Private Equity guide to acquiring and managing distressed portfolio companies

The following Restructuring & Insolvency practice note provides comprehensive and up to date legal information covering:

  • Private Equity guide to acquiring and managing distressed portfolio companies
  • Acquiring a distressed company
  • Managing a distressed portfolio company—relevant factors
  • Reasons for distress and the need to act quickly
  • Order of priority of payment
  • Equity cures
  • Equitable subordination of shareholder loans
  • Directorship and shadow directorship
  • Debt for equity swaps
  • Top tips for PE shareholders
  • More...

Private Equity guide to acquiring and managing distressed portfolio companies

STOP PRESS: The Corporate Insolvency and Governance Act 2020 (CIGA 2020) legislates to temporarily prevent winding up proceedings being made on the basis of unsatisfied statutory demands and to temporarily stop winding-up proceedings where coronavirus has had a financial effect on the company which has caused the grounds for the proceedings (see Practice Note: Corporate Insolvency and Governance Act 2020—temporary changes to corporate statutory demands and winding-up petitions).

This note aims to:

  1. provide practical guidance to PE firms (and other funds) looking to acquire a distressed/insolvent company

  2. provide practical guidance to PE firms as shareholders of a distressed/insolvent company

  3. explain a PE firm's position in most types of corporate insolvency/restructuring situations

  4. provide advice on what a PE firm can do to maximise its position if a company becomes distressed

Following the 2007/8 credit crunch, when there were few M&A deals, PE funds (including special situations funds) looked to acquire distressed businesses, with a view to turning them around and adding them to their list of portfolio companies. This type of distressed investment is counter-cyclical and may be a useful way to diversify risk within a portfolio. Alternatively, existing PE shareholders need to be aware of the risks if their portfolio company enters the 'zone of insolvency'. Whilst a company is operating normally, the interests

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