Note on Restructuring Non-Debt Liabilities in the United States

By Mike Harmon
2022 | Case No. F318 | Length 14 pgs.

Financial restructuring for a distressed firm and its significant counterparties is the process of “recontracting.” This involves significantly altering, replacing, or terminating key financial contracts for the purpose of rehabilitation. Most of these contracts, as of the date of such restructuring, typically relate to debt obligations with claim values that are known to the firm and to each of the counterparties who are involved in the restructuring process.

This note examines the non-debt claims a distressed firm may face, specifically looking at (1) employee-related liabilities, such as those related to defined benefit pension obligations and retirement benefits; (2) tort-related claims, such as those related to litigation or environmental remediation; and (3) claims related to executory contracts, such as leases.

The latter category is the most common, but it is also the easiest to resolve. In contrast, restructuring employee-related and tort-related claims is much more complex because the value of such claims may not be known at the time of the proposed restructuring. It is restructuring in these two areas, employee-related and tort-related claims, that are the subject of this note. The note contains three case examples for the purposes of class discussion.

Learning Objective

This note is designed to help students learn the methods that companies (known as debtors when they are in bankruptcy) utilize both inside and outside of bankruptcy court to restructure their non-debt liabilities.
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