ABSTRACT
Statutory restructuring frameworks in many jurisdictions seem to be in almost constant reform mode. Despite notable successes for large corporates with significant resources, the utility these new restructuring frameworks can offer to small and medium sized entities is usually very limited. In this paper, we offer a restructuring solution for any firm that issues financial assets in tokenised form. We draw on the automated contractual restructuring proposals that were widely discussed at the beginning of the 1990s. Based on blockchain’s smart contract capability, we suggest the creation of smart equity and debt tokens with an embedded restructuring function, that if triggered will automatically provide the issuing firm with a reduced debt load and a more sustainable capital structure. Combining the automated restructuring proposals with Bebchuk’s option model, our solution provides token holders with exactly what is due to them under the terms of the issue and incentivises a timely trigger of the restructuring function. Importantly, our design operates without the need for off-chain financial data being pushed on-chain through oracles. Because investors will be much better able to appreciate their treatment in the restructuring context, the cost of capital for firms using our model should be significantly reduced. The paper does not only offer a scholarly discussion and legal analysis of the proposed solution but forms the basis for an actual smart contract suite that technically implements the proposal.
Schillig, Michael and Kletzer, Christoph and Balcau, Andrei, Smart Restructuring Tokens (December 11, 2023), King’s College London Law School Research Paper Forthcoming.
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