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ZZZ_Turnaround Mgmt > SW 4-6 > Flashcards

SW 4-6 Flashcards

1
Q

How is the share cap calculated?

A

Number of Shares * par Value = Share Cap

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2
Q

There are 3 types of capital increase

A
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3
Q

Nature of capital increases: Ordinary: With funds inflow

A

Ordinary:

  • change statues
  • notary
  • cash payment into blocked acct.

qualified:

  • change statues (because equity changes)
  • notary
  • BOD Report
  • Auditor Report
  • Contracts for PPE acquisition
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4
Q

What does APIC mean according to increases?

A

Additional Paid In Capital

-> = Agio

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5
Q

How do you calculate the value of subscription rights?

A

siehe 03, Folie 12, dort genau beschrieben mit Bsp.

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6
Q

Nature of capital increases: Ordinary: Without funds inflow (from reserves) Bonus shares

A

-> Bonus Shares = Capital increase transaction, for which consideration is recorded in reserves

-> Use of Reserves

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7
Q

Cap. Increase - Ordinary - With funds inflow:

How is the theory of capital increase with bonus shares?

A
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8
Q

Capital increase: Approved

A
  • AGM gives order to BOD
  • BOD has 2 years to perform cap. increase
  • can’t be more than 0.5 of existing share cap.
  • change of statutes necessary
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9
Q

Capital increase: Contingent

A
  • for convertible reps. option bonds (only if counterparty exercise it; ausübt)
  • step-by-step cap. increase parallel to conversion (Umwandlung)/ option exercise
  • can’t be > 0.5 existing share cap.
  • change of statutes necessary
  • opinion of independent accountants (yearly)
  • yearly announcement of current level of share cap. to commercial register
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10
Q

Booking of:

-> Cash (Ordinary, with inflow)

-> Bonus Shares (Ordinary, without inflow)

-> Cash dividend

A

Cash (Ordinary, with inflow)

cash / share capital

Bonus Shares (Ordinary, without inflow)

reserves / share capital

Cash dividend

reserves / cash

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11
Q

Why should someone do capital reduction (nothing with turnaround)?

-> in turnaround, paying out equity, would not be appropriate!

A
  • boost ROE (Net income / average Equity)

  • > less average Equity = more ROE
    1. pay out funds to the shareholder or
    2. offset losses brought forward
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12
Q

Which two types of cap. reduction does exist? Explain them.

A

Constitutive

= paying out funds to shareholder

Declarative

= cap. reduction without paying out funds

-> only declarative option plays a role in turnaround

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13
Q

Theory of declarative capital reduction

A
  • it eliminates complete/ partially the capital loss
  • reduction without injection of new money
  • exception: “harmonica”
  • reduction and reincrease
  • deflating
  • reinflating
  • (look at image: red is loss)
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14
Q

Capital reduction: Process theory

A

Share Capital = # of Shares x par value

To reduce:

  • reduce # of shares
  • reduce par value
  • combination of both

–> there is a card for each

  1. ) Audit report of a “specially qualified accountant”
  2. ) AGM resolution
  3. ) Notarization of the reduction resolution
  • necessary bcs. you have more risk (less equity = less buffer)
  • so you can protect creditors

4.) Entry in the commercial register

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15
Q

Capital reduction: Process theory

–> reduce # of shares

A

-> by repurchase (at/over/below par value)

  • = take share away from market

-> by recall and submission

  • reality by this approach
  • shareholders give back shares and they destroy it
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16
Q
A
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17
Q

Capital reduction: constitutive reduction

-> what is a creditor’s call?

A

creditors have the right to either

… get repayment or

… get collateralization

18
Q

Capital reduction: booking entries

(8tung: für Turnaround nur erste Spalte relevant)

19
Q

Capital reduction: effects on AG’s tax situation

A

gross method:

  • if withholding tax was deducted from the purchase price
  • distribution of reserve is treated as 100%
  • this is primarily the case, when own shares are immediately repurchased

net method:

  • if withholding tax was NOT deducted from the purchase price
  • distribution of reserve is treatet 65%
  • the case if purchase of own shares was unrelated to an immediate share cap. red.
20
Q

Capital reduction: effects on shareholders’ tax situation

21
Q

What is a Debt-Equity Swap technically?

A

A capital increase with offsetting of claims

(contribution not in cash but by offsetting the claims)

22
Q

Debt-Equity-Swap

Which Process does apply (for the increase) ?

A

Qualified Process:

–> separate BoD Report

–> separate Audit Report (valuation / existance of claims)

qualified because of the offsetting of claims

23
Q

Debt-Equity-Swap:

How does it support the restructuring of the company?

A

cleaning up the B/S

–> cuts away the loss

24
Q

Restructuring: Revaluation:

Which two types of assets does the law allows to revaluate over cost value?

