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Juraj Alexander: Fighting over Melting Ice Cube – Asset Preservation in contentious Insolvency Proceedings


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• Quasi-legal asset stripping schemes in insolvency proceedings
• Identification of scheme’s weak points
• Devising strategy to protect assets and obtain control
• Implementation in uncertain and manipulative environmentx

Published in: Economy & Finance
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Juraj Alexander: Fighting over Melting Ice Cube – Asset Preservation in contentious Insolvency Proceedings

  1. 1. Fighting over Melting Ice Cubes Asset Preservation in Contentious Insolvency Proceedings Jiří Tomola Juraj Alexander Restructuring and Insolvency Smith Novak Vienna, December 2014
  2. 2. Executive Summary 2 Pre-insolvency asset stripping by insiders often continues during insolvency proceedings by shadow groups behind the formal parties with the pretense of a “legal process” The key to undermine such strategies is identification of weak points, such as formal mistakes in appointment of officials, as fraud is never perfect A strategy for genuine creditors consists in protecting assets of the debtor through legal and commercial measures and taking steps to obtain the legally warranted degree of control over the proceedings Implementation of such strategy must take into account the uncertainty of the legal environment and manipulative behavior of various players
  3. 3. Contentious Insolvency 3 Standard contentious issues • valuation, business plan, management, liquidate v. reorganize, etc. • legitimate creditors with genuine interest in maximization of proceeds Non-standard disputes • designated to siphon out assets from creditors • no reasonable legal grounding • denial of obviously existent majority claims (or voting rights) • sale of all assets by the trustee against the will of majority creditors (or to them) • trading the (pledged) inventory out of the estate • fictitious claims (or trading through affiliates) • driving forces • weak judiciary • diverse interests • rational apathy
  4. 4. Scheme’s weak points 4 #1: blocking sales • appeal against liquidation order (no sale pending review) • valuation objections, collateral withdrawal #2: preserving assets • access to the business (advisors, interim management) • conditons for interim funding (use of collateral/pledged cash) #3: using formal mistakes • wrong judge hearing the case • missing points in orders
  5. 5. Strategy creation 5 Consistency • in purpose (open market sale: restructuring without trust?) • in communication Settlement possibility • (known counterparty, known aim) – stalemate for progress • (shadows all around) – progress for solution Solution • victory and sale • negotiated structure – multiple safeguards
  6. 6. Strategy implementation 6 Fixing the team • collective action / agency provisions • terms and indemnities Tactical decision-making • flexible reactions • delegated authority Discerning manipulations • no purpose moves • personal attacks, rumors and doubts
  7. 7. Contact 7 Jiří Tomola Restructuring, Banking & Finance D + 420 236 082 239 Juraj Alexander Restructuring, Real Estate D + 420 236 082 213