Global capital markets and distress investors are responsible for major developments in restructuring across jurisdictions. Frequently, bond debt issued by the holding company of a foreign enterprise and guaranteed by its offshore operating subsidiaries is subject to New York law. If the issuer or guarantors become distressed, the issuer or guarantors often look to restructure in a common law jurisdiction that has schemes of arrangement. Assuming such distressed enterprise can go to a “scheme jurisdiction,” it will attempt a restructuring offshore and then bring the “sanctioned” or approved scheme to the United States for recognition and enforcement under Chapter 15 of the Bankruptcy Code. Most commentators believe that with sufficient process and procedures, a scheme that has features that are permissible under the scheme jurisdiction—but not acceptable under Chapter 11—can be recognized and enforced under Chapter 15 of the Bankruptcy Code.
Although Chapter 11 may be a viable alternative, the perception of schemes as a less costly, less litigious, and more business-determined course of action has attracted bondholders to schemes of arrangement. This phenomenon is notable in the United Kingdom, Hong Kong, Singapore, Australia, and certain island jurisdictions, most of which share a common law heritage and common core concepts, including the ability to effect broad third-party releases. Generally schemes of arrangement have two court-oriented proceedings: (1) the request for “leave” (i.e., permission) to convene a meeting of creditors to vote upon the proposed scheme, which assesses the adequacy of disclosure, jurisdiction and the propriety of creditor classification for the proposed scheme; and (2) the “sanctioning” (i.e., approval) hearing for the scheme after obtaining the requisite creditor votes, which is generally 75% of each class affected by the scheme when measured by value and 50% of the total number of creditors.
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