Strategies for bonds, loans and debt assets restructuring and recovery

Reviewing and assessing events of default clauses and breaches of covenants or other terms of debt documents to check whether an event of default is triggered or covenants or other terms are breached is the first step.

Typically the creditor will have rights to, among others, (i) accelerate any part of or all of the debts and (ii) enforce any part of or all of its security interest(s) upon the occurrence of event(s) of default.

7 Key strategies for your bonds, loans and other debt assets restructuring and recovery:

Issuing a reservation of rights letter

If the creditor plans to enforce at least part of its rights upon the occurrence of event(s) of default, the creditor should consider issuing a letter of reservation of rights to the debtor specifying, among others, the creditor reserves all of its rights under the debt documents.

Restructuring debt assets - a standstill agreement

If the parties further negotiate for any debt restructuring plan, the creditor may first consider setting out further conditions to be complied with by the debtor in consideration of the creditor's agreement to putting on 'hold' enforcement action(s) in a standstill agreement.

Restructuring debt assets - negotiations

To negotiate debt restructuring options including an extension of the tenor, adjusting interest rates, adding more security collaterals or guarantees, among others

Acceleration of debts - serving notice of event of default

Typically in a notice of event of default, the creditor may provide, inter alia, (i) the circumstances constituting the event(s) of default, (ii) the type of rights to be exercised, including without limitation, acceleration of debts, enforcement of security, etc. and (iii) demand on repayment and reservation of other rights under the debt documents.

Enforcing security interest (share charges, property mortgages etc.) and guarantees

Enforcement procedures of security interests may vary and depend generally on the type of the asset, the location of the asset, the provisions of the security documents relating to, without limitation, transfer of title to the asset and the governing law of the security documents.

Enforcement proceedings tips

When determining the most appropriate forum of enforcement proceedings, in addition to evaluating the likelihood of substantial recovery, the creditor has to take note of the jurisdiction clause of the security documents as to what the jurisdiction is and whether the submission to the exclusive or non-exclusive jurisdiction of the relevant court applies equally to all parties to the security documents or asymmetrically.

Winding up proceeding strategy

In Hong Kong, if the debtor fails to satisfy the statutory demand issued by the creditor, the creditor can present a winding-up petition to the court.

The court may wind up an unregistered company if (i) it is unable to pay its debts or (ii) the court is satisfied that it is just and equitable to do so.

In certain cases, certain procedures such as going through a trustee or others may need to be followed.