statement of principles for a global approach to multi-creditor workouts

INSOL INTERNATIONALwww.insol.orgIn certain cases, one or more of the creditors may enjoy anexisting advantage compared to other participating creditors,either in the form of security or by virtue of the comparativenumber of companies in the debtor group against which it hasrecourse (whether by way of direct claims, guarantees orindemnities). Once again, the inter-creditor arrangements enteredinto at the standstill stage will often allow for the retention of theseadvantages. (Other forms of advantage which individual creditorsmay enjoy include set-off rights, liens, the benefit of documents oftitle associated with trade finance or bill purchase facilities,guarantees and insurance from third parties). The ultimatetreatment of these advantages will typically be addressed in aninter-creditor agreement forming part of a contractualrestructuring and is often the subject of extensive negotiationamong the creditors.When the claims of relevant creditors are denominated in anumber of different currencies, movements in exchange ratesduring the Standstill Period can affect the relative position ofcreditors. Standstill arrangements often use assumed fixedexchange rates to determine certain inter-creditor issues (eg.voting and risk sharing) although realisations may still be sharedby reference to actual exchange rates and end of day balancingadjustments may be required to cover exchange rate fluctuations.16