A
  • investments
  • real estates
25
What is special if a loan is **"labled" as a Restructuring Loan**? ## Footnote --\> Result from zkb vs. swiss legal case
--\> the lender is allowed to collatoralize the loan --\> the lender get's premature repayment (be the first to be repayed)
26
**_Restructuring loan:_** When is it **possible** for the lender to lable the loan as a restructuring loan?
--\> the loan must be new --\> it has to be fresh money invested in the restructuring situation --\> so you can be the first to be repayed
27
**_Composition agreements:_** For what reason does these agreements exist? And what is the advantage for the creditor?
--\> to prevent bankruptcy of corporation without interrruption of corporations business activity --\> upside for the creditor: to maintain a business partner in the future
28
**Composition Agreements:** **_Outside Court_** --\> Welche Grundlage --\> Welche Vorteile ---\> Welche Nachteile
**Grundlage:** Art. 115 OR (freedom of contracting) **Vorteile**: no equal treatment of creditors needed **Nachteile**: the corporation is not protected against claim enforcement actions of creditors it is only worth it if you have a few creditors (imagine you have 1000, then you would invest too much time in it)
29
**Composition Agreements:** **_inside Court_** --\> Welche Grundlage --\> Welche Vorteile ---\> Welche Nachteile
**Grundlage**: SchKG Regulations (ordinary proceeding) **Vorteile:** All creditors are forced under this agreement (even if they do not agree) --\> the majority of the creditors and the judge have to agree **Nachteile**: Costly procedure (judge involved, solicitor)
30
**_Composition Agreement_** in Court **die 4 Phasen nennen**
1. authorization of composition agreement 2. agreement of creditors 3. endorsement by court 4. implementation of the agreement
31
**_Composition agreement_** in Court **die zwei Möglichkeiten für eine Lösung** **(ohne Konkurs)**
**_Deferral:_** --\> a fixed repayment plan is elaborated (the goal ist the full repayment of the claims) **_Dividend (% payed)_** --\> partial repayments, the rest is foregone
32
**_Composition Agreements:_** Overview of the process **Name the 4 Steps**
**_1. Application_** - simplified rationale (B/S, liquidity planning, provisional restructruring plan) - the court will let you enter, unless its obvious that there is no chance for successful restructuring **_2. Provisional Moratorium_** - assessment of the chances for restructuring - Duration 4 month - *moratorium = protection* against creditor actions !!! **_3. Definite Moratorium_** - ordered by the court before the end of the provisional moatorium - Publication (it's not a secret anymore) **_4. End of restructuring Process_** --\> life or death --\> in Switzerland not possible to leave the process --\> Shareholders have to participate adequately in the restructuring
33
Composition Agreement: What does the term "Moratorium" mean
**_Moratorium:_** --\> Protection against creditor actions --\> Zeit / Schutz
34
**_Continuing obligations in the bankruptc law_** Which **pre-conditions** are a must to have a extraordinary cancellation right? (3)
1) the borrower has an **approved moratorium** (provisional or definite) 2) the **solictor has agreed** to the extraordinary cancellation 3) **without** cancellation **the restructuring is made impossible** --\> pacta sunt servanda = n/a --\> the counterparty has the right for full compensation (3. Klasse in Konkursmasse)
35
**Revaluations Theory:** There is a cycle (4) - \> which 4? - \> explain each
**Accounting:** - \> debit/ credit - \> inputing data into the accounting system **Stock-Taking** - \> once a year - \> calculation process, count the articles (inventory) - \> compare with balance sheet -\> is everything on the asset side physically available? **Valuation** -\> go through valuation process **Disclosure** -\> communication with shareholders on assets you have on b/s
36
Revaluations: **3 valuation principles** are available (Art. 960a OR) -\> which ones?
**1. cost** - \>at production or procurement cost (Beschaffungskosten) - \> subsequent valuation: generally no more than costs - \> in most cases - \> details in a separate card **2. lower of cost and market (LOCOM)** **3. FMV** -\> fair market value
37
revaluation: **cost principle**
- most cases - rule: cost is normally maximum valuation - exception: in case of **restructuring**, there is a appreciation possible (Art. 670 OR) - only these assets: * investments * real estate - auditor must confirm the value - **booking**: * debit: assets * credit: revaluation reserve (part of legal reserves = never paid out) - this **revaluation reserve** can be used for: * re-depreciation of the asset * sale of the asset * transfer into share cap. (similar to bonus shares) - Art. 671 b OR
38
revaluation: example of **real estate** in turnaround situation
**correction from book-value to acquisition cost** * it is always allowed * book into P + L **correction from acquisition cost to FMV** * only allowed in case of restructuring * book into revaluation reserve
39
What is a **subordination agreement**?
- important feature for over-indebted firms * intermin F/S at going-concern and liquidation values * to be presented to auditors * if claims of creditors are not covered -\> bankruptcy - **UNLESS**: creditors subordinate their claims in the minimum amount of the adverse b/s - Form: written form highly recommended - non-cancelable - no time restrictions
40
**re-engineering of terms + conditions** -\> 4 possibilieties
**full or partial renunciation (Verzicht) of Debt** - \> basis Art. 115 Or - \> in praxis: always shareholders who renounce their claims (seldom also banks do that) - \> based on commercial law - \> it books a restructuring gain **suspension (Aufhebung)/ renunciation or Adjustment of interest payments** - \> don't pay interest - \> usually for short-term measures **comp. agreements** -\> details on separate cards **suspension of bankruptcy** -\> ask in court --\> Main goal: gain valuable time to implement other restructuring measures

ZZZ_Turnaround Mgmt (4 decks)

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