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NEWSLETTER #1 September 2000
Financial Restructuring » NEWSLETTER'S ARCHIVE » NEWSLETTER #1 September 2000
NEWSLETTERON ENTERPRISE RESTRUCTURING INFORMATIONAL BULLETIN of the Financial Restructuring Project funded by USAID ¹ 1September 2000 INSIDE THIS ISSUE: What is the Financial Restructuring Project? Project Tasks and Objectives USAID-funded Deloitte Touche Tohmatsu Financial Restructuring Project began providing assistance on formal and informal bankruptcy procedures, in coordination with legal and infrastructure development in other areas of commercial law in 1996. The Project focuses on creating the infrastructure for implementation of the new Law, testing its effectiveness by assisting a number of insolvent enterprises in preparing restructuring plans, filing for reorganization under the new law, and making recommendations for improving Ukraine’s bankruptcy system. One of the main goals of the Financial Restructuring Project is to create a corps of trained independent solvency restoration practitioners who will assist insolvent enterprises in debtor-lead reorganization, as a principal professional activity, under the new bankruptcy law. Major Milestone A major milestone was reached on June 30, 1999, when the new Law of Ukraine "On Restoring the Solvency of a Debtor or Declaring It Bankrupt" was developed with technical assistance from the Financial Restructuring Project and passed by the Verkhovna Rada of Ukraine. Regular Training Before the new Law was passed, the Project provided extensive training to the arbitration court judges under the old law. The Project holds regular training sessions and seminars on opportunities for restructuring provided by the new Law for arbitration court judges, representatives of governmental agencies, consulting firms and centers, and the business community. Regional Training Centers In December 1999 and on May 4, 2000, the Project developed a Training Center for practitioners in Ivano-Frankivsk and Dnipropetrovsk. To date, the Project has held 14 seminars and trained 107 practitioners and other representatives. Amendments to the Law Based on experience and related discussions with the parties concerned, the amendments to the Law have been proposed recently with the consultative assistance provided by the Financial Restructuring Project. The Project will also assist the Ministry of Economy to develop a database for all filings under the Law, as a transparent usable tool to assist in registering, processing, and file maintaining. Internet Discussion-Group In an effort to acquaint as many specialists and the public-at-large as possible on opportunities provided by the new Law, the Project has developed a Web page located at http://www.chat.ru/~dtt_frp. It provides the possibility to discuss issues related to restructuring and bankruptcy on the Internet. Corporate Restructuring Model The Project continues to improve the Corporate Restructuring Model developed by the Project’s financial analysts, as a computerized tool utilized by practitioners who are evaluating enterprises and providing sanation plans in the restructuring process. The Project continuously provides no cost consultation to enterprises on bankruptcy procedure, and to restructuring practitioners and other interested parties. The Law "On Restoring the Solvency of a Debtor or Declaring It Bankrupt" has been passed by the Verkhovna Rada. Starting from January 1, 2000, the new Law of Ukraine "On Restoring the Solvency of a Debtor or Declaring It Bankrupt" has become effective. The very name of the Law provides that in the new law, unlike in the old one, the emphasis is made not on the liquidation, but on the revitalization of an enterprise, restoration of its financial and operational possibilities. Bankruptcy now has three distinct procedures: debtor’s property administration, sanation or restructuring, liquidation. A new profession of trained, licensed, professional "arbitration managers" is created to oversee and carry out all three phases of the bankruptcy proceeding. As the "Trustee" in the property administration phase, the arbitration manager’s role is primarily one of oversight and investigation, with no authority to interfere in the debtor’s day-to-day operations without specific court authorization. As "Sanation Manager" in the sanation phase, the arbitration manager assumes the powers of the debtor’s manager and managing bodies, whose rights are terminated. In the capacity of "Liquidator," the arbitration manager collects and sells the debtor’s assets in the liquidation phase of the bankruptcy proceeding. During the property administration the debtor’s state is evaluated, the creditors are found, the amount of their claims is established, the meeting is convened and the creditors’ committee is formed. At the end of the property administration procedure, a decision is made on which of the other stages should follow – liquidation or sanation. An amicable settlement agreement is a powerful new feature of the law, which permits the debtor and its creditors to negotiate changes in the debt structure that fit the debtor’s ability to pay. Although such agreements can be reached between the debtor and individual creditors, groups of creditors or the entire creditor body at any stage of the bankruptcy process, provisions on debt forgiveness may be applied only in order to restore the debtor’s solvency. The state tax agencies shall be obligated to agree to forgive indebtedness for taxes and mandatory payments that was incurred prior than two calendar years to commencement of the proceedings and to give a six-year deferral to repay indebtedness that is less than two calendar years old. Sanation or restructuring of the debtor allows restoration of debtor’s viability. The law provides for a complete set of the new powerful tools for restructuring available in the best bankruptcy laws around the world, which include:
