The importance of restructuring lies in the fact that it is not intended to liquidate the business, but rather to attempt to restore its ability to continue operating and meet its obligations through a plan that addresses the causes of financial or administrative disruption. This may include restructuring debts, revaluing assets, increasing capital, managing cash flows, and obtaining new financing.
Restructuring Is Not Merely a Financial Term
The term «restructuring» is used in the business world in various senses; it may refer to changing the ownership structure, merging divisions within a company, reorganizing the workforce, or rescheduling financing arrangements.
However, restructuring as regulated by Law No. 11 of 2018 has a more specific legal and procedural meaning. It is a system subject to the supervision of the Bankruptcy Judge and aims to prepare and approve a plan for reorganizing the trader’s financial and administrative operations and determining how the trader will emerge from the period of disruption and repay debts.
Accordingly, a distinction must be drawn between contractual restructuring undertaken by a company with its shareholders or creditors outside the courts and judicial restructuring regulated by the Bankruptcy Law.
Who May Apply for Restructuring?
Under Article 15 of the Law, restructuring may be requested by any trader who satisfies a number of basic conditions, the most important of which are:
- Capital of not less than EGP 1 million.
- Continuous engagement in commerce during the two years preceding submission of the application.
- No commission of fraud.
A company may not be restructured if it is in liquidation.
Accordingly, the system is not automatically available to every distressed company or business; it is first necessary to verify that the applicant has the legal status of a trader and satisfies the conditions of Article 15.
Must the Company Have Ceased Payment?
The restructuring regime does not require that a bankruptcy judgment has already been issued against the company or that it has reached a stage of final cessation of payment.
Rather, its underlying philosophy is to address financial and administrative disruption at a stage when the business can still be reorganized and rescued.
Restructuring therefore represents a relatively preventive tool. However, this does not mean that any decline in profits or temporary liquidity crisis is sufficient in itself for a successful application; the feasibility of restructuring remains subject to technical and financial assessment.
When May a Restructuring Application Not Be Submitted?
Article 17 provides that a restructuring application may not be submitted where a judgment declaring the trader bankrupt or a judgment opening preventive composition proceedings has been issued.
A new restructuring application may also not be submitted until three months have elapsed from the rejection or closure of the previous application.
These rules demonstrate that restructuring has a legal timing requirement that must be observed, and it is not appropriate to wait until other legal stages have been completed and then assume that restructuring remains available at all times.
What Is the Objective of the Restructuring Plan?
Article 18 clearly defines the objective: to establish a plan for reorganizing the trader’s financial and administrative operations, explaining how the trader will emerge from the period of disruption and repay debts, together with the proposed sources of financing.
Depending on the circumstances of the business, the plan may include measures such as:
- Revaluation of assets.
- Restructuring of debts, including debts owed to the State.
- Increasing capital.
- Increasing cash inflows.
- Reducing cash outflows.
- Administrative restructuring.
It is not necessary to use all of these measures; what matters is selecting those appropriate to the financial and operational position of each business.
Debt Restructuring Does Not Mean Automatic Debt Reduction
One of the points requiring particular precision is that restructuring does not grant the debtor unilateral authority to reduce creditors’ debts or write off part of them.
The plan depends on the agreement of the parties who sign it, and the Law provides that the restructuring plan is binding upon those who approve and sign it.
Accordingly, the plan may include rescheduling a debt, changing the method of repayment, or other agreed arrangements, but the regime should not be presented as a judicial mechanism for compelling all creditors to accept reductions merely because the debtor has requested restructuring.
Submitting the Restructuring Application
The application must state the causes of the financial disruption, the date on which it arose, the measures previously taken to attempt to avoid or address its effects, and what the applicant considers necessary to emerge from the crisis.
Article 19 requires a range of documents to be attached to allow an assessment of the true financial and commercial position, including:
- Documents supporting the information contained in the application.
- A certificate from the Commercial Register concerning compliance with legal registration obligations during the preceding two years.
- A certificate from the Chamber of Commerce confirming continuous engagement in commerce during the preceding two years.
