SW 4-6 Flashcards
How is the share cap calculated?
Number of Shares * par Value = Share Cap
There are 3 types of capital increase
Nature of capital increases: Ordinary: With funds inflow
Ordinary:
- change statues
- notary
- cash payment into blocked acct.
qualified:
- change statues (because equity changes)
- notary
- BOD Report
- Auditor Report
- Contracts for PPE acquisition
What does APIC mean according to increases?
Additional Paid In Capital
-> = Agio
How do you calculate the value of subscription rights?
siehe 03, Folie 12, dort genau beschrieben mit Bsp.
Nature of capital increases: Ordinary: Without funds inflow (from reserves) Bonus shares
-> Bonus Shares = Capital increase transaction, for which consideration is recorded in reserves
-> Use of Reserves
Cap. Increase - Ordinary - With funds inflow:
How is the theory of capital increase with bonus shares?
Capital increase: Approved
- 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
Capital increase: Contingent
- 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
Booking of:
-> Cash (Ordinary, with inflow)
-> Bonus Shares (Ordinary, without inflow)
-> Cash dividend
Cash (Ordinary, with inflow)
cash / share capital
Bonus Shares (Ordinary, without inflow)
reserves / share capital
Cash dividend
reserves / cash
Why should someone do capital reduction (nothing with turnaround)?
-> in turnaround, paying out equity, would not be appropriate!
- boost ROE (Net income / average Equity)
- > less average Equity = more ROE
1. pay out funds to the shareholder or
2. offset losses brought forward
Which two types of cap. reduction does exist? Explain them.
Constitutive
= paying out funds to shareholder
Declarative
= cap. reduction without paying out funds
-> only declarative option plays a role in turnaround
Theory of declarative capital reduction
- 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)
Capital reduction: Process theory
Share Capital = # of Shares x par value
To reduce:
- reduce # of shares
- reduce par value
- combination of both
–> there is a card for each
- ) Audit report of a “specially qualified accountant”
- ) AGM resolution
- ) 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
Capital reduction: Process theory
–> reduce # of shares
-> 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
Capital reduction: constitutive reduction
-> what is a creditor’s call?
creditors have the right to either
… get repayment or
… get collateralization
Capital reduction: booking entries
(8tung: für Turnaround nur erste Spalte relevant)
Capital reduction: effects on AG’s tax situation
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.
Capital reduction: effects on shareholders’ tax situation
What is a Debt-Equity Swap technically?
A capital increase with offsetting of claims
(contribution not in cash but by offsetting the claims)
Debt-Equity-Swap
Which Process does apply (for the increase) ?
Qualified Process:
–> separate BoD Report
–> separate Audit Report (valuation / existance of claims)
qualified because of the offsetting of claims
Debt-Equity-Swap:
How does it support the restructuring of the company?
cleaning up the B/S
–> cuts away the loss
Restructuring: Revaluation:
Which two types of assets does the law allows to revaluate over cost value?
- investments
- real estates
What is special if a loan is “labled” as a Restructuring Loan?
–> 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)
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
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
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)
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)
Composition Agreement
in Court
die 4 Phasen nennen
- authorization of composition agreement
- agreement of creditors
- endorsement by court
- implementation of the agreement
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
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
Composition Agreement:
What does the term “Moratorium” mean
Moratorium:
–> Protection against creditor actions
–> Zeit / Schutz
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)
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
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
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
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
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
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
