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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)

A
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

A
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
Q

What is special if a loan is “labled” as a Restructuring Loan?

–> Result from zkb vs. swiss legal case

A

–> the lender is allowed to collatoralize the loan

–> the lender get’s premature repayment (be the first to be repayed)

26
Q

Restructuring loan:

When is it possible for the lender to lable the loan as a restructuring loan?

A

–> 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
Q

Composition agreements:

For what reason does these agreements exist?

And what is the advantage for the creditor?

A

–> to prevent bankruptcy of corporation without interrruption of corporations business activity

–> upside for the creditor: to maintain a business partner in the future

28
Q

Composition Agreements:

Outside Court

–> Welche Grundlage

–> Welche Vorteile

—> Welche Nachteile

A

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
Q

Composition Agreements:

inside Court

–> Welche Grundlage

–> Welche Vorteile

—> Welche Nachteile

A

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
Q

Composition Agreement

in Court

die 4 Phasen nennen

A
  1. authorization of composition agreement
  2. agreement of creditors
  3. endorsement by court
  4. implementation of the agreement
31
Q

Composition agreement

in Court

die zwei Möglichkeiten für eine Lösung

(ohne Konkurs)

A

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
Q

Composition Agreements:

Overview of the process

Name the 4 Steps

A

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
Q

Composition Agreement:

What does the term “Moratorium” mean

A

Moratorium:

–> Protection against creditor actions

–> Zeit / Schutz

34
Q

Continuing obligations in the bankruptc law

Which pre-conditions are a must to have a extraordinary cancellation right?

(3)

A

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
Q

Revaluations Theory: There is a cycle (4)

  • > which 4?
  • > explain each
A

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
Q

Revaluations: 3 valuation principles are available

(Art. 960a OR)

-> which ones?

A

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
Q

revaluation: cost principle

A
  • 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
Q

revaluation: example of real estate in turnaround situation

A

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
Q

What is a subordination agreement?

A
  • 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
Q

re-engineering of terms + conditions

-> 4 possibilieties

A

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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