Introduction to the Corporate Debt Restructuring Committee (CDRC)

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Due to the financial crisis and unfavourable economic condition in July 1997, there was an increasing number of corporations facing financial difficulties. Many public listed corporations had successfully obtained Restraining Orders pursuant to Section 176 (10) of the Companies? Act, 1965, whilst they propose a scheme to restructure the companies and also their debts. There was also an increasing number of winding-up petitions and companies being put in receivership administration.

To facilitate the restructuring of large corporate debts, the CDRC was formed to provide a platform for both borrowers and creditors to workout feasible debt restructuring schemes without having to resort to legal proceedings. With the setting up of the CDRC in July 1998, many companies have opted first to this friendlier arrangement to resolve their debt problems instead of going to court to defend against the creditors. CDRC allows a company to sit down together with creditors to workout arrangement acceptable to all parties concerned. The arrangement is informal. It has no legal status and can be called off by either side at any time.

It has been found that the current insolvency legislation does not provide the range of solutions required to preserve value for the stakeholders in complex, multi-lender groups. For the most part, the usual receivership and liquidation administrations do not discriminate the viable businesses from the non-viable, resulting in the inevitable demise of companies (in most cases), of these affected companies. Section 176 has proven to be very unpopular with the Financial Institutions.

The CDRC was set-up to provide the impetus to informal workouts between Financial Institutions and borrowers by way of compromise and consensus to expedite the restructuring of corporate debts. CDRC acts as an advisor and mediator between the debtors and the creditors on the restructuring exercise. Once an application to CDRC is made by either the creditor or the debtor, the appointed independent consultant will come up with a restructuring programme for the debtor. CDRC will then evaluate the application and consider its viability and acceptability to the bankers and shareholders of the companies involved. If all parties are agreeable to the structure of the proposal, the proposal will be implemented.

CDRC framework relies on co-operation, persuasion and collegiate approach to reconcile the interests of the Financial Institutions and the borrower.

The 4 basic principles of the framework are:

• Financial Institutions must be supportive and not precipitate insolvency.

• Decision-making is on the basis of sharing of reliable information amongst all parties involved in the workout.

• Financial Institutions must co-operate to reach a collective view on whether a company should be given financial support based on specified terms.

• Losses should be jointly borne in a fair manner to specified categories.

The CDRC framework is not new. It has been successfully implemented in various other countries, most notably in the United Kingdom