- A copy of the balance sheet and profit and loss account for the preceding two years.
- Any other information and documents required by law depending on the applicant’s circumstances.
Accordingly, successful restructuring begins in practice before the application is filed, through preparation of a financial and legal file demonstrating the causes of distress and the possibility of rehabilitating the business rather than liquidating it.
The Competent Court and the Bankruptcy Judge
The first-instance circuits of the Economic Courts have jurisdiction over actions arising from the application of the Restructuring, Preventive Composition and Bankruptcy Law, in accordance with the territorial rules prescribed by Article 2.
The Bankruptcy Judge plays the principal role in administering a restructuring application and may seek assistance from experts, form a restructuring committee, and monitor the plan within the limits established by law.
Accordingly, it is more precise not to state that «the court negotiates and modifies the plan with the creditors»; rather, the process is conducted through the mechanisms established by law, principally the Bankruptcy Judge, the restructuring committee, and the agreement of the parties.
The Role of the Restructuring Committee
The judge may form a restructuring committee from experts registered on the Bankruptcy Administration’s register of experts.
Depending on its mandate, the committee examines the business, prepares the restructuring plan, manages and evaluates the trader’s assets, and performs other necessary technical tasks.
This role is highly significant because determining whether a business can be rescued is not a purely legal matter; it requires financial, accounting, administrative, and operational analysis.
Timeframe for Preparing the Restructuring Plan
Following the 2021 amendment to the Law, the restructuring committee submits its report to the Bankruptcy Judge within a period of up to six months from the date of submission of the application, and the judge may extend that period for a similar period.
The report must include the committee’s opinion on the reasons for the disruption of the trader’s business, the feasibility of restructuring, and the proposed plan.
How Long Does the Restructuring Plan Last?
The restructuring plan must be implemented within a period not exceeding five years.
It may be extended for an additional two years by a decision of the judge upon the request of one of the parties to the plan or the assistant, provided that all parties to the plan approve the extension.
Accordingly, where the extension conditions are satisfied, the maximum duration of the plan may reach seven years.
Approval of the Plan Requires the Consent of Its Parties
Article 21 provides that the Bankruptcy Judge approves the restructuring plan submitted by the committee based on the approval of the parties who signed it.
Once approved, the plan becomes binding upon those parties.
This is a fundamental point that distinguishes restructuring from the idea that the court may impose new commercial terms on creditors without their consent merely because continuation of the company may be economically desirable.
Does the Company Retain Management of Its Business?
Yes. One of the principal features of restructuring is that the trader continues, as a general rule, to manage their assets throughout the duration of the plan.
Article 24 provides that the trader remains responsible for obligations and contracts entered into before and after approval of the plan, insofar as they do not conflict with it.
Accordingly, the business is not transferred to a bankruptcy trustee as occurs in certain stages of bankruptcy; the purpose of restructuring is for the business to remain under the management of its owner while being subject to restrictions and mechanisms designed to ensure compliance with the plan.
Limits on the Company’s Transactions During Implementation of the Plan
Continuation of management does not mean unrestricted freedom of disposition.
Article 25 prohibits the trader from carrying out transactions that affect creditors’ interests contrary to the restructuring plan, including:
- Sales unrelated to the ordinary course of business.
- Donations and gifts.
- Borrowing or lending contrary to the plan.
- Guarantees.
- Creating mortgages or security interests contrary to the plan.
- Other similar transactions affecting creditors’ interests.
Accordingly, management continues, but it remains restricted by the plan and the interests of its parties.
The Assistant and Their Role in Monitoring the Plan
The Bankruptcy Judge may appoint an assistant to help the trader implement the restructuring where the judge considers this necessary.
The assistant’s duties include:
- Assisting the trader in assessing their financial and administrative position.
- Providing advice and technical support.
- Establishing a mechanism for implementing the procedures set out in the plan.
- Assisting in amicable settlements with creditors.
- Preparing a periodic report every three months on implementation progress and the trader’s compliance with the plan.
