Legal Protection of Unsecured Creditors to the Company Targeted with Leverage Buyout: A Study of the Emirati Law as Compared to English and American Laws
Dr. Alaa Yaqoob Yousif
Associate Professor of Commercial Law College of law – University of Sharjah – UAE
Abstract:
Leveraged buyout is a form of takeover of commercial companies. The most important feature of a leveraged buyout is that the acquirer finances the takeover by a loan obtained from a financing entity. The acquirer then plans to repay the debt from the profits subsequently made by the company targeted by the takeover. At the same time, he transfers the debt to the target company, which then becomes the debtor or by securing the debt with its assets. If the company›s financial position is stable, the debt is repaid from the profits earned. However, if the company fails to make profit and the takeover debt leads to its bankruptcy, its unsecured creditors will bear the main loss since the takeover debt is secured by the company assets. Therefore, there is a need to compass the creditors with legal protection. In this regard, there are two legislative approaches; the first adopts the pre-takeover protection principle, which amounts to a debt ban, such as in the English law, while the second adopts the post-takeover and after-damage protection approach, as under the American law. The Emirati legislator has adopted an approach close to that of the English law.
Accordingly, the research was divided into two sections, preceded by a pre-section demonstrating the concept of leveraged buyout. The first section deals with the legal protection approaches of the target company creditor in comparative laws, while the second deals with the legal protection of the target company creditor in the UAE’s law. The study was carried out using the comparative and analytical approaches. The research concludes that both directions of protection are not free of criticism, yet it is appropriate to adopt pre protection with some exceptions achieving the balance of interests of all parties, and that it should not be excessive in protecting one party at the expense of compromising the interests of the other.
Keywords: Economic Concentration, Public Company, Acquirer, Comparative Law, Acquisition Finance.