Interim Financing Research Articles

Measuring Going Concern Viability and the Effect of Interim Financing Under the Indian Insolvency and Bankruptcy Code, 2016

Abstract India’s insolvency framework mandates preserving viable firms as going concerns, but a critical gap remains – the lack of a standardised approach to assessing a firm’s viability during bankruptcy proceedings, resulting in inefficient allocation of interim finance to insolvent firms. This study sheds light on this issue by examining the performance of 21 firms during insolvency. We find that the absence of a clear viability assessment has led to suboptimal outcomes: viable firms being underfinanced and unviable firms being overfinanced. This has led to value deterioration, as many viable firms were ultimately pushed into liquidation due to insufficient interim financing. As a remedy, the authors propose a periodic viability assessment framework, for collecting and publishing information about the insolvent firm during insolvency proceedings. This would improve transparency and predictability for viable firms seeking interim finance, empowering lenders and investors to make better-informed decisions. By supporting viable distressed firms, this framework could foster a thriving market for distressed debt in India, rescuing valuable companies from the bankruptcy abyss.

Interim Finance in Creditor-Oriented Bankruptcy Codes: A Study in the Context of Insolvency & Bankruptcy Code, India

This study examines interim financing with specific reference to the Insolvency and Bankruptcy Code, 2016 (IBC) in India. Interim financing is recognized as relevant to the successful outcome of the bankruptcy process. Internationally, bankruptcy regimes are considered robust if they contain enabling provisions allowing interim financing. IBC, hailed as creditor-friendly legislation, authorizes the insolvency professional (IP) to raise interim finance during bankruptcy. However, despite enabling legislation, the segment remains challenging. This study, through a qualitative methodology, examines the issues of mobilizing interim finance under the IBC. First, through a theoretical lens, this article discusses the importance of recognizing the distinct dimensions of interim financing under creditor-oriented regimes, like IBC, relative to the more established debtor-in-possession (DIP) financing model in the US (a debtor-friendly bankruptcy regime). This article argues that interim financing under creditor-oriented bankruptcy regimes faces certain inherent limitations (like lower lender motivation due to a lack of relationship banking or control/governance opportunities) relative to DIP financing, which primarily stems from who controls the firm during bankruptcy (IP or the corporate debtor). Through an interview method, this article then examines some specific issues in raising interim finance under the IBC. This research finds a lack of repayment visibility (quantum & timelines), narrow perception of interim finance and subtle differences between the objectives of the IP and lenders (resolution vs. recovery) are some practical impediments. From a normative perspective, this article suggests that improvements in IBC efficiency would improve takeout visibility to lenders. Greater stakeholder engagement will help alleviate conflicts and broaden the perspectives on the ultimate objectives of interim finance. Additionally, this article suggests learnings from the DIP model include a more early (ex-ante) consideration of interim finance (including potential sources). This article also calls for regulatory clarification on the inclusion of funding from the CoC in the technical definition of interim finance.

Does Trade Credit Financing Affect Firm Performance? Evidence from an Emerging Market

In this study, we examine the association between interim financing and firm performance in an emerging economy. Prior research shows that firms utilize trade credit to boost their operating performance or market valuation. However, recent research on the relation between trade credit as alternative financing and firm performance provides mixed evidence. Nevertheless, limited research has been conducted in developing economies; hence, we attempt to fill this gap in the present paper. We argue that trade credit may not be attractive to external debt financing as trade credit may not contribute to business growth while external debt financing does. To test our conjecture, we employed ordinary least squares (OLS), firm fixed effects, and random effects regressions. By utilizing 1002 firm-year observations, our findings suggest a negative relationship between trade credit and firm performance. To check and control endogeneity and reverse causality issues we use instrumental variable approach (i.e., Heckman two-stage least squares regression). Our results remain robust through different measures of firm performance and trade credit. Our study provides policy implications and contributions to trade credit and firm performance literature.