The assistant does not replace the company’s management, but performs a supporting and supervisory role within the limits of the appointment decision.
New Financing During Restructuring
One of the important developments introduced by Law No. 11 of 2021 was permitting the restructuring plan to include the debtor obtaining financing for the business.
The plan must specify the amount and duration of the financing, the interest due, the method of repayment, and the financing entity, whether one of the creditors or another party.
This mechanism is important because rescuing a business cannot always be achieved merely by rescheduling old debts; the principal problem may instead be a shortage of liquidity required to continue operations.
Priority of New Financing If the Plan Fails
The Law establishes special protection for an entity that provides new financing within the restructuring plan.
If the plan fails and the debtor is ultimately declared bankrupt, the Law grants the new financing a special ranking for repayment, subject to the rights of holders of security interests and the ranking specified by the provision.
The purpose is to encourage financing entities to provide liquidity to businesses capable of rescue rather than refraining from financing them because of the possibility of bankruptcy.
Does Filing a Restructuring Application Stay All Proceedings and Enforcement Measures?
No. This is one of the most important points requiring correction.
The mere submission of a restructuring application does not result in a comprehensive stay of all proceedings and enforcement measures initiated by all creditors of the company.
Article 17 provides that upon filing the application, applications and actions for declaration of bankruptcy and preventive composition are stayed until the restructuring application is determined.
Broader protection arises after approval of the plan and within the scope of creditors who have signed it.
Effect of Approval of the Plan on Individual Actions
Article 29 provides that after approval of the restructuring plan, no action may be brought between the trader and any of the creditors who signed the plan in relation to the plan or its implementation, and those creditors may not bring individual actions or take related judicial measures during the period of the plan.
Limitation periods relating to their actions, claims, and debts are also suspended throughout the period of implementation of the plan.
Accordingly, the protection is not a general and absolute stay against everyone, but is connected to the scope of the plan and the parties bound by it.
Do Contractual Interest Payments Automatically Stop?
The restructuring regime does not contain a general rule providing that all contractual interest automatically ceases upon filing the application or approval of the plan.
On the contrary, when the Law permitted new financing, it required the plan to specify the interest payable on that financing.
Any modification, suspension, or recalculation of interest on existing debts depends on the terms of the restructuring plan, the agreements accepted by its parties, and the legal rules governing each debt.
Accordingly, the statement that all interest automatically ceases by operation of law is inaccurate.
Are the Company’s Debts Extinguished Upon Successful Restructuring?
It is inaccurate to state that successful implementation of the plan automatically results in the debtor being «discharged» from all debts.
The correct effect depends on the terms of the plan: where a debt has been rescheduled and paid in accordance with the plan, it is extinguished to the extent of payment; where a creditor agrees to reduce the debt or waive part of it, the effect of that agreement applies; and obligations outside the plan remain subject to their existing legal positions.
Restructuring is not a general legal cancellation of debts, but rather a mechanism for organizing them and implementing what has been agreed in relation to them.
When Does the Restructuring Plan End?
Under Article 28, the Bankruptcy Judge terminates the plan in circumstances including:
- Completion of its implementation.
- Impossibility of its implementation.
- Breach of the plan for any reason upon the request of one of its parties.
Accordingly, success of the plan is not presumed, but depends on the actual ability of the business to perform the obligations upon which it was based.
Does Failure of Restructuring Automatically Lead to Bankruptcy?
Mere inability to implement the plan does not automatically result in a judgment declaring bankruptcy.
Termination or failure of the restructuring plan is one matter, while satisfaction of the conditions and procedures for preventive composition or declaration of bankruptcy is another, each being governed by its own provisions.
Accordingly, it is not correct to state that the judge automatically «opens bankruptcy proceedings» merely because the plan has failed, without completion of the required legal process.
Restructuring and Preventive Composition
The two regimes must be distinguished.
Restructuring seeks to reorganize the business, its finances, and its administration through a plan approved by its parties.
