Preventive Restructuring Toolkit for Business Bankruptcy Prevention

The presence of effective out-of-court mechanisms for bankruptcy prevention is considered in the paper as a condition for ensuring business sustainability. The hypothesis confirmed in this study is the statement: preventive restructuring of distressed business allows the main stakeholders of business insolvency relationships to reduce the time and financial costs of immersion in full-fledged court bankruptcy proceedings. Preventive restructuring should be carried out within the framework of corporate governance at the pre-bankruptcy stage. The paper identifies the features of existing forms of restructuring — preventive (out-of-court and hybrid) and judicial, focuses on the advantages and conditions for preventive restructuring for interested parties, discloses the main stages of the process. In the study the essential tools of preventive restructuring necessary for inclusion in the legislation and popularization of the use of this mechanism are identified: approval of the debt restructuring plan before bankruptcy commencement, introduction of creditors’ classes and cramdown tool, stimulating provisions for new and interim financing, preservation of management powers for the period of preventive restructuring. The process of institutionalization of the preventive restructuring mechanism is considered on the example of the understudied experience of the Netherlands, where the EU Directive was successfully implemented in 2021. As a result of generalization of progressive foreign experience and current Russian practice of preventive restructuring of distressed companies, the author suggests directions to intensify the use of preventive mechanisms to avoid business bankruptcies in Russia: legislative consolidation of the hybrid restructuring possibilities under the court protection; improvement of analytical tools for assessing the state of a distressed business on the bankruptcy eve; ensuring the availability of information about distressed assets; development of the institute of independent consultants on crisis management; formation of judicial practice encouraging out-of-court rescue; provision of methodological assistance to participants in the documents’ preparation; development of a preventive rescue culture in society.

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