www.mcmillan.ca/Upload/Publication/...EquityCommittee_1006.pdf
Role of the equity committee
Similar to the formation and role of a creditors’ com¬mittee in US Bankruptcy, a formal equity committee should participate and be very interactive with the debtor and its advisors, and in some cases will need to communicate with other stakeholders. Effective and frequent communication amongst all parties reduces the risk and extent of litigation in any reorganization. Specifically, section 1103(c) of the Code allows the equity committee to participate in the plan process which may include an investigation into the financial affairs and operations of the debtor, negotiate specific terms and conditions relating to the debtor’s Plan of Reorganization (‘POR’) and participate in the confir¬mation of the POR. Also, analogous to the rights of a creditors’ committee, it is technically possible for an eq¬uity committee to file its own POR, should the debtor’s exclusivity period expire and just cause be shown.
The goal of not only the equity committee (along with the creditors’ committee) is to maximize value; the nuance is determining an optimal valuation and how to divide that value (if at all possible) in order to satisfy all stakeholders. However, an equity commit¬tee must not only maximize the overall value of the reorganized debtor but also the specific consideration received, whether it is purely common stock of the reorganized debtor or in the form of hybrid instruments such as preferred shares and/or warrants that may or may not be conditional on the debtor achieving certain financial milestones after exiting bankruptcy. In several cases, these equity-like securities can turn out to be in-the-money in the future.
To accomplish their goals, equity committees typi¬cally try:
a. To be involved as early as possible in the case. The earlier the concerns are voiced and recognized, the better the chance of obtaining a seat at the table to negotiate a more efficient confirmation process;
b. To ensure open communication with all stakehold¬ers but especially the debtor and its advisors to minimize litigation costs;
c. To ensure the debtor is obtaining optimal value by achieving maximum profitability and obtaining maximum value related to the disposal of assets (i.e. no improvident realization);
d. To monitor an efficient claims management proc¬ess to minimize value of claims and the optimal level of assets is used to satisfy creditor claims and minimize litigation costs; and
e. To provide a supportable enterprise valuation.
Bob Rajan, Director, PricewaterhouseCoopers Corporate Advisory and Restructuring LLC, New York, US and Brett Harrison, Partner, McMillan Binch Mendelsohn LLP, Toronto, Canada
Zurück
Weiter
