(a) If a corporate debtor is in financial difficulty, is there an attitude of 'concealment' or 'denial' toward the admission or exposure of that financial difficulty?

 

Whilst it is dangerous to generalize, there is arguably more of a tendency to deny or to refuse to accept that the corporate entity is in financial difficulty than to admit and to come to terms with it.

(b) If so, is the reason for this based on cultural or other factors?

 

The reason is probably grounded in human nature rather than any specific cultural or social reasons that are peculiar to Malaysia.

(c) Is it likely that a corporate debtor would:

(i) volunteer the fact of its financial difficulty to a lender or group of lenders; or

 

Responsible corporate debtors are more likely to volunteer the fact of its financial difficulty to its lenders. Lenders may already be suspecting something is amiss if they have been regularly supplied with financial information pursuant to specific covenants in loan documentation and have been monitoring repayments

(ii) admit or concede it only if and when confronted by a lender or group of lenders?

 

Irresponsible corporate debtors tend to conceal until confronted, and sometimes, although queried or confronted, they remain defiant or uncooperative.

(d) If a corporate debtor is in financial difficulty, is it likely that the corporate debtor would:

(i) do nothing;

 

Again, whilst generalizations may not be valid, the likely response of a corporate debtor in financial difficulty mirrors its perception of its responsibility for the situation:

Responsible corporate debtors who have acknowledged the fact will either seek expert assistance or submit to some extent to their lenders' wishes.

(ii) seek expert assistance and advice; or

 

Irresponsible, defiant corporate debtors are likely to do nothing, and allow the situation to get worse.

(iii) accept the appointment by a lender of an outside expert/advisor?

(e) If it was agreed between a lender and a corporate debtor that an expert/advisor would be appointed, is it likely that a corporate debtor would give the expert/advisor unrestricted access to all relevant financial and other information regarding the corporate debtor?

 

If it was agreed between a lender or lenders and a corporate debtor that an expert/advisor be appointed, it is generally the case that the expert/advisor would be allowed unrestricted access. However, where the underlying cause of the difficulty was mismanagement or fraud, though the lenders' muscle may bring about the appointment of such an advisor/expert, access would be made difficult and cooperation would be minimal.

(f) In that situation, is it likely that the financial and other information regarding the corporate borrower would be:

(i) complete; and

(ii) accurate (particularly regarding the valuation of assets and the assessment of liabilities)?

Generally there is a free flow of accounting information but it may not be current and up to date.

(a) Is it more common that the financial difficulty of a corporate borrower will be:

(i) volunteered by a corporate debtor; or

It is difficult to generalize but:

(i) occasions of corporate debtors volunteering news of financial difficulty are common enough though in no way universal;

(ii) discovered by a lender (and, if so, how)?

 

(ii) if lenders had discovered such difficulty it would probably have been through an analysis of:

• the information that was available to the public;
• analysis of management accounts or other financial statements provided every month or quarterly by the borrower;
• word of mouth i.e. through the "grapevine";
• news reports of troubles at a parent company or one of the other group members that is thought to possibly have a contagion effect.

(b) If a lender becomes aware that a corporate debtor is in financial difficulty, is it likely that the lender would seek to investigate the financial crisis of the corporate debtor itself and employ an expert/advisor to investigate the financial position?

 

It cannot be said to be likely that a lender, on becoming aware of a borrower's difficulty, would be likely to seek to investigate the finances of the borrower, but it is a possibility and lenders have on occasion appointed monitoring financial accountants in such circumstances.

(c) If so, is the expert/advisor likely to be:

(i) an independent professional; or

(ii) an 'in-house' employee of the lender?

 

The expert/advisor might take the form of a financial monitoring accountant or a merchant bank or a firm of management consultants, and therefore would normally be independent professionals.

(d) Is it likely that information regarding the financial position of a corporate borrower as discovered from the work of an expert/advisor would be:

(i) kept secret from other lender/s or creditors;

(ii) disclosed to other/selected lenders?

 

In practice, it would be impossible by virtue of fear of breaching banking secrecy provisions in the Banking and Financial Institutions Act 1989, for one lender to share information relating to a customer's account, unless it were already in the public domain.

(e) If there were 2 or more lenders (not in a syndicate) involved with the same corporate borrower, is it likely that they would:

(i) join together to share information and endeavour to work out a common approach to the financial problems of the corporate borrower; or

(ii) act secretly and independently of one another?

 

If there were two or more lenders not forming part of any syndicate involved with the same corporate borrower, they would each be bound by the banking secrecy provisions in the Banking and Financial Institutions Act 1989. Therefore, any co-operation may be limited to credit opinion, joint strategy and pooling of expertise or resources, rather than information per se. Even then, such cooperation is very much on a case by case basis and it is difficult to generalize.

(f) If there was a group of lenders (whether in a syndicate or not) involved with the same corporate borrower, is it likely that one of them would offer or seek to be the leader on behalf of them all?

 

If the lenders are part of a syndicate, it is common for the agent bank to take the lead or alternatively the bank with the largest exposure. If not in a syndicate, by virtue of the Banking and Financial Institutions Act 1989 provisions, it would be difficult in theory for one bank to take the lead. The borrower does on occasion give consent under the Act at the banks' request so as to dispense with the need to deal with many banks. Where this consent has been given it is common for one lender, usually the largest, to take the lead, on a non-binding basis so that no individual lender's rights are compromised. This would be the germ or prelude to an informal work out arrangement.

(g) If so, is it likely that such a proposal would be agreed to by the other lenders?

 

As mentioned, quite common in a syndicate but less so where there is no syndicate.

(h) Is it likely that local lenders would have employees who are experienced in informal work outs?

 

Only some of local financial institutions have employees who are experienced in informal work outs.

(i) If there was foreign bank lending involved, is it likely that domestic lenders would:

(i) combine with; or

(ii) act independently of the foreign lender/s?

 

In most cases, unless the foreign lender is part of a syndicate, the domestic banks would tend to act independently.

(j) Is it likely that 'junior' or 'minor' lenders might seek to trade their debt?

 

It is possible that lenders with "junior" debt might want to sell the debt to debt traders.