Corporate restructuring: empirical evidence on the approval of the reorganization plan

Resumen

When a corporation presents a reorganization plan, it expects its creditors to approve the plan. This paper provides empirical evidence regarding the likelihood of approval based on reorganization plans for creditors in Brazil that require approval by employees; and by secure and unsecure debtholders. This paper involves a descriptive analysis of the main characteristics of reorganization plans by type of vote. Using a sample of 120 reorganization plans proposed by corporations from 2005 to 2014, we find that the labor class of creditors is likely to approve the reorganization plan even when the plan is rejected; plans with more heterogeneous payment for classes are less likely to be accepted; plans are less likely to be accepted when there are more unsecure creditors; and plans with divestment proposals are more likely to be accepted. Finally, as expected given the seniority position of secured debt, plans are less likely to be accepted when the portion of secured debt is higher, and the reverse is true for unsecured debt.