The issuer is being liquidated, and his property is not enough to satisfy the claims of all creditors – what to do in such a situation? REVER specialists – lawyer Anastasia Akulich and assistant lawyer Angelina Kiman – spoke about the process of the issuer’s liquidation and outlined the necessary actions for bondholders.
– To attract additional funds, companies resort to issuing bonds – IOUs. In this case, the company will be their issuer. After issuing bonds, investors have the right to buy them from the issuer and subsequently receive income. The full amount, terms and size of payments of this income are known upon purchase and are reflected in the bond issue prospectus.
Liquidation means the complete cessation of the issuer’s activities without transferring its rights and obligations to another person. Until the completion of the liquidation procedure, bondholders are fully entitled to receive payment on their bonds.
The liquidation procedure itself consists of several steps, where the bondholder should be careful not to miss a number of important steps.
Step 1: The Issuer publishes (discloses) information on its liquidation
After making a decision to liquidate the company and appointing a liquidator, the latter is obliged to take actions to disclose such information and notify the bondholders of liquidation.
- Notice of liquidation of the issuer.
The legislation provides for the following mandatory methods of notifying the bondholder of the issuer’s liquidation:
- Placing information about the issuer’s being in the liquidation process on the website of the journal “Justice of Belarus” and their subsequent publication in the appendix to the next issue of this magazine
- Sending written notices of liquidation to bondholders.
The procedure and the term for sending such individual notifications are not established by law.
In addition, due to the large number of counterparties (bondholders) there is a risk of failure to send and / or non-receipt by the bondholder of notification of the issuer’s liquidation in writing. In this regard, the main source of information about the liquidation is the website of the magazine “Justice of Belarus”.
The liquidator of the issuer determines and publishes the procedure and the period during which creditors can present claims. However, this period cannot be less than two months from the date of publication of information about the liquidation on the Internet on the website of the magazine “Justice of Belarus”.
- Disclosure of information on the liquidation of the issuer.
The issuer must disclose information on liquidation within two calendar days from the moment when he made such a decision.
The bond issuer discloses information in three mandatory ways:
Step 2: The bondholder submits the creditor’s claim to the issuer
After the publication of information on the liquidation of the issuer, the owner of the bonds needs to draw up and submit his claim of the creditor to the liquidator of the issuer. The essence of the requirement: inclusion of the debt on bonds in the register of creditors’ claims (hereinafter referred to as the register of creditors) for its subsequent repayment.
The following information must be included in the requirement:
- Grounds for the debt (reference to the bond purchase and sale agreement, issue prospectus, extract from the bond holder’s “custody” account)
- Amount owed
- Requiring that you, as a bondholder, be included in the register of creditors’ claims.
The request must be accompanied by copies of documents that will confirm the debt (the bond purchase and sale agreement, an extract from the securities account of the owner of the bonds).
His demand must be addressed to the liquidator of the issuer, since it is the liquidator who takes all possible measures to identify creditors, pays them the debt. The address to which the request must be sent, as a rule, is indicated in the publication on the website of the journal “Justice of Belarus”.
You should send your claim to the creditor by postal mail – by registered mail with acknowledgment of receipt. In case of a disputable situation, this will allow the bondholder to confirm the fact and date of sending the claims and their subsequent receipt by the issuer’s liquidator.
The deadline for filing a claim is set by the liquidator. Please note that such a period cannot be less than two months from the date of publication of information on liquidation.
If you missed this deadline, you still have the right to declare your claim to the creditor. The reason for missing the deadline does not matter. In this case, the claim of the bondholder will be fulfilled after meeting the claims of creditors declared on time.
Step 3: The issuer settles with the bondholder
At the request of the creditor, the liquidator enters it into the register, on the basis of which the debt is subsequently repaid.
All settlements with creditors (which include bondholders) are made in the order of priority established by law.
If the property of the issuer is not sufficient to satisfy the claims of all creditors, the liquidator is obliged to file a petition for bankruptcy of such issuer in court. In such a situation, the out-of-court liquidation procedure will be terminated, and the issuer will complete its activities already in the bankruptcy procedure under the control of the court.
Bankruptcy, like liquidation, ends with the exclusion of the issuer from the Unified State Register (hereinafter – USR). However, in liquidation, the exclusion of the issuer from the USR is possible only after settlement with all creditors. In bankruptcy, the exclusion from the USR occurs with the cancellation of debts, i.e. creditors’ claims will not be fully satisfied.
Step 4: The issuer is excluded from the USR, the bond issue is canceled
As a result, after the completion of settlements with all creditors, the issuer may be excluded from the USR, and the bond issue may be canceled.
The Securities Department excludes the issue of securities from the State Register of Securities (cancels the issue). Then the information goes to the central depository, where the issue of securities is removed from the centralized accounting.
To exclude the issuer from the USR, the issuer’s liquidator applies to the registering authority – the local executive committee. In confirmation of the exception, a certificate is issued in the form of an extract from the decision of the executive committee.
In the current economic realities, the bondholder should react very promptly and proactively to any information about the possible insolvency of his issuer. So, if news appears in the media that your issuer has difficulties with payments or otherwise evades the fulfillment of its obligations to other creditors, this will be a clear sign that the issuer has financial problems and, possibly, in the near future will declare its liquidation.
In such a situation, it is recommended to track information about the status of your issuer in open sources, to clarify information in depositories (both in your own and in the issuer’s depository). Also, do not hesitate to contact the issuer for clarifications directly.
If information about the beginning of the liquidation procedure of the issuer is revealed, the bond owner must send to the liquidator his claim of the creditor for the amount of the debt with the attachment of copies of supporting documents.
But even after such a demand has been sent, the situation cannot be ignored. It is necessary to control the receipt of the liquidator’s response to the submitted claim, regularly contact the liquidator to obtain information on the progress of liquidation and the planned terms of payment of the debt.
If the debt to the bondholder is not repaid within three months from the start of the liquidation procedure, there is a high likelihood of opening a bankruptcy procedure in relation to the issuer. The initiator of such a procedure can be either the liquidator or any of the creditors (including bondholders).
Please note that bankruptcy is an independent and not related to pre-trial liquidation procedure for terminating the issuer’s activities, which requires bondholders to perform new separate actions and be even more proactive.