Corporate Restructuring

Abstract

A corporate entity which is in financial distress can resolve its predicament in two broad approaches. The first is by engaging in a formal bankruptcy procedure, which commonly involves a court, and enables the debtor to deal with creditors collectively. Alternatively, it can engage in an out of court restructuring based around negotiations with individual creditors. This article focuses on the engagements of corporate restructuring outside the formal statutory insolvency procedure and in particular prenegotiated deals, private workouts and pre-packs. The first section of the article provides a background to the out of court restructuring and underscores the many advantages it holds as compared to the formal insolvency proceedings. It then explores the development and usage of selected informal approaches to corporate restructuring. It concludes with an analysis of the place of informal strategies in Kenya. It is argues for the need to develop a functional equivalent of a workout which allows for the possibility of having mechanisms tailored on realities of a developing economy. However, having an effective workout is hugely dependent on the existence of reliable formal mechanisms to at least act as a threat of enforceable legal approach, and the weaknesses inherent in the Kenya formal mechanisms may be an impediment.