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What Is A Plan Support Agreement

The Bankruptcy Act aims to limit this use of situational leverage in several ways: (1) there remains unilateral action by creditors (automatic stay); (2) allows the removal of certain advance transfers (prevention); (3) it establishes a basic allocation when the liquid company, but promises more if it can restructure (Best interests/adequate protection); (4) establishes a structured negotiation process that ensures adequate information and reduces a creditor`s ability to hold back from a recovery plan supported by the main creditor electorates (Supermajority Acceptance); and (5) it establishes a fee base when the company reorganizes (Cramdown). Bankruptcy proceedings are informed by these procedural requirements and material claims. If no agreement is reached, liquidation will follow. The heart of a PSA is the commitment to support the plan by creditors, which normally consists of provisions that require these creditors (1) not to delay the confirmation of a plan, (2) be required to support and vote on a plan in accordance with the terms of the EPI and (3) not to yield receivables submitted to the EPI (unless the agent agrees to sign the PSA and be bound to its terms). See bankruptcy restructuring financing agreements, practical bankruptcy law and practical financing law, at 3-4 (2018) (`restructuring support agreements`). The other advantageous conditions for the debtor, which are usually included in an EPI, are: (a) a specific benefit as a remedy in the event of an infringement, (b) termination provisions in the event of a delay and c) what is called a “loss of trust” for the debtor. Id. An agent is particularly important because it ensures that the debtor is able to terminate the PPE and propose another plan when the debtor finds that the agreement is no longer in the best interests of his estate. See z.B., In re Genco Shipping – Trading Ltd., 509 B.R. 455, 464 (Bankr.

S.D.N.Y. 2014) (“[T]he [PSA] offers an agent that gives debtors the opportunity to obtain, verify and negotiate unsolicited proposals for a better alternative transaction.” ». In summary, PSA can be very useful for a debtor when it comes to organizing a restructuring plan and reducing differences of opinion in the event of bankruptcy. These cases indicate that the courts will approve an EPI if it is the result of a good faith effort to restructure, if it is not to exclude alternatives, and if it complies with the value maximization guidelines of the Bankruptcy Act. Elements such as a robust marketing process, an agent and the support of the debtor`s principal creditors are clearly important. PPE is a useful tool for bringing security and order to the process, but they remain subject to the material requirements of the Bankruptcy Act and the proper exercise of a debtor`s fiduciary duties. In addition to PSA`s benefits to the debtor, creditors may obtain concessions from the debtor to encourage their participation, such as (i) milestones in the achievement of important Chapter 11 events, such as approval of post-petition funding, approval of a disclosure statement or confirmation of a plan, (ii) favourable payment terms, interest rates or payment schedules, (iii) debt-to-equity conversions and (iv) liability, as well as greater security in terms of change of time and outcome.