CEU Electronic Theses and Dissertations, 2019
| Author | Mba, Sanford Uchechukwu |
|---|---|
| Title | New Financing for Distressed Businesses in the Context of Restructuring Comparing approaches from the US, UK and Germany, with Lessons for Nigeria and other Frontier Markets |
| Summary | The legal regime for restructuring distressed but viable businesses as an alternative to their liquidation has been the subject of advocacy at international, regional and domestic policy and law reform circles. The essence of retooling the regime is to better help facilitate the restructuring of such businesses, putting them in a position to return to profitability in such a way that best balances the rights and claims of its stakeholders. Critical to this process is the availability of new financing, first in the interim to keep the business going and then also to help it implement a workable restructuring plan. It cannot be gainsaid that the availability of new financing may determine the success or otherwise of the restructuring efforts. Lending by itself presupposes some risks. This riskiness is further exacerbated by the fact of financial distress. Intuitively, lending to distressed businesses will not be ordinarily typical for providers of financing. This has spurred the growing need to incentivize providers of financing to distressed businesses. On the flipside, it has also informed the need to check possible overreaching, occasioned by new financing whether by pre-distress lenders or by new lenders who for various reasons are now becoming the face of distress lending. These issues are addressed in this dissertation on a comparative basis, analyzing the approaches in the US, UK and Germany and drawing lessons for frontier markets like Nigeria which is at the threshold of reworking its bankruptcy regime in the light of the growing acceptance of restructuring as an important part of the that regime. The Nigerian analysis is of relevance to similarly placed frontier markets. The dissertation investigates and shows that jurisdictional approaches to statutory incentivizing of new financing differ along the lines of two articulated approaches: a prescriptive approach on the one hand, and a market-based approach on the other. Thus, while on the one hand, there is a prescriptive approach, which spells out defined explicit rules for providing new financing, protection for prior lenders, on the other hand, there is a market-based approach, which emphasizes the role of the market as the better judge of when a distressed lender may be incentivized, how the incentives may be designed, and what concession prior lenders may be willing to make. In the face of these two competing approaches to incentivizing new lending, the dissertation examines the underlying indices that support this divergence in the articulated approaches. The dissertation further investigates the use of new financing agreements as instruments of lender capture, given their implications for other stakeholders of the business. In this regard, the dissertation critically examines the theoretical justifications for the key provisions of such agreements and, on a comparative basis, existing principles that can be used to countermand overreaching provisions of such agreements. Finally, while pointing out the role of the distressed debt market as a source of distressed financing with growing importance, the dissertation argues that courts can play a key role in balancing the misalignments that can arise from the participation of distressed debt investors as financers in the restructuring process. In a related sense, the dissertation critically examines the manifestation of the distressed debt market in emerging markets like Nigeria and the opportunity presented through non-performing loans, arguing that the regulatory pattern of entry into the market may dis-incentivize distress debt investing in a market that is in dire need of financing. |
| Supervisor | Professor Tibor Tajti |
| Department | Legal Studies PhD |
| Full text | https://www.etd.ceu.edu/2019/mba_sanford.pdf |
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