Preventive composition, however, is a separate regime with its own conditions, procedures, and effects. Under Article 30, a trader who may be declared bankrupt – and who has not committed fraud or fault that would not be committed by an ordinary trader – may request preventive composition where their financial affairs have become disrupted in a manner that may lead to cessation of payment.
The two terms should not be used as though they refer to a single procedure.
Restructuring and Bankruptcy
The objective also differs from bankruptcy; restructuring is primarily intended to rescue the business and restore it to a position in which it can continue operating and repay its debts.
Bankruptcy, however, is an independent legal regime addressing the trader’s position when its statutory conditions are satisfied, and includes rules governing the bankruptcy estate, creditors, assets, liquidation, or continuation of the business in cases permitted by law.
The 2021 amendment also introduced mechanisms for restructuring or continuing the operation of a bankrupt person’s business within bankruptcy proceedings in certain circumstances, and this regime should not be confused with restructuring prior to a declaration of bankruptcy.
When Is Restructuring a Logical Option for a Company?
Restructuring is more viable where the problem can be remedied, such as:
- An underlying business capable of continuing despite a liquidity crisis.
- A mismatch between debt maturity schedules and cash flows.
- High financing costs while the business remains operationally profitable.
- Underutilized assets that can be revalued or managed more effectively.
- An administrative or financial structure requiring reorganization.
- The possibility of obtaining new financing to restore the operating cycle.
- Creditors willing to negotiate a realistic plan.
When Might Restructuring Not Be Sufficient?
Restructuring is not an appropriate solution for every distressed company.
If the business itself is economically unsustainable, its liabilities materially exceed its ability to generate cash flows, or no realistic sources of financing exist, restructuring may merely postpone the problem instead of resolving it.
Accordingly, the decision should be preceded by a genuine financial and legal assessment of the business’s ability to continue.
Restructuring Is Not Merely Protection from Creditors
Treating restructuring simply as a means of «stopping creditors» deprives the regime of its underlying purpose.
The true objective is to produce an implementable plan that balances continuation of the business and the debtor’s ability to pay with the legal and economic rights of creditors.
No restructuring can succeed if it is based solely on delaying claims without addressing the causes of financial or operational disruption.
Why Is Early Intervention Important?
The longer a company delays in addressing signs of distress, the fewer alternatives remain available.
At an early stage, it may still be possible to reschedule financing, sell a non-productive asset, introduce an investor, increase capital, or reorganize operations.
However, once judgments and enforcement measures accumulate, credit lines are suspended, and key suppliers and customers are lost, rebuilding the business may become significantly more difficult.
Accordingly, legal and financial management of the crisis should begin when signs of distress emerge, not after the business reaches the point of collapse.
Review Before Filing a Restructuring Application
Before resorting to the judicial procedure, a company generally needs to examine several areas:
- Liquidity position and cash flows.
- Debts, their maturity dates, and securities.
- Creditors holding security interests.
- Tax and social insurance claims.
- Contracts that may terminate or be affected by the distress.
- Pending actions and enforcement orders.
- Company assets capable of sale or alternative use.
- The business’s need for new financing.
- The true position of the business and its ability to return to profitability.
Conclusion
Restructuring under Egyptian law is not merely a means of delaying bankruptcy, but a legal regime designed to give a viable business an opportunity to reorganize its financial and administrative affairs and repay its debts under a realistic plan.
However, the protection provided by the Law is not absolute; merely filing the application does not stay all creditor enforcement measures, interest does not automatically cease, the court does not impose debt reductions on creditors without their consent, and successful completion of the plan does not automatically extinguish all obligations.
The effectiveness of restructuring depends on three principal elements: the viability of the business, the realism of the financial plan, and the company’s ability to reach an implementable agreement with the relevant parties.
Accordingly, restructuring is most valuable when used at the appropriate time: before remediable financial disruption develops into a legal and financial crisis that makes continuation of the business itself impossible.
Mostafa El Rouby Law Firm and International Arbitration provides legal assessment services for distressed companies, including reviewing debts, contracts, and creditors’ legal positions, and preparing and following up restructuring procedures and related legal alternatives according to the circumstances of each case.