Reform: a new balance of power
7 Nov 2023
Eight Advisory Paris
The reform of insolvency law resulting from the Insolvency Directive introduces two important innovations: the classes of affected parties and the concept of value.
Practitioners point out that the creation of classes gives judges considerable flexibility, but can lead to different interpretations, making them a strategic tool when adopting plans. Banks, which have gained influence, are changing the negotiating landscape and impacting hedge funds, which must adjust to a new, less predictable balance of power.
The definition of value, which aims to rebalance the relationship between creditors and shareholders, is a challenge and requires preparation in advance to anticipate liquidation scenarios. The determination of two different values, going concern and liquidation, complicates the valuation by experts and emphasises the need to improve access to information while maintaining confidentiality. To summarise, it can be said that the reform brings significant changes to insolvency proceedings that affect the players involved and require them to adapt to the new rules of the game.
“There are many issues at stake. Starting with the determination of the value of a company in difficulty, which cannot be based on the same methods as for good cases (comparative figures, DCF, etc.) and which is determined differently for an investor bringing in new money than for an existing creditor! The goal? Each party should have its own idea of value, bearing in mind that the court remains the judge of the peace. The recommendation? Prepare the work on the value as far in advance as possible and take the time to anticipate liquidation scenarios, because comparability with the net asset value is the cornerstone of the court’s valuation,” explains Sari Maalouf, Partner at Eight Advisory.
Read Emmanuelle Duten’s article published in Les Echos Capital Finance, here!