Rescue financing under a ‘viability spotlight’

ABSTRACT This article examines how the different jurisdictional treatment of rescue financing in restructuring proceedings may affect the fundamental decision as to how a debtor's estate is deployed. This question is explored through a detailed examination of two very different models of rescue financing – the US statutory model and the UK market-based model. The article finds that the US model may lead to ‘filtering inefficiency', namely a result of the reorganisation process that is not the most value-maximising for the debtor in question. The article then turns to the English model and finds that it does not have prospect of ‘performing’ significantly better compared to the American one on a filtering efficiency basis. In light of these findings, the article articulates a proposal for reform of the UK model in particular and also explains the relationship with intercreditor agreements as a common restructuring technique in the UK.


Introduction
Viability is a pivotal notion in corporate debt restructuring. 1 Right at the heart of viability lies the idea of filtration, which, in its basic terms, can be defined as the process of distinguishing viable debtors from non-viable ones and filtering the latter out of the restructuring procedure, hence contributing towards satisfaction of restructuring's overall goal of saving viable debtors only.
Within this context, 'rescue financing' ('DIP financing') 2 can be seen as a 'filtering tool' in the restructuring process. Viewed more precisely, rescue financing constitutes a 'double-edged filtering tool' which, depending on its use, can result in the restructuring's filtering success/efficiency or filtering failure/inefficiency. Filtering efficiency is defined as the promotion of the most value-maximising rescue of a viable debtor. On the other hand, filtering failure/inefficiency is when the outcome of the process for a viable debtor is not optimal, namely not the most value-maximising from an economic viability perspective. 3 It is exactly this intriguing interconnection among rescue financing, viability, filtration and efficiency/inefficiency that this article will seek to explore.
While the above are primarily shaped by the decisions of private parties, namely rescue financiers, the law has still a certain role to play in the issue. More specifically, the role of the law consists in understanding that the different legal provisions influence the incentives/motives of rescue financiers ex ante and consequently shape their lending practices and ultimately the overall filtering efficiency/inefficiency of the framework. Such understanding is crucial in that it enables legislators to form their chosen regulatory option in the most optimal way.
Within this context, this article will seek to address the following questions: what are the two different models of rescue financing and how have they been developed in the US and the UK respectively? How does each of the models affect the motives of rescue financiers ex ante and shape their lending practices accordingly? How do such practices affect the overall filtering efficiency of the restructuring framework?
To start with, two distinct models of rescue financing are discerned by this article, the 'statutory' and the 'market-based' model of rescue financing. These models have been observed in the US and the UK respectively, an observation which also determines the article's comparative scope. In brief terms, a statutory model of DIP financing is defined by two elements: statutory priority ranking prescribed for the financing and judicial authorisation required for such priority to take place. In contrast, under the market-based namely the post-petition 'substantial or continuing loss to or diminution of the estate' [11 U.S.C. § 1112 (b)(4)(A)]: economically viable is a debtor that continues operating post-petition under the protection of a moratorium without incurring the said loss to or diminution of its estate, and as such keeps in principle its going concern value higher that its hypothetical liquidation value', see Lydia Tsioli, 'Viability Assessment in Corporate Debt Restructuring: Optimizing the Filtration Effect of the European Directive on Restructuring and Insolvency' (2021) 30(5) Norton Journal of Bankruptcy Law and Practice 397, 400. 2 The term 'rescue financing' is mainly used in the UK and the EU, while the term 'DIP financing' ('Debtor-In-Possession Financing') is used in the US. When not referring to either US or UK law specifically, this article will use the term 'rescue financing' for the purposes of analysing the issue in general terms. 3 As defined in footnote 1, economic viability refers to the comparison between the debtor's going concern and liquidation value, with the former being higher than the latter. model, no statutory priority is prescribed for the rescue financing and any such priority should be rather specifically arranged. As a corollary to the above, the notion of viability is embedded into the statutory provisions of the first model, while the debtor's viability assessment is solely left to the market participants under the second model, in light of the absence of any statutory provisions.
Taking this as a starting point and in order to address the above questions, the article will start with an analysis of the American statutory model of DIP financing as well as with an evaluation of its impact on Chapter 11's overall filtering efficiency. 4 Against this comparative benchmark, the article will subsequently analyse the English market-based model of rescue financing and evaluate its filtering efficiency 'score', before finally attempting to make suggestions for the optimal way forward on the issue for the UK against the backdrop of the article's comparative findings.

