The double-sided restructuring trust – a viable structure for restructuring financing
05/08/2019 - Reading time: 5 minutes
In a scenaro where the financing parties collateral package already comprises pledges on shares or other assets (such as real estate or IP rights) of the debtor company, enforcement at a time when the debtor faces economical difficulties will usually generate substantially lower recovery compared to a sale in a structured sales process. The “double-sided restructuring trust” (doppelseitige Sanierungstreuhand) has evolved as a potential structure for avoiding such forced sale scenarios and at the same time for finding a common denominator among debors (and their stakeholders) for continued or additional financing and the lenders’ interest to maintain or even add value to their collateral package. The basic structur of a double-sided restructuring trust comprising for example shares is as follows:
- Lenders and shareholders jointly appoint a restructuring trustee and agree that the ownership in the pledged shares is transferred to the trustee.
- The trustee is then the unrestricted legal owner of the shares and all rights, in-cluding the voting rights associated with such shares (Vollrechtstreuhand).
- The trustee agreement will stipulate general guidelines for the trusteeship, com-prising administrative and economic/security components.
- Key terms of the trustee agreement which make a restructuring-trusteeship “dou-ble-sided” are that the trustee is independent from the lenders and the sharehold-ers (waiver of right to give instructions), that the trusteeship is generally irrevo-cable, and that the trustee is mandated to safeguard multiple parties’ interests, i.e. usually the interests of the debtor company, the shareholders and the lenders.
- Typical further content of the trustee agreement comprises rules for the man-agement of the debtor company (including the trustee’s right to appoint the man-agement), milestones and timing for the restructuring of the company as well as triggers for a retransfer of the shares or the initiation of a sales process including guidelines and conditions for such process and including an irrevocable power for sale of the shares.
While general trusteeships cease automatically upon opening of insolvency proceedings over the assets of the trustor, the Austrian Supreme Court confirmed that double-sided trustee-ships continue. To benefit from this insolvency-proof effect and to prevent from voidance of the trusteeship and transactions implemented under trusteeships, e.g. on grounds of inten-tional discrimination of the creditors, diligent structuring and drafting of the underlying trus-teeship-agreement is necessary. This is also true in respect to avoid that trustors or the trus-tee qualify as shareholders in the meaning of the Austrian Equity Replacement Act (Eigen-kapitalersatzgesetz). In addition, from a lenders’ perspective, particular precaution is also required in view of the potential liability risks associated with them, in particular those arising from the case law on de facto management (faktische Geschäftsführung) and liability for delay in applying for insolvency proceedings (Insolvenzverschleppung).
On the bottom line: Double-sided restructuring trusts may serve as a viable tool for aligning obviously different interests of the parties in a financing restructuring scenario with a view to benefit all such parties. The balanced forward looking structuring and drafting of the underly-ing trustee agreement remains a key factor for the success of such structure.