Bond Covenants and Creditor Protection: Economics and Law, Theory and Practice, Substance and Process

Bratton, William W.

doi:10.1017/s1566752906000395

Cited by 41 publications

(4 citation statements)

References 33 publications

Supporting

Mentioning

Contrasting

Order By: Relevance

“…To examine these predictions, we identify four common types of nonaccounting covenants based on their functionality: investment restrictions, asset sale restrictions, equity issue restrictions, and debt issue restrictions, as in Bratton [2006]. We also examine prepayment restrictions that are used in loans, as well as cross default clauses, merger restrictions, and prior claim restrictions that are used in bonds.…”

Section: Bondsmentioning

confidence: 99%

Contractibility and Transparency of Financial Statement Information Prepared Under IFRS: Evidence from Debt Contracts Around IFRS Adoption

Ball

Shivakumar

2015

J of Accounting Research

204

122

View full text Add to dashboard Cite

We outline several properties of IFRS that potentially affect the contractibility or the transparency of financial statement information, and hence the use of that information in debt contracts. Those properties include the increased choice among accounting rules IFRS gives to managers, enhanced rule-making uncertainty, and increased emphasis on fair value accounting. Consistent with reduced contractibility of IFRS financial statement information, we find a significant reduction in accounting-based debt covenants

show abstract

Section: Bondsmentioning

confidence: 99%

Contractibility and Transparency of Financial Statement Information Prepared Under IFRS: Evidence from Debt Contracts Around IFRS Adoption

Ball

Shivakumar

2015

J of Accounting Research

204

122

View full text Add to dashboard Cite

show abstract

“…A certain part of the interest related to creditors' protection is determined when it comes to their interest in supporting businesses, and ensures that their information on a company's situation remains reliable (Dallas, 2019). However, many creditors still use contract as the best means to protect themselves (Bratton, 2006;Deng & Li, 2023). These contracts which are arranged to address the specific financial requirements of each (individual) creditor enable a more precise calibration of interest rates, ensuring they accurately reflect the risk of potential default by the company.…”

Section: Creditor Protection and Discharge Of Liabilitiesmentioning

confidence: 99%

Evolution and Impact of Capital Maintenance in UK Company Law

Nweke

2023

BLR

View full text Add to dashboard Cite

This article explores the intricacies of capital maintenance under UK Company Law, tracing its historical roots, pivotal principles, and the legislative safeguards devised to uphold creditor interests. Originating as a judicial response to the inception of limited liability, the doctrine has matured into a robust regulatory framework central to company operations. Fundamental to this evolution are landmark cases such as Flitcroft's, which have anchored the principles ensuring corporate solvency and creditor protection. Nevertheless, the dynamic financial landscape presents its own challenges. The downfall of Polly Peck International in the early 1990s stands as a stark testament to the dangers of neglecting these principles, spotlighting the severe repercussions of financial misdemeanours and unchecked expansion. Additionally, with innovative financial instruments, such as convertible bonds and financial derivatives, traditional boundaries between debt and equity are becoming increasingly indistinct. This evolution prompts a critical reassessment of whether existing capital maintenance rules are adequately equipped to navigate the complexities of today's corporate realm.

show abstract

“…(Ferran, 2008) The "full set of negative covenants" normally found in debt contracts are "restrictions on debt", "restrictions on prior claims" "restrictions on investments", "restrictions on dividends and other payments to shareholders", "restrictions on mergers and sales of assets", "prepayment alternative", and "early warning covenants". (Bratton, 2006) Second, if the creditor is a debenture holder, secured by floating charge, the statutory provisions on crystallisation applies 67 ; if it is a debt secured by a floating charge, the creditor will insert provisions on crystallisation. (Ferran, 2008) Crystallisation is the process by which floating charge is converted into fixed (specific) security.…”

Section: Crystallisation Of Floating Chargementioning

confidence: 99%

Statutory Decrystallisation of the Floating Charge: Implications for Business Sustainability

Onamson¹

2016

ILR

View full text Add to dashboard Cite

This paper analyzes the provisions of the Nigerian Companies and Allied Matters Act 2004 which, against the grain of general law rules on decrystallisation of floating charge, provides that a crystallised floating charge can decrystallise or refloat where the creditor withdraws from possession after the debtor has commenced payment or if the receiver, with consent of the creditor, is withdrawn. The analysis is relevant because the provision has dire implications for business sustainability since parties engage in debt transaction to sustain the going concern basis of their businesses. Bearing in mind that uncertainty pervades the boundaries between fixed and floating charge, the paper asks what is the priority status of a decrystallised floating charge as against a floating charge created prior to refloatation; and what is the relationship between the decrystallised floating charge and a fixed charge that predated the decrystallisation on the one hand and a fixed charge created post refloatation on the other hand. Using the case law and existing literature the paper showed that the statutory provision for decrystallisation of floating charge not only failed to clarify the general law rules on decrystallisation of floating charge, but it has cast a veil of uncertainty over the rights of parties to a debt transaction secured by floating charge. Since the provision can impact on the health of businesses, it behoves on the parties to be proactive in crafting debts contracts creating an interest secured by floating charge.

show abstract

Bond Covenants and Creditor Protection: Economics and Law, Theory and Practice, Substance and Process

Cited by 41 publications

References 33 publications

Contractibility and Transparency of Financial Statement Information Prepared Under IFRS: Evidence from Debt Contracts Around IFRS Adoption

Contractibility and Transparency of Financial Statement Information Prepared Under IFRS: Evidence from Debt Contracts Around IFRS Adoption

Evolution and Impact of Capital Maintenance in UK Company Law

Statutory Decrystallisation of the Floating Charge: Implications for Business Sustainability

Contact Info

Product

Resources

About