Editing Debt restructuring (section)

== In various jurisdictions ==

=== Canada ===
Two common avenues for restructuring debt exist in Canada: a Division 1 Proposal and a CCAA filing. The former is available to both corporations and individuals who owe $250,000 or more to creditors.<ref>{{Cite web|last=Branch|first=Legislative Services|date=2019-11-01|title=Consolidated federal laws of canada, Bankruptcy and Insolvency Act|url=https://laws-lois.justice.gc.ca/eng/acts/B-3/page-20.html|access-date=2021-04-27|website=laws-lois.justice.gc.ca}}</ref> The latter is available only to larger companies owing more than $5 million to their creditors.

A Division 1 Proposal is a last resort. Created by the [[Bankruptcy and Insolvency Act]] of 1985, the option to file Division 1 is not an option to be taken lightly as, in the event that the stipulations within the proposal get voted down by creditors or not signed off by the court, one falls into bankruptcy.<ref>{{Cite web|last=Branch|first=Legislative Services|date=2019-11-01|title=Consolidated federal laws of canada, Bankruptcy and Insolvency Act|url=https://laws-lois.justice.gc.ca/eng/acts/B-3/page-20.html|access-date=2021-04-27|website=laws-lois.justice.gc.ca}}</ref> Division 1 proposals allow companies to be briefly relieved of lawsuits by creditors, as well as they allow companies to stop paying money to their unsecured creditors while the proposal is being reviewed. A Division 1 Proposal to restructure debts must secure 66% of the creditors' votes set in proportion to how much they are owed, and 50% plus one of all creditors votes in terms of number of creditors. On top of such democratic approval, the court itself has to approve how the debts get restructured. Withstanding all such approval, a business or individual can continue operating as normal; otherwise, a business or individual is obliged to proceed into bankruptcy filing.<ref>{{Cite web|last=Government of Canada|first=Innovation|date=2004-02-19|title=You Owe Money — Division I Proposals|url=https://www.ic.gc.ca/eic/site/bsf-osb.nsf/eng/br02052.html|access-date=2021-04-27|website=www.ic.gc.ca}}</ref>

CCAA filings were created by the [[Companies' Creditors Arrangement Act]], a piece of legislation first put forward and passed in 1933 and updated later in 1985.<ref>{{Cite web|last=Branch|first=Legislative Services|date=2019-11-01|title=Consolidated federal laws of canada, Companies' Creditors Arrangement Act|url=https://laws-lois.justice.gc.ca/eng/acts/C-36/index.html|access-date=2021-04-27|website=laws-lois.justice.gc.ca}}</ref> A CCAA filing allows a Canadian company to have a window in time (typically between 30 and 90 days) in which they can renegotiate and reorganize their debt payment plans with creditors. During this brief period, creditors cannot seize any money that is owed to them. These windows of time may be renewed multiple times over. Once a CCAA application gets finally rejected, the company in question can be forced into [[receivership]] or [[bankruptcy]]. This could happen for a number of reasons, chief among them being a failure to come to an agreement with creditors as to how to restructure the debt.<ref>{{Cite news|title=When a Company Tries to Reorganize|work=Canadian Broadcasting Channel|url=https://www.cbc.ca/news/business/when-a-company-tries-to-reorganize-1.790181}}</ref>

=== Switzerland ===
{{Main|Insolvency law of Switzerland}}
Under [[Switzerland|Swiss]] law, debt restructuring may occur out of court, or through a court-mediated debt restructuring agreement that may provide for a partial waiver of debts, or for a liquidation of the debtor's assets by the creditors.

=== United Kingdom ===
The majority of debt restructuring within the [[United Kingdom]] is undertaken on a collaborative basis between the borrower and the creditors (a [[company voluntary arrangement]] or [[individual voluntary arrangement]]). Historically, such a contract was called a '''composition with creditors'''. Should this be unsatisfactory in the first instance, the court may be asked to mediate and appoint administrators.