DIP financing statutory model
DIP financing is regulated under §364 of the US Bankruptcy Code, which distinguishes between the different types of financing, establishes a priority ranking for it and provides for a system of judicial authorisation prior to its granting.
To start with, §364 distinguishes between financing obtained in the ordinary course of business [ §364 (a)] and outside of the ordinary course of business [ §364 (b), (c), (d)]. Judicial authorisation is not required 5 for the first and such financing is granted administrative expense priority. 'However, because the Bankruptcy Code does not expressly define what is "ordinary course of business" many creditors require the debtor to get court approval, even if this approval may not be necessary'. 6 As court approval has become largely customary, section 364 (a) financing may therefore not be very important in practice.
Credit obtained outside of the ordinary course of business requires judicial authorisation ('notice and a hearing') and is given gradually higher priority ranking depending on the needs of the case. More specifically, such financing may be granted administrative expense priority under §364 (b), but if such priority is not sufficient to incentivise the prospective financier to lend, then 'super' administrative priority under §364 (c) (1) may be granted. In this case, the DIP loan is considered a 'super-priority' administrative expense claim and as such ranks below secured debt but ahead of all administrative expenses under §503 (b) and 507 (b), as well as ahead of unsecured claims. 7 Another alternative under §364 (c) is the granting of nonpriming security; this means a first lien on unencumbered property of the estate under §364 (c) (2) or junior lien on already encumbered assets under §364 (c) (3). 8 For all alternatives provided for under §364 (c), it should be noted that the debtor-in-possession (or trustee) 9 does not have to exhaust one before proceeding to the other, but is rather free to choose whichever one or combination of them constitutes the best fit for the specific circumstances of the case and the requests of the lender in question. 10 In fact, 'lenders generally are unwilling to lend unless they receive all the protection available. Therefore, as a practical matter, a trustee 11 will normally need to offer all three protections to obtain credit'. 12 Finally, even the priorities under §364 (c) may not constitute sufficient incentive for the lender to grant DIP financing. In such case, §364 (d) provides for the 'last resort' 13 option of a priming lien, ie a security interest that is of senior or equal ranking to the one already encumbering the property of the estate. Apart from the requirement that the debtor-in-possession be unable to obtain credit on less onerous terms [ §364 (d) (1) (A)], a priming lien also requires either the consent of the primed lienholder 14 or that 'adequate protection' is ensured for the primed lender [ §364 (d) (1) (B)], with the burden of proof on this last matter falling on the shoulders of the debtor-inpossession [ §364 (d) (2)].

