As a company gets into financial trouble in Europe, the creditors get involved. Not all creditors, that is. Typically it’s only the banks. The first thing which banks do is to confirm and/or strengthen their existing position: where they have collateral, they make sure that all documentation is in order; where they have no collateral, they attempt to obtain some (all the way to a floating charge on all assets). And when it comes to the Fresh Money requirement, banks hesitate because they are fearful that it might be ‘throwing good money after bad’.
In America, control over the company goes to a trustee. The first thing which happens is that service of bank debt will be put on hold. Then, all litigation against the company is stayed or put on hold. A new loan made to a ‘Chapter 11 company’ is super-senior to all other debt. Thus, it is fairly easy to obtain financing for the Fresh Money requirement.
The idea behind both bankruptcy philosophies is undoubtedly to maintain a ‘going concern’. Never is damage greater than when a debtor has to be liquidated. Europe goes about achieving that goal by focusing more on the creditor’ interests, America does the oppositve. My own experience is that better long-term solutions typically come about when one focuses on the debtor’ interest (provided that the debtor justifies that).
It seems to me that the Greek debt has so far been managed very much along European philosophies. The American philosophy would be more like saying: ‘Let’s do everything to make the debtor strong, even if it costs us interest income in the short term. If and when the debtor has made it, we’ll sit down with them and negotiate a restructuring of debt’.