Problems of New and Interim Financing in Restructuring Proceedings

This article focuses on problems of new and interim financing in restructuring proceedings. It discusses the needs for additional financing in restructuring proceedings and how it should be granted. Also, the authors analyse the regulation and protection of interim and new financing in the European Union law. The authors argue that though Directive on restructuring and insolvency aims to increase effectiveness of restructuring proceedings, the regulation of interim and new financing triggers questions whether it is compatible with the goals of restructuring proceedings.

Synergic Effect of Reworking for Imperfect Quality Items with the Integration of Multi-Period Delay-in-Payment and Partial Backordering in Global Supply Chains

Abstract In intercontinental trade and economics goods are bought from a global supplier. On occasion, the expected lot may include a fraction of defective items. These imperfect items still have worth and can be sold to customers after repair. It is cost-effective and sustainable to rework such items in nearby repair workshops rather than return them. The reworked items can be returned from the workshop to the buyer when shortages are equal to the quantity of imperfect items. In the meantime, the supplier correspondingly deals a multi-period delay-in-payments strategy with purchaser. The entire profit has been maximized with paybacks for interim financing. This study aims to develop a synergic inventory model to get the most profit by making an allowance for reworking, multi-period delay-in-payments policy, and shortages. The findings of the proposed model augment inventory management performance by monitoring cycle time as well as fraction of phase with optimistic inventory for a supply chain. The results demonstrate that profit is smaller if the permitted period given by supplier to buyer is equal to or greater than the cycle time, and profit is greater if the permitted period is smaller than the cycle time. The algebraic method is engaged to make a closed system optimum solution. The mathematical experiment of this study is constructed to provide management insights and tangible practices.

Sustainable Inventory Management for Environmental Impact through Partial Backordering and Multi-Trade-Credit-Period

Incorporation of sustainable management for the rework of defective items brings long lasting benefits. In global business, there are situations when the products are procured from a global supplier. There are chances that the received lot may contain a fraction of imperfect products. These imperfect products are still valuable and can be repairable to save the environment. It is sustainable to repair imperfect items in a local repair store as compared to sending it back to the supplier. The cost of carbon emissions is also incorporated in the function to incorporate the environmental impact on total profit. Meanwhile, the supplier also offers a multi-trade-credit-period to the buyer. The developed model is sustainable and reduces the environmental impact as well as benefits for interim financing. This paper has an objective to maximize the total profit by developing a synergic economic order quantity model by considering multi-trade-credit policy, rework, and shortages simultaneously. This model can help in making decisions to enhance the performance of sustainable inventory management by controlling the cycle time and a fraction of time for a global supply chain. A non-derivative approach is employed to develop a closed-form optimal result. The numerical illustration with sensitivity analysis is also drawn to provide managerial insights into real practices.

Tripping the Light Fantastic: A Comparative Analysis of the European Commission's Proposals for New and Interim Financing of Insolvent Businesses

AbstractThe European Commission published a Draft Directive in November 2016, with the aim of ensuring that all Member States have in place an effective mechanism for dealing with viable, but financially distressed, businesses. The Draft Directive includes provisions designed to encourage financing for the debtor company, both interim financing to ‘keep the lights on’ for a brief period while the debtor negotiates with its creditors for a resolution to its financial distress, and, where possible, to finance implementation of a restructuring plan, called ‘new financing’ in the Draft Directive. Creating such a financing regime is a complex and difficult issue, as the law's intervention in this area often involves constraints on the rights of existing creditors, requiring that a careful balance is maintained between existing creditors' rights and the rights of the interim financier. This article examines the underlying policy rationale and benefits of having new and interim financing available to financially distressed debtor companies and discusses the risks involved. It examines the EU Commission's proposals in light of the experience of jurisdictions that have already tackled these issues, notably the USA and Canada, or have developed a market‐based solution to this problem, such as the UK. While the European Commission's wish to include such measures in its restructuring proposals is laudable, the measures as drafted raise concerns, particularly regarding risks associated with priority for the grantors of such finance. The authors suggest that there are four fundamental aspects of such financing on which the Directive could give guidance to Member States, namely, effective notice to pre‐filing creditors, thresholds for the debtor to qualify, a menu of relevant criteria to balance benefit and prejudice, and a role for the court in resolving disputes, ensuring fairness to stakeholders, and serving as an accountability check on interim financing arrangements, all aimed at maintaining the integrity of the insolvency process. Copyright © 2018 INSOL International and John Wiley & Sons, Ltd.

