Rescue financing under a ‘viability spotlight’

Abstract

This article examines how the different jurisdictional treatment of rescue financing in restructuring proceedings may affect the fundamental decision as to how a debtor's estate is deployed. This question is explored through a detailed examination of two very different models of rescue financing–the US statutory model and the UK market-based model. The article finds that the US model may lead to ‘filtering inefficiency', namely a result of the reorganisation process that is not the most value-maximising for the debtor in question. The article then turns to the English model and finds that it does not have prospect of ‘performing’ significantly better compared to the American one on a filtering efficiency basis. In light of these findings, the article articulates a proposal for reform of the UK model in particular and also explains the relationship with intercreditor agreements as a common restructuring technique in the UK.