5.3.2 Drafting the Restructuring Agreement

No: 41033343

Date(g): 6/1/2020 | Date(h): 11/5/1441

Effective from Jul 01 2020 - Jun 30 2020
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A typical restructuring agreement at minimum should include: Purpose, Restructuring Fees and Expenses, banksLenders, Nature and Amount of Current Principal Loan, Role of External Counsel, Signing Date of the Loan Restructuring Agreements and other Documentation, Conditions of Effectiveness, Representations and Warranties, Repayment Schedule, Mandatory Prepayments, Cash Sweep Mechanism, Interest Rates, Applicable Margin - Base, Default Interest, Interest Periods, Shareholder Loan, Emergency Working, Deferral of Principal Payment, Undertakings, Events of Default, Security, Documentation, Taxes, Withholdings, Deductions and Relevant Governing Law.

A. Determining required documentation

Every restructuring transaction is different in its own way, and these differences lead to defining the type and number of documents required to formalize the workout. Factors like the number of creditors, the size of the loan restructured and the type of collateral used in the original lending transaction determine the complexity and number of documents required to formalize a workout.

Regardless of the number of creditors and complexity of loan structure, the restructuring documentation will determine the conditions and effectiveness of the restructuring, and it is essential that all parties should agree and sign the documents before implementing the workout. Until all documents have been formalized, it is still possible that the restructuring negotiations fail and initiating the bankruptcy proceedings.

The documentation formalizing the workout should always be prepared by a legal practitioner. While the legal practitioner should be primarily responsible for elaborating this documentation, close collaboration is required with the Workout Unit in charge of negotiating the workout.

In the case of MSME workouts, the banks are encouraged to explore developing restructuring documentation, which is typically simplified in comparison with the restructuring of larger corporate borrowers. This is just a reflection of the fact that the negotiating process is simpler, and most negotiating milestones are either abridged or do not take place at all.

For further guidance on relevant agreements refer to Appendix 4.

B. Communicating with the borrower during the workout process

The bank should have detailed internal guidelines and rules regarding bank's staff communication with the borrower. Communication with borrowers should be as per the procedures outlined in the bank's code of conduct. This should include; timelines for responding to borrower's requests/complaints, identify who within the bank is responsible/authorized to issue various types of communications to the borrowers, documenting process for all communications to/from the borrowers, signing/acknowledgement protocols with timelines, approval requirements for all workout proposals, templates to be used for communication with the borrowers.
With respect to borrowers, transferred to the specialized unit, some of the basic principles are as follows:
i.	Work out unit must act honestly, fairly, and professionally at all times.
ii.	RM should avoid putting excessive pressure on the borrower and/or guarantor. All contacts with the borrower should take place at reasonable times) and at a mutually convenient location.
iii.	Documenting all the communication with the borrowers (and guarantors) and retaining for an appropriate time. Notes to the credit file should be factual.
iv.	Sign all communications of a legal nature such as commitment letters, demand letters, or other communications with respect to legal proceedings by those individuals authorized to do so by policy.
v.	All written communications from the borrower should be acknowledged within (5) business days.
vi.	RM should make clear from the beginning that all restructuring proposals require the approval of either one or more committees or senior managers. The borrower should be given an approximate timetable for approval and promptly notified of any delays.
vii.	All approved restructuring proposals should be communicated to the borrower and guarantor(s) in writing, clearly spelling out all the terms and conditions, including covenants if required together with all reasonable costs arising from the transaction.
viii.	Notify borrowers in writing if their restructuring proposal is declined, including the reasons for rejection.

C. Resolution of disputes

When the bank and the borrower fail to reach an agreement or the borrower considers the proposed restructuring plan of the bank or negotiation process does not follow the principles described in the paragraphs above, the borrower should have the right to elevate his case to the level above the specialized unit. General established practice is for the borrower to write directly to the CRO. It should be ensured that the dispute is being reviewed independently of the personnel/team against whom the appeal has been filled.
Given the nature of the resolution process, which is likely, to generate a number of such inquiries, banks may wish to consider formalizing this process. An indicative example of a more formal process can be summarized as follows:
i.	An Appeals Committee consisting of at least three senior officers is formed.
ii.	The members of the Committee should be knowledgeable about the credit granting process but be independent of the credit origination, workout, and risk management functions.
iii.	A member should disclose potential conflicts of interest and recuse themselves from further discussions with respect to any relevant case being discussed by the Committee.
The borrowers should have prompt and easy access to filing an appeal. Good practice in this regard includes standardized appeal forms together with a list of information or required documents needed in the review of the appeal, and deadlines for the submission and reviews of appeals.
	a)	Acknowledgment of submission of appeals in writing.
	b)	The decision of the Appeals Committee should be announced within one (1) month from the date of submission and should be in writing and include the reasons for the committee's decision.
	c)	The borrower would have a right to appeal on a specific issue only once.
Educating borrowers, especially in the MSME category may be required that restructuring of loan obligations is a concession provided by the bank and not a legal right of the borrower.