The moratorium, which applies throughout the bankruptcy proceedings and bars the debtor from making any payments on pre-bankruptcy debt, as well as allows the debtor to use its bank accounts, is a new tool introduced by the new Law, and is especially important to restructuring. Not only does it provide for time to design and implement a restructuring plan, but also, by reducing the financial demands on the debtor, creates a source of capital to finance the restructuring process. In addition, new debtor-led restructuring provisions allow the debtor, with consent of more than half of its creditors by debt, to develop and implement its own restructuring plan. In such a case, debtor shall submit a sanation plan approved by the majority of creditors. The debtor’s manager will carry out the functions of the sanation manager, but during the course of the debtor-led restructuring the debtor’s manager will be overseen by the trustee, which will protect creditors from dishonesty, incompetence, or unrealistic expectations of the debtor. Should the decision on liquidation be made based on the debtor’s state analysis, the new liquidation procedures are clearer, more comprehensive, and more flexible, that increases the likelihood that creditors claims will be paid. FRP Sets up Regional Training Centers for Practitioners The Financial Restructuring Project, whose objective is the implementation and promulgation of the new bankruptcy law, opened two Regional Training Centers for practitioners in Ivano-Frankivsk and in Dnipropetrovsk in December 1999 and in May 2000. The Project has trained 13 financial restructuring practitioners in Ivano-Frankivsk and 20 financial restructuring practitioners in Dnipropetrovsk. Trainees were provided with practical assistance in restoration of solvency and prevention of liquidation through sanation. Training took place within the one-week theoretical seminar and the practical work at one of the Dnipropetrovsk plants. This is the first project in Ukraine that works on the problem of financial restructuring of enterprises. The sophisticated Corporate Restructuring Model has been developed by the Project’s financial analysts, as a computerized tool to be utilized by practitioners in evaluating enterprises and providing sanation plans in the restructuring process. The purpose of the Corporate Restructuring Model is to show to the creditors a viable restructuring plan and convince them that carrying on the business is better than its liquidation. The reality of the efficient reorganization of crisis filled enterprises has been complicated by the previously accumulated indebtedness to the budget, the Pension Fund, creditors, and social payments; and without revitalization of normal activities of the enterprise, it is impossible to repay such indebtedness. The logical essence of our Project is to resolve such issues, by way of developing the terms for restructuring debt and revitalization of normal activities of the enterprise. One thing, which is attractive to the management, is that the debtor has the right to file a bankruptcy petition itself. In the event that the position has been agreed upon with the major creditors, the management leads sanation procedures and does not lose control over the enterprise. In order to do this, management must submit an Enterprise Revitalization Plan to the arbitration court, which is called "the sanation plan" in the new Law. It must be approved by the majority of creditors. The sanation plan contains the analysis of enterprise’s state, optimal variant for reorganization, terms for deferment, and payment procedure for the allowed part of the debt. Group of the Project’s consultants jointly with the management of the enterprise develops the sanation plan and supports such a plan in the Court of Arbitration. In order to develop the most favorable sanation plan the computer Corporate Restructuring Model is used. Financial diagnostics have been initiated at five of Dnipropetrovsk enterprises. In Ivano-Frankivsk, Project experts have commenced diagnostics of seven enterprises in the region. For two of them Ivano-Frankivsk Court of Arbitration initiated appropriate proceedings. The process of selecting enterprises for participation in the Project is still underway. Indicators of Project success are evaluated by the number of enterprises, who were provided with assistance pursuant to the new Law, which helped them to identify a way out of crisis. Practitioner seminars are held at the two Centres on a weekly basis. Practitioners discuss issues of application of the provisions of the new Law, as well as propose improvements thereto. Practitioners share their experience acquired throughout the course of their work. Recently, a seminar, which included the participation of the High Arbitration Court (HAC) and regional court representatives, the Ministry of Economy, drafters of the new Law and a large number of lawyers, was held at the Ivano-Frankivsk Training Center. After the Project’s completion, a group of consultants able to work independently on issues such as leading enterprises out of the crisis based on the current legislation of Ukraine, will be created in Ivano-Frankivsk and in Dnipropetrovsk.
