Abstract
When a corporation presents a reorganization plan, it expects its creditors to approve the plan. This paper provides empirical evidence regarding the likelihood of approval based on reorganization plans for creditors in Brazil that require approval by employees; and by secure and unsecure debtholders. This paper involves a descriptive analysis of the main characteristics of reorganization plans by type of vote. Using a sample of 120 reorganization plans proposed by corporations from 2005 to 2014, we find that the labor class of creditors is likely to approve the reorganization plan even when the plan is rejected; plans with more heterogeneous payment for classes are less likely to be accepted; plans are less likely to be accepted when there are more unsecure creditors; and plans with divestment proposals are more likely to be accepted. Finally, as expected given the seniority position of secured debt, plans are less likely to be accepted when the portion of secured debt is higher, and the reverse is true for unsecured debt.
Highlights
When a company faces financial distress it may choose to devise a reorganization plan
We present empirical evidence regarding the approval of reorganization plans, as we believe that a clear gap exists in how each class of creditors decides to approve or reject these plans during the creditors’ general meeting
Asset disposal facilitates the approval of reorganization plans
Summary
When a company faces financial distress it may choose to devise a reorganization plan. We examine the effect of asset disposal when a collateral asset for debt payment is specified in the reorganization plan For this purpose, we run regressions with labor, secured and unsecured debt as the explanatory variables and we model each regression while controlling for a group of variables that each category of creditors should consider in voting on the reorganization plan. In addition to the control variables included, we added two more variables related to secured creditors’ decision to accept the plan For this kind of creditor, we believe that the period of time stated by a firm to settle its debt and the amount of secured bank loans can influence the likelihood that the restructuring plan is accepted. The number of no shows at the vote is higher among unsecured creditors for approved plans, yet for modified and rejected plans, the number of no shows
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