Opening the Door for the Opportunistic Use of Interim Financing: A Critical Assessment of the EU Draft Directive on Preventive Restructuring Frameworks

AbstractThe European Union Draft Directive on a Preventive Restructuring Framework and Second Chance (the ‘Draft Directive’) provides rules for adopting reorganisation plans in order to avoid insolvency. The Draft Directive also provides rules on the related problem of interim financing. According to the Draft Directive, interim financing should be encouraged and not be made subject to claw back unless parties have committed fraud or acted in bad faith. The Draft Directive thereby fails to recognise that finance transactions are too diverse in nature to provide the company and its financial creditors with a transaction avoidance free period. If the Draft Directive is adopted in its current form, it will open the door for opportunistic use of interim financing by both debtors and professional lenders. It will allow debtors to make final bets with other people's money and will also allow for conduit pipe financing reducing the exposure of existing shareholders. Lenders will also be able to make opportunistic use of the rules, most notably in the form of cross‐collateralisation and aggressive loan‐to‐own strategies under the guise of interim financing.There are several possible solutions to the potential for opportunistic use. The courts could be involved ex ante. This would, however, turn the Draft Directive into a fully fledged court supervised procedure instead of the currently intended preventive restructuring procedure which avoids such court procedures. An alternative would be to simply take out the provisions on interim financing. Another possibility would be to limit the protection offered in the Draft Directive to cases of new security against new money necessary and used for the continuation of the business. Copyright © 2018 The Authors International Insolvency Review published by INSOL International and John Wiley & Sons Ltd.

Joint effects of variable carbon emission cost and multi-delay-in-payments under single-setup-multiple-delivery policy in a global sustainable supply chain

Abstract In today's global market, supply chain players have to cooperate mutually for extra benefits, long lasting paybacks, and to control carbon emission for a clean environment. This study develops the three-echelon sustainable supply chain model in the context of multi-level trade credit and single-setup-multiple-delivery policy for mutual coordination in financial support and reducing carbon emissions. These joint effects will benefit the firms for interim financing as well as minimize carbon emission for a clean environment. This model quantifies the effects of the environmental regulations and trade credit period under the single-setup-multiple-delivery policy. The supplier produces semi-finished items and transports it to the manufacturer, the manufacturer transform these semi-finished items into final products. These finished products finally transported to multi-retailer. The shipments are permitted to proceed from the particular lot during production instead after completing the entire lot This strategy save the environment by minimizing carbon emission. Additionally, a multi-level trade credit policy is considered in this model for short-term investment. An algebraic approach is used to derive a closed form optimal result for the designed model. This non-derivative method provides the effective solution algorithm. The main contribution of this study is to minimize the sustainable supply chain cost of the system by jointly considering the multi-level delay-in-payment, variable carbon emission cost, and variable transportation cost under the single-setup-multi-delivery policy. The study presents an optimal solution for the individual scenario and also derived a comparison between them with a numerical example. The findings directed that implementation of multi-level trade credit under single setup-multiple-delivery improves the economic and environmental performance of three-echelon supply chain. Sensitivity analysis of the developed study is also illustrated to prove the real practice.

