TFG | Addressing the fundamental lack of available risk capital that can be applied quickly in a financially distressed business

Informal

1.
Informal deal (usually) with a limited number of key creditors, with
additional finance introduced.

2.
Normally only appropriate if company has short term cash flow difficulties
(rather than being technically insolvent) and company viable.

1.
Any appropriate finance to provide working and development capital.

2.
Buy out creditors (usually banks).

London Approach

Informal

1.
Informal procedure driven by consensual approach by lenders and senior
debt creditors, working together to maximise returns while keeping
the company alive.

2.
Only appropriate for large multi-banked companies.

1.
Additional finance to provide working capital during stand still.

2.
Buy out lenders and senior debt providers.

Contractual
compositions

Informal

1.
Informal deal (usually) with a limited number of key creditors, with
additional finance introduced.

2.
The difference in this scenario is the “deal” with individual creditors
is contractually binding as a result of a composition that is drawn
up in a legal contract, to which the creditor agrees.

3.
Normally only appropriate in cases where small number of key high
value creditors who are willing to agree to the compromise and support
the turnaround.

1.
Any appropriate finance to provide working and development capital.

2.
Buy out creditors (usually banks)

Debt/equity
swaps

Commonly
informal (but can also be included in a formal arrangement in a CVA
or Administration)

1.
Deal (usually) with limited number of key creditors, with additional
finance introduced.

2.
In this scenario individual creditors convert their “debt” into “equity”.

3.
Usually only manageable where small number of key high value creditors
who are willing to agree to the debt / equity swap and support the
turnaround.

4.
Procedure is commonly used in conjunction with other procedures listed
on this schedule.

1.
Any appropriate finance to provide working and development capital.

2.
Buy out creditors (usually banks).

Company
Voluntary Arrangements (CVAs)

Formal

1.
Deal between insolvent company and its creditors which is supervised
by an insolvency practitioner.

2.
Generally only appropriate for SMEs that have an established business.

1.
Provide additional working and development capital.

2.
Buy out secured creditors

3.
Buy out creditors bound by the CVA

Administrations

Formal

1.
Company obtains an administration order which creates a moratorium.
An Insolvency Practitioner appointed as Administrator to achieve set
“purposes”.

2.
Appropriate in a variety of circumstances.

1.
Fund the trading of the administration.

2.
Fund buy out from the Administrator and working capital of newco.

3.
Buy out creditors.

Administrative
Receiverships

Formal

1.
Secured creditor with a floating charge (commonly a clearing bank)
appoints an Administrative Receiver to recover its lendings.
The Administrative Receiver administers the company until he recovers
the lenders funds.

2.
Generally only occurs where bank has no other alternative (after considering
risk) of recovering funds.

1.
Provide funding for receivership trading.

2.
Provide funding for receivership buy out,

3.
Provide funding to buy out secured lender and discharge receivership.

Fixed
Charge Receiverships (and mortgages)

1.
Secured creditor with a fixed charge appoints a Fixed Charge Receiver
to recover its lendings.  The Fixed Charge Receiver has limited
powers and only controls the charged asset.

2.
Generally appropriate on simple recoveries where a particular asset
can recover lenders exposure.  It does not necessarily affect
the remaining business.

Liquidations
(all types)

Formal

1.
Company wound up, Liquidator realises assets and distributes realisations
in a set priority.

2.
Generally applies to terminal insolvencies, although in some circumstances
appropriate in turnarounds.

1.
Provide funding for liquidation buy out of assets and goodwill.

2.
Provide working capital and development capital for newco.