Page 309 - AFM Integrated Workbook STUDENT S18-J19

Corporate failure and reconstruction

2.2 Exam questions on corporate reconstruction

Exam questions will never ask you to propose your own reconstruction
scheme.

Instead, you’ll be asked to appraise a given scheme, usually by
estimating the impact of the proposed scheme on the forecast
statement of financial position (SOFP) and earnings of the company,
and then considering the acceptability of the scheme to all the key
stakeholder groups.

A reconstruction will only be successful if it manages to balance the
different objectives (risk and potential return) of both shareholders
(ordinary and preference), and creditors/lenders.

If the proposed reconstruction is not attractive to the
creditors/lenders, they have the right to apply to the courts to wind up
the company, so it is particularly important in an exam question to
consider the creditors’/lenders’ perspective.

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