Opening the Door for Opportunistic Use of Interim Financing. Critical Assessment of the EU Draft Directive on Preventive Restructuring Frameworks

The draft of the EU Directive on Preventive Restructuring Frameworks and Second Chance (the Directive) provides rules for adopting reorganisation plans in order to avoid insolvency. The draft Directive also provides rules on the related problem of interim financing. According to the draft Directive, interim financing should be encouraged and not be made subject to clawback unless parties have committed fraud or acted in bad faith. The Directive thereby fails to recognise that finance transactions are too diverse in nature to provide the company and its financial creditors with a transaction avoidance free period. If the Directive is adopted in its current form, it will open the door for opportunistic use of interim financing by both debtors and professional lenders. It will allow debtors to make final bets with other people's money and will also allow for conduit pipe financing which will reduce the exposure of existing shareholders. Lenders will also be able to make opportunistic use of the rules, most notably in the form of cross-collateralisation and aggressive loan-to-own strategies under the guise of interim financing. There are several possible solutions to the potential for opportunistic use. The courts could be involved ex ante. This would, however, turn the Directive into a fully-fledged court supervised procedure instead of the currently intended preventive restructuring procedure which avoids such court procedures. An alternative would be to simply take out the provisions on interim financing. Another possibility would be to limit the protection offered in the Directive to cases of new security against new money necessary and used for the continuation of the business.

Tripping the Light Fantastic: A Comparative Analysis of the European Commission's Proposals for New and Interim Financing of Insolvent Businesses

The European Commission published a draft Directive in November 2016, with the aim of ensuring that all Member States have in place an effective mechanism for dealing with viable, but financially distressed, businesses. The draft Directive includes provisions designed to encourage financing for the debtor company, both interim financing to “keep the lights on” for a brief period while the debtor negotiates with its creditors for a resolution to its financial distress, and where possible, to finance implementation of a restructuring plan, called “new financing” in the draft Directive. Creating such a financing regime is a complex and difficult issue, as the law’s intervention in this area often involves constraints on the rights of existing creditors, requiring that a careful balance is maintained between existing creditors’ rights and the rights of the interim financier. This paper examines the underlying policy rationale and benefits of having new and interim financing available to financially distressed debtor companies, and discusses the risks involved. It examines the EU Commission’s proposals in light of the experience of jurisdictions that have already tackled these issues, notably the United States and Canada, or have developed a market-based solution to this problem, such as the UK. While the European Commission’s wish to include such measures in its restructuring proposals is laudable, the measures as drafted raise concerns, particularly regarding risks associated with priority for the grantors of such finance. The authors suggest that there are four fundamental aspects of such financing on which the Directive could give guidance to Member States, namely, effective notice to pre-filing creditors, thresholds for the debtor to qualify, a menu of relevant criteria to balance benefit and prejudice, and a role for the court in resolving disputes, ensuring fairness to stakeholders, and serving as an accountability check on interim financing arrangements, all aimed at maintaining the integrity of the insolvency process.

Doral Financial Corp.

AbstractFinance Intermediaries & Services (MIC: 8.7 SIC: 6162 NAIC: 522292)Doral Financial is a diversified financial services company engaged in mortgage banking, banking, institutional securities operations and insurance agency activities. Co.'s activities are principally conducted in Puerto Rico and in the New York City metropolitan area. Co. is primarily engaged in the origination, purchase, securitization and sale of FHA, VA, conventional conforming and non‐conforming first and second mortgage loans, and in providing and/or arranging for interim financing for the construction of residential and other types of real estate development and permanent financing on multifamily and commercial real estate. As of Dec 31 2005, Co. had total assets of $17.30 billion.

The Launch of Banking Instruments and the Figuration of Markets. The Case of the Polish Car-Trading Industry

The paper aims at analyzing the production of creditworthiness within the context of commercial banking in international banks. Taking the interim financing in the Polish automobile sector as an example, the paper reconstructs the process between legal framing of the financial instrument, marketing, and risk management. Firstly, it shows that changes in the state vehicle registry function as a prerequisite upon which the bank uses the newly introduced vehicle registration document as a security. Secondly, it analyzes the change of perspectives which takes place between the marketing of the product (Corporate Banking) and the analysis of documents (Risk Management). Thirdly, it argues that creditworthiness cannot be deduced from the economic representation of the enterprise but is the very result of negotiations between the actors involved.

