Onshore restructuring vulnerable to offshore SPV insolvency proceedings

In the prevailing economic climate, an increasing number of large corporate groups have occasion to consider restructuring their affairs, including business operations and debt obligations in order to meet the challenges of the day. Whilst the onshore mechanisms to achieve restructuring are well known, there are offshore actions which can be taken by creditors which need to be addressed as part of an overall restructuring strategy.

It is commonplace for conglomerates to raise finance and working capital by using special purpose vehicles ("SPVs") to issue bonds to foreign investors from tax neutral jurisdictions, both onshore and offshore. This can cause problems if not addressed as part of an overall strategy as part of an onshore restructuring because the SPVs may be vulnerable to hostile insolvency proceedings, including, potentially, by bondholders directly. In such proceedings, creditors might succeed in appointing liquidators offshore who may then seek recognition onshore in competition with actions being taken by management or other foreign office holders in the group, who may in turn seek to enforce claims in relation to assets within the group. This may frustrate any onshore restructuring proceedings and potentially derail the same entirely. The potential for such action may then cause considerable difficulty for corporate groups which include offshore entities as they endeavour to carry their group through the restructuring process.


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Originally published by Asian-Mena Counsel, Volume 16 Issue 9.