to 45 days).
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Creditors resolve that the Administration should
end
Administration ends Chargee able to enforce charge
YES
NO
YES
Creditors resolve that the company be wound up
NO
Creditors resolve that the company execute Deed
of Company Arrangement
Vote for
Vote against/ abstain
Able to enforce charge
Bound by provisions of Deed of Company Arrangement
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• Insolvency litigation funding arrangements
• Australian Experience

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Typical Litigation Funding Agreement

• LFC pays entire cost of litigation including cost
  of appeal, if any
• LFC pays liquidators fees relating to litigation
• LFC pays insurance premium
• LFC puts up the surety for costs of defendant, if
  required
• If successful, entire costs reimbursed to LFC
  plus receives of proceeds of claim (negotiated)

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Liquidator has Total Control of Litigation

• Choice of lawyers
• Instructions to lawyers
• Settlement decisions

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Challenges in Managing the Liquidation /
Restructuring EstateMr. Bob Jacobs, Ferrier
HodgsonMr. Alok Dhir