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Transactions with creditors - Distressed firms - Governance strategies

Q: What decision rights does crisis manager have?

A proposal for 'exit' from bankruptcy proceedings is initiated by the crisis manager, subject to veto rights from creditors. - France, Italy and US: initiate enter reorganization proceedings by the debtor.

4 important questions on Transactions with creditors - Distressed firms - Governance strategies

How do bankrupcy proceedings work regarding creditors?

All jurisdictions give creditors power to initiate a change in the control of the assets of a financially distressed company.
- Creditor can power this by demonstrating that the debtor cannot pay its debts

- Removal of the board, creditors appoint crisis management (oversaw by the court)

What decision rights does crisis manager have?

A proposal for "exit" from bankruptcy proceedings is initiated by the crisis manager, subject to veto rights from creditors.
- France, Italy and US: initiate enter reorganization proceedings by the debtor.

How do inter-creditor conflicts rise?

- Creditors who are in a junior class will tend to prefer more risky outcomes
- Senior creditors that are "over-secured" (enough assets to cover their part) will prefer a less risky plan

(transaction costs, bad decisions)