APPROVAL OF A RESTRUCTURING PLAN WITHOUT THE APPROVAL OF CREDITORS

Abstract

This article analyzes the problems of approval of a restructuring plan without the consent of creditors at various stages of the restructuring process: negotiations on the restructuring plan, submission of the draft restructuring plan to the court, and its approval. The article reveals the significance of the absolute and relative priority rules in the restructuring process, analyzes the best-interest-of-creditors test – as regulated in the directive when it is to be applied, or as provided for in the Law on Insolvency of Legal Entities of Republic of Lithuania – only when a complaint against a restructuring plan is lodged. Should the best-interest-of-creditors test be applied earlier in the restructuring process? The legal position of creditors in the restructuring process is also analyzed, both in terms of their division into creditors affected by the restructuring plan and those not affected, and the division into groups in which the plan is subsequently voted on. The question arises as to whether disregarding the views of conflicting groups of creditors when approving a restructuring plan constitutes an interference in private legal relations, or whether this institute is designed to achieve the objectives of the restructuring process, even in cases where creditors do not agree to provide financial assistance to a company which seeks restructuring. The main purpose of this article is to raise the problematic issues that should be considered both by the legislator when improving legislation and by courts that interpret and apply the law. Because many problematic cases require extremely detailed analysis, this article does not set out to provide answers or a specific opinion on all the issues that arise.

Keywords

• the absolute priority rule
• the relative priority rule
• best interest of creditors test
• cross-class cram-down
• creditors affected by the plan