The initial situation for the use of the Restructuring Trust
is usually that the repayment of the corporate financing is at risk and neither the financing bank nor the shareholders want to make a further liquidity contribution. The basis of trust between the bank and the shareholder is disturbed, and the loan is due for repayment.
However, this would threaten to destroy the value of the company, since it is well known that only poor liquidation results can be achieved in insolvency, or even in a sale under time pressure. Also, the companies concerned often have a need for restructuring, i.e. it takes some time to bring the company back into the black.
The bank is not prepared to agree to a standstill in order to give the restructuring a chance unless the collateral is improved and / or because the basis of trust has been disturbed.
Because of the company’s difficulties, it is also not a good time to look for investors. The shareholders fear losing money in the process.
If the bank and the shareholders can agree on a third party whom they both trust to successfully implement a restructuring, then the Restructuring Trust comes into play.
How does the Restructuring Trust work?
The shareholders transfer the company shares to the third party in trust. A multilateral trust agreement is concluded, i.e. the bank is also a party to the agreement.
The third party is given the task of restructuring the company. Externally, the third party is a shareholder; internally, it is bound both to the material shareholders and to the bank. The bank is entitled to the rights under the loan agreement in any case; it is seldom necessary to grant more rights.
The material shareholders grant the third party as much freedom of action as possible; any realisation is usually specified in detail, in particular the minimum price, type of sales procedure, etc. The use of the proceeds is also stipulated in the loan agreement. The use of the proceeds is also defined in detail in the “waterfall”.
Also essential are regulations on the termination of the trust, e.g. achievement of restructuring goals, long-stop date, call option of the material shareholders, etc. Of course, the failure of the restructuring or the consequences thereof must also be regulated.