Clifford Chance

Measures a debtor's solvency by comparing the total assets of the company to its total liabilities. It is based on a financial accounting of the company's economic situation and relies on generally acceptable accounting principles or other fair valuation methods.

Indicates that a company is unable to pay its debts as they fall due. The company's inability to pay its debts must be proved to the satisfaction of the court.

Cram-down allows a debtor to force confirmation of a composition plan or scheme of arrangement over the objections of dissenting creditors (or dissenting creditors within a given class) if certain tests are met.

A concept found in the U.S. Bankruptcy Code that allows holders of claims against a company to use those claims as acquisition currency in an auction.

An arrangement whereby a company's creditors agree to cancel some or all of the company's debt in exchange for equity in the company.

Debtor-In-Possession financing. It is arranged by a company usually during a formal restructuring process. DIP financing is distinct from other financing methods in that it usually has priority over existing debt (including secured debt), equity and other claims (it is a concept which originated from the US Bankruptcy Code).

An arrangement by which one creditor (for example, a "junior lender") agrees not to be repaid by the debtor (the "borrower") until another creditor of that borrower (a "senior lender") has been repaid in full.

Transactions concluded within a certain time period preceding the onset of insolvency (e.g. transactions at an undervalue, preferential transactions) may be liable to be set aside by an insolvency officeholder after the onset of insolvency.

A "loan to own" or "real estate ownership" (REO) strategy or programme involves a bank or other lender taking ownership of real estate assets mortgaged to it, whether through enforcement of security or other available structures. Loan to own or REO techniques are often considered by lenders in relation to defaulting loans where, for example, the property is income producing or has significant development or growth potential and the lender believes that value will return over time.

A limit/restriction on enforcement of claims imposed by the court, usually following the filing of an insolvency petition.

A company gives a preference to one of its creditors/guarantors if the company does anything which puts them into a better position than they would have been in otherwise in the event of the company going into insolvent liquidation.

Sale of a business to a "newco" often set up by the existing shareholders on an agreed basis often with an insolvency officeholder. This avoids going through a lengthy insolvency or enforcement process.

A company enters into a transaction with a person at an undervalue if: (i) the company makes a gift to that person or otherwise enters into a transaction with that person for no consideration; or (ii) the company enters into a transaction with that person for a consideration the value of which, in money or money's worth, is significantly less than the value, in money or money's worth, of the consideration provided by the company.