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ACCA Strategic Professional · Advanced Financial Management · Business re-organisation

In a reconstruction proposal, which of the following is the most important test that the proposed scheme must satisfy for each stakeholder group to be willing to approve it?

Each stakeholder group will only accept a reconstruction if it expects to be no worse off than under the realistic alternative, normally liquidation. Recoveries need not be equal across groups, since priority and security differ, but each must at least match its liquidation outcome.

  1. AEach group must expect to be no worse off than under the most likely alternative, usually liquidationCorrect
  2. BEach group must receive the same percentage of its original claim
  3. CShareholders must retain more than 50% of the new equity
  4. DSecured lenders must agree to waive their security

Explanation

Stakeholders will only agree if they expect at least as good an outcome as their next best alternative, typically liquidation. Equal percentage recovery is not required, since ranking and security differ. No rule requires shareholders to keep a majority.

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