Dnipropetrovsk Training Center Director: Volodymyr Kharitonov Address: 19 Karla Marksa St., building 4, office 52 Telephone: (0562) 46-8080 Ivano-Frankivsk Training Center Director: Mykola Sayevych Address: 1, Bandery St., 3rd floor, apt. 310 Telephone: (0342) 55-9504, 55-9417; Cellular: 8-050-249-4744. Training Seminar in Kharkiv Within the framework of the Project’s educational campaign, a one-week "Intensive Training for Solvency Practitioners" seminar in Kharkiv for the period from September 5 through 8, 2000 for representatives of business community (law and auditing firms), arbitration managers, representatives of tax agencies and the HAC will be held. The seminar will cover legal issues (structure and functions of Ukraine’s Bankruptcy Law, specific tools available at each stage of the Law, legal aspects of financial restructuring) and financial issues (development of a restructuring strategy based utilizing concrete examples). Trainees will be acquainted with the Corporate Restructuring Model (CRM) developed by the Project’s financial analysts from Kyiv office. The Corporate Restructuring Model is a powerful tool utilized by practitioners who are evaluating enterprises and providing sanation plans in the restructuring process. The purpose of the Corporate Restructuring Model is to analyze the debtor’s structure and determine whether sanation or liquidation is better for creditors. The seminar participants will be provided with a set of hand out materials that include the text of the Law "On Restoring the Solvency of a Debtor of Declaring It Bankrupt," training material on legal and financial issues. "Lessons Learned " Seminar in Ivano-Frankivsk In mid-September, the Project is planning to hold a regional seminar for practitioners, arbitration court judges, representatives of tax authorities and the Pension Fund in Ivano-Frankivsk. The purpose of the seminar is to discuss the issues of practical application of the new Law, propose improvements to certain provisions thereof, as well as exchange experience gained by the practitioners in the course of practical implementation of the new Law’s provisions. Judges’ Conference In the beginning of October, the Project is planning to arrange a conference for arbitration courts’ judges in Crimea (Sevastopol) to discuss issues of practical application of the provisions of the new Law by arbitration courts’ judges and possible suggestions to introduce improvement thereto. Internet Conference The Project has developed a Web-page In an effort to acquaint as many specialists and the public-at-large as possible on opportunities provided by the new Law, the Project has developed a Web page that contains information on the new Law, comments thereto, information on the Project’s Regional Training Centers, as well as references to a number of useful links on the Internet. The Web page is located at http/www.chat.ru/~dtt_frp. It provides the possibility to discuss issues related to restructuring and bankruptcy according to the new Law "On Restoring the Solvency of a Debtor or Declaring It Bankrupt" on the Internet. The page is under development, so any comments and suggestions that you might have in order to make the page as useful as possible will be highly appreciated. Interactive Conference At the end of September, the Project, jointly with the Ukrainian Center for Post-Privatization Support, are planning to arrange an interactive Internet conference on bankruptcy issues with participation of the Project’s specialists on legal issues and financial analysts, the Center’s experts, solvency restoration practitioners, and representatives of enterprises that are at different stages of bankruptcy proceedings. Contact the Financial Restructuring Project Office for more information: News and Media Coordinator: Inna Topal, e-mail: Legal advisor: Yurij Vakhel, e-mail: yvakhel@restructuring.kiev.ua Head of Financial Restructuring Department: Valery Khandus, e-mail: Postal address: 5, Tereshchenkivska St., Suite 2, Kyiv, Ukraine Tel: +(380) 44 246-3763; 246-4459 Fax: (380) 44 234-0368 Web-page: http://www.chat.ru/~dtt_frp |
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