Cuba and the Imf: Conflicts Over the Nature of the State and Sovereign Debt in the Emerging Global Economic System

The issue of sovereign debt - its character and effect - is really part of the much larger battle between two fundamentally opposed visions of the nature and character of the nation-states in general, and debtor states in particular, and of the global system that maintains the market for such transactions. The dominant vision, firmly grounded in private law, posits that growth can occur only in a tightly integrated global economy founded on trade liberalization, privatization, and macrostability. When the state fails to pay its debts, it ought to be treated like any other failed corporate enterprise -- a stay on debt collection efforts, broad enforcement of absolute priority, creditor approval of the proposed reorganization plan, and well protected new interim financing pending restructuring. Opposing the dominant vision is an anti-corporatist approach grounded in public law and the subordination of economics and markets to political control in the furtherance of deliberate state public policy and planning. States fail because it is in the interest of dominant states to use sovereign debt as a means of perpetuating subordination and a hierarchy of power among states. When a state fails to pay its debts, the focus ought to be on the creditor, and the fairness of the debt in terms of the larger public policy concerns - development, and the maximization of living standards for all individuals through state planning. The paper first explores the normative foundations of each vision and its consequences for dealing with the borrowings of nation-states. For this purpose, the paper concentrates on two actors who most starkly highlight the opposing views. For the dominant vision, the focus is on Anne Krueger, the First Deputy Managing Director of the International Monetary Fund, and specifically on her proposal to create a bankruptcy model for sovereign state debt restructuring. For the opposing vision, the focus is on Fidel Castro Ruz, the President of the Republic of Cuba and specifically on his elaboration of a critique of the dominant vision of global economic development championed by the IMF. These actors nicely distill the positions subject to analysis in this paper. The implications of each for the shape and character of international regulation, and of the state as an actor in the context of the emerging global system of economic and political regulation, are then explored. In particular, the paper contextualizes the Castro vision within the developing positions of the United Nations Human Rights establishment in Geneva and the Roman Catholic Church on globalization and sovereign debt in opposition to the market driven system elaborated through the IMF and well illustrated by Krueger's proposal for state discipline through bankruptcy.

Bankwirtschaftliches Wissen und die Fabrikation von Märkten. Eine Fallrekonstruktion am Beispiel des polnischen Bankensektors

The paper analyses the fabrication of creditworthiness of enterprises within the context of the introduction of Western banking instruments into the Polish banking industry. By introducing those instruments a big international bank group intends to restructure the interim financing of car dealers in Poland. On a theoretical level the paper critically reviews the perspectives of systems theory and network approaches. It argues against the system-theoretical reduction of banking processes to the binary scheme of payment/non-payment and against the abstraction from knowledge processes undertaken by network analysis. On the basis of ethnographic data the paper unfolds a sociology of knowledge perspective on banking practices with reference to the Social Studies of Finance. It shows that the banking business is constituted by practices and their media of written documentation, calculation and negotiation. The paper analyses the role of the legal framework of the state vehicle registry, the rearrangement of the actors and the financing program, the controversial negotiations within the bank group and the resistance of the local actors.

Project Finance Restructurings and Corporate Debt Restructurings in the Emerging Markets

Both project finance and corporate debt restructuring activity in the emerging markets have been increasing sharply in recent years. This article highlights contrasts and similarities between the two. There are contrasts in timing expectations, the nature of negotiations with the debtor, the fundamentals of the debtor9s creditworthiness, the nature of standstills, and the central focus of the restructuring exercise. There are often similarities as well such as the key role of strategy in managing the restructuring process, the requirement for effective creditor coordination, the possibility of gaining additional security, efforts to simplify the creditor approval process, the way the negotiation process is driven by recovery expectations of key parties, the importance of early intervention, and the challenge of arranging interim financing.

