Although originating from equity, declared but unpaid dividends have historically been treated as debt claims by courts in proceedings under the Companies’ Creditors Arrangement Act (CCAA).1 Following the coming into force of the CCAA amendments in September 2009, a fresh look at the characterization of claims as debt or equity is being undertaken.
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On April 7, 2011, the Ontario Court of Appeal rendered a decision in the restructuring proceedings involving Indalex Limited (Indalex) under the Companies’ Creditors Arrangement Act (CCAA) that is inconsistent with prior non-binding comments by the same court relating to the priority of certain pension claims. The decision has material implications for institutional financiers that lend against the inventory, accounts receivable or cash collateral of businesses with Ontario regulated defined benefit pension plans and for the access of those businesses to secured credit.
In the European Union, Stat e interventions in the market in the form of subsidies or other economic advantages are generally prohibited, but companies can receive aid from Member States if the aid is approved by the European Commission.
Since 2005, pushed by the insolvencies and rescues of large Italian corporations such as Parmalat, Cirio and Alitalia, the Italian legislature has introduced effective tools aimed at preserving the debtor’s assets and ensuring the successful reorganisation of a debtor’s business to the benefit of all the parties involved.
Tax authorities have perceived recently that international corporate groups are going through internal business restructurings in large part or in whole to achieve income tax savings.
The German Government has introduced a reform of the German Insolvency Code (Insolvenzordnung– InsO) in order to further facilitate business restructurings in Germany.
In Germany, the restructuring of companies or groups in financial crisis is subject to significant tax risks.
It has become common in financings for companies to utilise a capital structure with multiple layers or tranches of debt.
One thing companies often overlook in a restructuring plan is the role of communications.