=== United States ===
Among the most common forms of in-court debt restructuring for firms in the United States are [[Chapter 11, Title 11, United States Code|Chapter 11]] and [[Chapter 12, Title 11, United States Code|Chapter 12]] bankruptcy.

Under Chapter 11, firms form a plan to reorganize their credit obligations, such that they are able to continue operating while they are going through with their debt repayment plans and after they become solvent. Creditors are given promises to be paid back with firms' future earnings. The nature of these promises can be shaped in a number of ways. In situations where every single impaired creditor of a firm agrees to a settled schedule of repayment, the plan formed is known as a "consensual plan." When a certain class a firm owes does not accept a restructuring plan, said plan may still be approved pursuant to the United States Bankruptcy Code. Such plans are colloquially referred to as "cramdown plans."<ref>{{Cite web|title=Individual Chapter 11 Cases Under New Subchapter V|url=https://www.americanbar.org/groups/business_law/publications/blt/2020/09/chapter-11/|access-date=2021-04-27|website=www.americanbar.org|language=en}}</ref> Chapter 11 is considered to be one of the most expensive and complicated forms of bankruptcy to file.<ref>{{Cite web|last=Bovarnick|first=Robert|title=What You Need To Know About Chapter 11|url=https://www.forbes.com/2008/09/25/chapter-11-bankruptcy-ent-law-cx_rb_0925bovarnickchap11.html|access-date=2021-04-27|website=Forbes|language=en}}</ref> The vast majority of Chapter 11 bankruptcy cases filed end up allowing company management to go forward running the business as usual; however, in certain exceptional cases (fraud, gross incompetence, etc.) the courts do not allow the business the privilege of simply maintaining a "[[debtor in possession]]" status. In said cases, a trustee is appointed by the court to run the business until all bankruptcy proceedings are completed.<ref>{{Cite web|title=Chapter 11 - Bankruptcy Basics|url=https://www.uscourts.gov/services-forms/bankruptcy/bankruptcy-basics/chapter-11-bankruptcy-basics|access-date=2021-04-27|website=United States Courts|language=en}}</ref>

Chapter 12 Bankruptcy is a form of debt restructuring in the United States available to farms and fisheries exclusively; said businesses could be family-owned or owned by corporations. The special debt restructuring rights accorded to farmers and fisheries consequent line 12 of the United States Bankruptcy Code were first granted by Congress in 1986 amid an agricultural debt crisis.<ref>{{Cite web|title=Chapter 12 Bankruptcy: Family Farm Restructuring {{!}} Arkansas Law Notes|url=http://media.law.uark.edu/arklawnotes/2015/05/15/chapter-12-bankruptcy-family-farm-restructuring/|access-date=2021-04-27|website=media.law.uark.edu|archive-date=2021-04-27|archive-url=https://web.archive.org/web/20210427232543/http://media.law.uark.edu/arklawnotes/2015/05/15/chapter-12-bankruptcy-family-farm-restructuring/|url-status=dead}}</ref> Food commodity prices were caught in a downward spiral in the years leading up to 1986, pushing U.S. farmers' debts to levels above $200 billion.<ref>{{Cite book|last=Harl|first=Neil E.|url=https://eric.ed.gov/?id=ED258782|title=The Changing Rural Economy: Implications for Rural America|date=August 1985|language=en}}</ref> This 12th line of the U.S. Bankruptcy Code was initially added only as a temporary measure and remained as a temporary measure until 2005, when it became permanent.<ref>{{Cite web|last=Dinterman|first=Robert|date=April 2017|title=Farm Bankruptcies in the United States|url=https://aede.osu.edu/sites/aede/files/publication_files/Farm%20Bankruptcies%20-%20Policy%20Brief.pdf|url-status=live|archive-url=https://web.archive.org/web/20171107180716/https://aede.osu.edu/sites/aede/files/publication_files/Farm%20Bankruptcies%20-%20Policy%20Brief.pdf |archive-date=2017-11-07 }}</ref> Chapter 12 was of great benefit to farmers, because Chapter 11 was often too expensive for family farms and generally only useful for sizeable corporations, while [[Chapter 13, Title 11, United States Code|Chapter 13]] was mainly of use to individuals attempting to restructure very small debts.<ref>{{Cite journal|last=Stam|first=Jerome|date=2002|title=Farmer Bankruptcies and Farm Exits in the United States, 1899-2002|url=https://www.ers.usda.gov/webdocs/publications/42532/17750_aib788_1_.pdf?v=4|journal=USDA Agriculture Information Bulletin|volume=788|pages=7}}</ref> Farms and fisheries, being midsize and seasonal in nature, were thus in need of a more flexible legal framework through which they could restructure their debts.<ref>{{Cite web|last=Haynes|first=David|date=2021|title=What is Chapter 12 Bankruptcy?|url=https://www.thebalance.com/what-is-chapter-12-bankruptcy-316204|url-status=live|archive-url=https://web.archive.org/web/20190318094351/https://www.thebalance.com/what-is-chapter-12-bankruptcy-316204 |archive-date=2019-03-18 }}</ref>

