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After venturing abroad for potential
opportunities, investors may find that the
increased amounts of work and uncertainty
do not lead to an acceptable transaction.
Within the European Union, the
practice of jurisdiction shopping is
referred to as center of main interests
(COMI) shifting. Under the COMI
concept, companies may be able to
move their administration functions
to the United Kingdom and claim
jurisdiction. For example, such a shift
allows some companies to restructure
their obligations in an organized
and expeditious manner, providing
a path to return to a healthy state.
and their service providers that have
opened offices abroad has surged.
One of the strongest features of the U.S.
regime is the ability of more-senior
creditors whose claims are impaired to
effect a restructuring over the objections
of junior creditors. This is commonly
referred to as a “cram down.” In many
jurisdictions outside the United States, a
cram down is not easily accomplished
and may not be available at all. Without
such a tool, all of the constituent parties
must agree on the exact terms of a
restructuring, which is simply impossible
to achieve in many situations.
As countries look for ways to save
jobs and create globally competitive
companies, the continuing evolution
of laws across jurisdictions can offer
more resolution options for troubled
companies beyond the death sentence
of liquidation. The competition to find
deals has increasingly driven special
situations investment firms to look for
opportunities more broadly, including
in markets outside the United States.
As a result, the number of funds
Despite the enthusiasm for potential
investment opportunities abroad,
it remains challenging for many
funds accustomed to the Chapter 11
process to find compelling investment
opportunities. There are a number
of stark differences between the U.S.
bankruptcy regime and restructuring
powers and the regimes in other
countries that make it difficult for
investors accustomed to the relative
certainty and clarity of Chapter 11 to
achieve similar comfort levels abroad.
For example, in addition to impaired
junior lenders at the primary company,
other senior lenders at subsidiary
companies also may object. In cases in
which local lenders are critical, either
because of the size of their claims
or because they are essential to the
ongoing performance of the business
in terms of cash management, their
inability or unwillingness to engage in
a process that is unfamiliar and may
not be as favorable to them can lead to
insurmountable barriers to agreement.
After venturing abroad for potential
opportunities, investors may find that
the increased amounts of work and
uncertainty do not lead to an acceptable
transaction. This greater uncertainty
limits interest from outside investors,
particularly in middle market companies.
Other common objectors are workers’
organizations and government labor
representatives. These organizations
may fear setting precedents that could
be more widely applied and may
tend to revert to prior experiences.
Other creditors may simply be able
to exercise hold up value and receive
recoveries, even when they otherwise
would be out of the money.
We unlock existing equity and
convert it into working capital.
For many small and midsized
companies, these difficulties present
barriers that are too formidable to
effectively restructure around. The
critical determinate of value in many
cases is the ability to work through
a process and gain consensus from
all constituencies. This can be very
difficult for potential investors to
gauge in advance, especially foreign
investors who may be treated
differently than local banks.
Utica Leaseco, LLC specializes in providing asset-based financial
solutions in the form of sale/leaseback transactions for complete operations
utilizing machinery and equipment as collateral.
To learn more about how Utica Leaseco can be the key to
solving your cash flow issues:
Another helpful feature in a U.S.
bankruptcy is the automatic stay,
which prevents certain lenders from
acting immediately to exercise their
remedies and provides a company
filing Chapter 11 with time to formulate
an organized plan. Jurisdictions in
other countries may not offer such
protections and may not recognize
stays issued by U.S. courts when local
lenders take actions against local assets.
Utica Leaseco ◊ 44225 Utica Road ◊ Utica, MI 48317
David.Levy@UticaLeaseco.com ◊ www.UticaLeaseco.com
This can lead to significant diminution
of value to investors, even when
investing in domestic companies that
file bankruptcy in the United States.