The pricing of successful venture capital-backed high-tech and life-sciences companies

Purpose and Scope of the Study This article is the product of eighteen months of analysis and research conducted through the joint efforts of Houlihan Valuation Advisors (HVA) and VentureOne undertaken to examine the question: What drives the pricing of venture capital (VC) investments in high technology and life sciences companies? In particular, we have attempted to explain changes in the value of venture capital-backed high technology and life sciences companies between the initial equity financing round (typically at inception date), interim financing rounds, and their initial public offering. The San Francisco-based investment research firm VentureOne has made available its proprietary database of venture capital investments in high tech and life sciences companies. HVA, a national securities valuation firm, has used this reliable source of information to examine venture investors' activity and identify key factors involved in the pricing of venture capital investments in these companies.

MERIDIAN GLOBAL FUNDS MANAGEMENT ASIA LTD V SECURITIES COMMISSION

This case concerned an attempt by predators based in New Zealand, Malaysia and Hong Kong to gain control of, and strip assets and cash from, a publicly listed New Zealand company (ENC). The predators included a New Zealand businessman, a Malaysian stockbroking firm and two gentlemen referred to throughout the case as ‘Koo’ and ‘Ng’. Koo and Ng were employed by the appellant company, Meridian Global Funds Management Asia Ltd (Meridian) and were, respectively, its chief investment officer and a senior portfolio manager. The appellant company was a Hong Kong investment management company with an Australian parent company, and although Koo was at the relevant time under the appellant's managing director in the corporate hierarchy of Meridian, in practice the evidence showed that he was given a very free rein in the conduct of the business of the company. The group of predators intended ultimately to finance their purchase of a controlling interest in ENC by using its own assets but interim finance was needed in order to buy the shares which would give them control of ENC's monies and assets. This was provided by Koo and Ng out of funds managed by Meridian as they improperly used their authority to act on behalf of Meridian and bought and re‐sold shares in various Asian companies (using the Malaysian stockbrokers who were also involved in this asset‐stripping raid on ENC). However, the plan went awry at the final stage when independent directors of ENC frustrated the predators' use of ENC's funds to repay Meridian. The result was that Meridian's Australian parent had to make good the losses suffered by the managed funds' beneficial owners.

Office design and construction for the oral and maxillofacial surgeon

Summary Begin the project with a sound foundation of preplanning by asking yourself the questions about the key project issues, plausibility, and crucial needs. Next, determine the interior needs of the facility by developing a wish list of all rooms. Bubble diagrams are used to help with floor design concepts. This shows the traffic patterns and relationships of rooms to each other. Next establish design requirements (i.e., how much space is actually needed for each room in the facility, space requirements, and relationships). Secure consultants to provide you with their expertise in design and construction as needed. Determine the site selection and how much land is needed. Location is one of the key factors in success of the project. Look at potential zoning ordinances and restrictions that establish rules and regulations for subdividing, platting, and improving land. Develop the project organization to proceed with the bidding and negotiation phase. This phase helps determine preliminary cost projections. After completion of the project organization and development of cost projection, a capital budget can be refined. Financial proposals then can be used for interim and permanent financing. Once the financing has been secured, the permits can be obtained and construction initiated. Being prepared and organized prevents costly delays and makes the project more successful.7

Principal‐Agent Problems in S&L Salvage

ABSTRACTNew legislation and traditional FDIC insolvency‐resolution procedures transform and intensify the principal‐agent problems most responsible for the FSLIC mess. These problems explain counterproductive constraints on the governance and operating policies of the agency responsible for rescuing and salvaging assets in insolvent thrifts: the RTC. The constraints slow insolvency resolution, increase interim financing costs, and undermine RTC recovery of asset value. Operationalizing its task as preserving evanescent and economically misconceived “franchise values,” the RTC allows insolvents to seek financing on an unconsolidated basis, initiates bidding for one institution at a time, holds back seriously troubled assets, and recruits an overly narrow range of bidders.