Firms in the United States are not limited to only using the legal system to manage debts they are incapable of repaying. Out-of-court restructuring, or workouts, constitute consensual agreements between firms and their creditors to adjust debt obligations, mainly for the purpose of evading the costly legal fees associated with Chapter 11.<ref>{{Cite web|last=Garrido|first=Jose|date=2012|title=Out-of-Court Debt Restructuring|url=http://documents1.worldbank.org/curated/en/417551468159322109/pdf/662320PUB0EPI00turing09780821389836.pdf|url-status=live|archive-url=https://web.archive.org/web/20210427232540/http://documents1.worldbank.org/curated/en/417551468159322109/pdf/662320PUB0EPI00turing09780821389836.pdf |archive-date=2021-04-27 }}</ref> The decision as to whether to enter a workout or take the issue into court is, in large a part, a function of the creditors' and debtors' respective perceptions of how much can be gained or lost through a Chapter 11 proceeding. Creditors know that once Chapter 11 has commenced, a degree of negotiating leverage is lost, as judicial authorities may impose alterations of claims without regard to creditors' consent. On numerous occasions, merely throwing out the threat of filing bankruptcy has initiated the process of coming to a private agreement.<ref>{{Cite journal|last1=Chatterjee|first1=Sris|last2=Dhillon|first2=Upinder S.|last3=Ramírez|first3=Gabriel G.|date=1996|title=Resolution of Financial Distress: Debt Restructurings via Chapter 11, Prepackaged Bankruptcies, and Workouts|url=https://www.jstor.org/stable/3665899|journal=Financial Management|volume=25|issue=1|pages=5–18|jstor=3665899 |issn=0046-3892}}</ref>

=== Italy ===
Debt restructuring within [[Italy]] may occur either out of court (ex article 167 of the Italian Bankruptcy Law) when a waiver or simple debt rescheduling is required, or through a court-mediated debt restructuring agreement (ex article 182/bis of the Italian Bankruptcy Law) and may provide for a partial waiver of debts, mandatory recapitalization of the debtor, or for a liquidation of certain debtor's assets to repay privileged creditors.

=== Germany ===
While being famous for its efficiency in other matter, this is not true for debt restructuring. Many German companies prefer to restructure their debts using the English scheme of arrangement proceedings because they believe that the German restructuring law is not very helpful. The main reason for this is that binding a dissenting minority is only possible under formal insolvency proceedings in [[Germany]].<ref>{{Cite web|url=https://www.law.ox.ac.uk/sites/files/oxlaw/bork_debt_restructuring_in_germany.pdf|title=Debt Restructuring in Germany}}</ref>