The Abu Dhabi Global Market (ADGM) continues to enhance its legislative framework after recently publishing its fourth round of amendments to the ADGM Insolvency Regulations 2015.
As part of the latest round of amendments, the ADGM has introduced a new chapter dealing with priority funding (PDF), similar to US Chapter 11 style debtor-in-possession (DIP) funding.
The ADGM legal framework includes an insolvency process closely modelled on the UK’s administration (and also named administration) whereby an insolvency practitioner is appointed to manage the company's affairs, business and property. Similar to the position in England, the appointment may be made either by court order, by the holder of a qualifying floating charge or by the company or the directors themselves.
Under the new regulations, an administrator may either:
- obtain unsecured funding, which shall be payable as an expense of the administration; or
- if the administrator is unable to obtain unsecured funding, apply to the ADGM court for permission to obtain priority funding.
The ADGM court may, irrespective of any prior rights or restrictions prohibiting a debtor from incurring new funding or granting new security (for example a negative pledge within existing financing arrangements), accept an application for priority funding that:
- has priority over any or all expenses of the administration;
- may be secured by unencumbered assets;
- may be secured by assets already subject to security provided that the new security interest shall rank below any existing security interest over the same asset; or
- may be secured by assets already subject to security and which ranks in priority to any pre-existing security if:
- the administrator would not be able to obtain such funding without prior ranking security; and
- there is adequate protection for the existing secured creditors.
It will be the task of the administrator to provide evidence to the court that the existing secured creditors have adequate protection. The legislation provides that adequate protection may be provided by:
- cash payments to the existing secured creditors to compensate them for the reduction in value of their security;
- providing additional or replacement security; or
- granting other relief that will result in an equivalent recovery for the existing secured creditors.
The new priority funding regulations are yet another enhancement to the regional insolvency law landscape and will provide administrators with a vital rescue tool for businesses in administration. The developments also provide a clearer framework for rescue financiers who may be exploring opportunities in the current difficult market conditions.