Debt Restructuring and Settlement Agreements

A creditor compares the proposal with the alternative. The alternative is litigation and participation in a bankruptcy case, the outcome of which depends on the composition of the debtor's assets, the availability of security, the ranking of claims and the timing of payments. A debt restructuring proposal is prepared with a calculation showing this comparison: without it, the proposal reads as a request for deferral.

The composition of creditors determines the structure of the arrangements. A secured creditor, a supplier that continues to work with the debtor and a purchaser of a claim have different interests. The terms for different creditors may differ but must be comparable in economic outcome; the order in which each of them is approached also matters.

The feasibility of the schedule matters more than its length. An agreement whose terms exceed the debtor's capacity leads to a further default and to the consequences provided for by law and by the agreement. The schedule is matched against cash flow and the seasonality of the business, and the document includes terms for deviations from the plan.

The law provides for several mechanisms: payment by instalments and deferral of payment, set-off of a counterclaim, replacement of the original obligation with another, transfer of debt, and release of the debtor from its obligation in whole or in part. For companies, there is no separate insolvency procedure called “debt restructuring”: in a bankruptcy case, one of the means of changing payment terms is a settlement agreement.

A settlement agreement in a court case can be concluded at any stage, including during enforcement of the court ruling.

The course of negotiations may later be examined in court. Correspondence, proposals and admissions of particular facts are used in court cases and in bankruptcy cases, including when the debtor's transactions are reviewed and the management's actions are assessed: documents are prepared with their possible use in a dispute in mind.

• Changing terms before litigationObligations for which no claims have been filed in court: payment schedule, changes to the price and scope of obligations, replacement and addition of security, set-off of counterclaims.
• Settlement during litigationA settlement agreement with terms on the allocation of court costs and the waiver of part of the claims.
• Settlement agreement in a bankruptcy caseAgreeing it at the meeting of creditors and submitting the agreement to the court for approval.
• Obligations of a group of companiesChanges to terms affect several entities, intra-group obligations and mutual security, and require the sequence of documents to be coordinated.
• Acting for creditorsAnalysis of the proposal received, checking the feasibility of the schedule and the adequacy of the security.
• Secured obligationsChanges to terms affect pledges, suretyships and independent guarantees; terms are agreed taking into account the position of the security providers.

• Written assessmentThe grounds of the debt, the parties' positions and a comparison of the available options.
• Calculation for negotiationsPayment amounts and dates, with justification of the schedule's feasibility.
• Draft agreementsThe parties' arrangements in documented form.
• Court materialsThe text of the settlement agreement and the annexes to the application for its approval.
• Participation in hearingsPresenting arguments in support of the materials submitted.
• Next stepsAction in the event of deviation from the payment schedule or loss of security.

The outcome of the service is the work performed within the scope agreed with the client.

1. Materials

   The position is built on the documents and the circumstances of the case; the following points are relevant.

   • Contracts and primary documentsContracts, reconciliation statements, payment orders, calculation of accrued sanctions.
   • SecurityPledges, suretyships, guarantees and information on the security providers.
   • Source of repaymentInformation on receipts and planned payments for calculating the schedule.
   • Composition of creditorsA list of claims, information on claims filed in court and on acquired claims.
   • Corporate documentsThe charter and resolutions of management bodies required to conclude the agreements.
   • Case materialsCourt rulings, if a dispute is already being heard or a bankruptcy case has been opened.
   • Purpose of the requestRevising payment terms, analysing a proposal received or ending a dispute amicably.

2. Assessment

   On the basis of the materials, the strengths and weaknesses of the position, the risks and the possible courses of action are identified.

3. Plan

   For the chosen option, a plan is drawn up: the sequence of steps, timing and scope of work.