Embedded viability in the statutory model
One of the main reasons for analysing above the different legislative provisions regulating DIP financing is to 'uncover' the way in which the notion of viability has been embedded in these provisions. To start with, sections 364 (a) and (b) authorise the granting of administrative expense priority to DIP financing claims by specifically referring to §503 (b) (1). This reference means that, 'as a threshold matter, the credit or debt must meet the (1) claims does not require that all such claims be paid in full before any part of a Section 503(b) claim may be paid') (emphasis added); Charles Jordan Tabb, Law of Bankruptcy (4th edn, West Academic Publishing 2016) 1074. 8 3 Collier on Bankruptcy P 364.02, at 364.04 (16th edn, 2020); Practical Law (n 6). 9 Chapter 11 is a debtor-in-possession procedure unless a trustee has been specifically appointed in the case. 10 3 Collier on Bankruptcy P 364.04, at 364.04 (16th edn, 2020). 11 See footnote 9. 12 Collier (n 10). 13 Practical Law (n 6). 14 3 Collier on Bankruptcy P 364.05 (16th edn, 2020); Practical Law (n 6). requirements of §503 (b) (1)', 15 meaning, in many cases, that the DIP financing should be extended for the 'actual, necessary costs and expenses of preserving the estate'. 16 The notion of 'estate preservation' is crucial here. According to Tabb, 'preservation is interpreted as encompassing both (1) the protection of estate property and (2) the facilitation of the operation of the debtor's business'. 17 It is exactly the definition of 'preservation' that mirrors the notion of economic viability as the comparison between the debtor's going concern and hypothetical liquidation value. What economic viability in essence presupposes is that the debtor continues operating post-petition without incurring substantial or continuing loss to its estate, thus in principle keeping its going concern value higher than its liquidation value. 18 Through this definition it becomes apparent that 'preservation', as defined above, and 'economic viability' may be considered as the one reflecting the other, with the consequence being that granting administrative priority to DIP financing claims presupposes consideration of the economic viability of the debtor in question.
Turning now to §364 (d) (1), the very core of this provision lies in the requirement for adequate protection of the primed lienholder. It is the notion of adequate protection that we will closely examine in order to uncover the embedded viability in §364 (d) (1).
Adequate protection in this context means that the existing secured creditors (primed lenders) are 'protected from the diminution in value of their collateral resulting from the priming lien'. 19 The Bankruptcy Code does not define the notion but only provides a non-exhaustive list of what may constitute adequate protection. According to section 361, such adequate protection can be ensured via the provision to the creditor concerned of either a single or periodic cash payments, an additional or replacement lien or the granting of the 'indubitable equivalent' of its interest in the property so as to compensate the creditor for the loss or depreciation of its collateral.
Let us now examine what adequate protection means in the context of a priming lien specifically. Most of the times, the debtor will have all its assets already encumbered and as such, granting an additional or replacement lien to the primed lender may not be a feasible option. According to §361, an alternative is the provision of a single or periodic cash payments to the primed lender in order to compensate for the diminution in value of its interest in the collateral. We can well imagine that such cash payments derive 15 Tabb (n 7) 1073. 16 See §503 (b) (1) (A). 17 Tabb (n 7) 685. 18 This is because the debtor has managed to fund its post-petition expenses and continued operations principally by generating positive cash flow and/or by attracting DIP financing; in any case, not by using its estate. This situation implies new value creation and a 'Pareto-efficient change', which will be analysed below. 19 Practical Law (n 6). from new value created by the continued operations of the viable debtor under reorganisation. This increasing going concern value of the debtor in turn means economic viability, hence proving that the latter is well embedded in DIP financing provisions under the notion of adequate protection.
Turning now to the granting of the 'indubitable equivalent', namely 'any other form of protection that offers the prepetition lender the equivalent value of its interest', this is often provided via an equity cushion. In this context, equity cushion is any excess, unencumbered value remaining in the collateral after extracting the value of the secured creditors' interests. For the purpose of the issue examined here, the existence of such an equity cushion which can serve as adequate protection for the primed lender constitutes a prerequisite for the granting of the final DIP order by the court. This in turn presupposes two alternative scenarios 20 : the first is that such equity cushion has been first created during the reorganisation, in other words, that there is new value creation. 21 This may for example happen if the debtor proves that it will use the DIP financing to make improvements on the collateral in question which will lead to its increase in value and consequently to the creation of adequate equity cushion for the protection of the primed lienholder. 22 The second scenario is that, if the equity cushion already existed at the time of the filing, it is at least not being eroded by the continued operations of the Chapter 11 debtor. 23 This would in turn mean that the debtor is at least not a value-losing venture. Declining asset values constitute a preliminary indicator of economic distress: if such a situation continues, its impact upon the debtor's overall going concern value makes the latter less than its hypothetical liquidation value, i.e., the value the debtor would have had it "frozen the passage of time", terminated its operations and sold its assets on a split-up, separate basis. It is exactly the result of 20 Tabb (n 7) 1076 points out clearly the existence of two scenarios by stating the following: 'In practice, priming liens are granted most often in two types of cases: first, where the debtor has a sizeable equity cushion, sufficient to cover both the priming lien and the primed lien; and second, where the debtor persuades the court that the new money will enable the debtor to enhance the value of the collateral, so that both liens will be fully secured' (emphasis added). 21 The co-existence of adequate protection on the one hand and new value creation on the other 'reflects' a 'Pareto-efficient change'. 'An alteration in the allocation of resources is Pareto efficient when it leaves at least one person better off than he was prior to the change and nobody worse off', see Jonathan Law and Elizabeth A Martin, A Dictionary of Law (7th edn, OUP 2014). 22 A new value creation example of this type is given by Tabb (n 7) 1076-77. Exactly the same example is also valid within the context of a motion for relief from the stay under §362 (d) (1). In opposing such motion, the debtor argued that its creditor is adequately protected through an equity cushion created by repairs made on the estate and on the particular collateral in question, see such comparison between the going concern and the liquidation value of the debtor that classifies the latter as economically viable or not. 24 As such, by presupposing the existence of the equity cushion for the approval of the priming lien, the Bankruptcy Code once again embeds economic viability under the notion of adequate protection. Through the above analysis it becomes therefore evident that the notion of viability is inherent in the Chapter 11 provisions regulating DIP financing and well embedded in them and as a consequence, the court will de facto take such concern for viability implicitly into account throughout the DIP financing approval process.

US statutory model: spotlighting filtering efficiency/inefficiency
Although a fully-fledged statutory framework prescribing an extensive list of priorities for the DIP loan and a court approval system is in place in the US, the American DIP financing practice has developed in such a way that extensive market-based features are being embedded in the DIP financing agreements. Through such market-based features, instances of creditor control and creditor conflict may arise. This in turn is crucial from a viability perspective, as creditor control and creditor conflict phenomena may lead to filtering inefficiency, namely a result of the reorganisation process that is not the most value-maximising for the debtor in question.
Before analysing such market-based features, the creditor control phenomena they provoke and ultimately, the potentially ensuing filtering inefficiencies, it is crucial to examine the way in which the prescribed statutory framework in the US inherently helps sustain 25 such creditor control phenomena in the first place, and this independently of whether the DIP lender is an incumbent lender or a third party. To this end, our focus will be on the two main elements of the statutory framework, namely prescribed priority and court approval of the DIP loan.
As per the first, it has probably become evident from the preceding analysis that the US Bankruptcy Code is favourably tilted towards the granting of security to DIP lenders. In fact, out of the five different provisions ( §364 (b)-(d)) dedicated to credit obtained out of the ordinary course of business, three 24 Tsioli (n 1) 421. 25 The verb used here has been carefully chosen in order to also imply the pre-existing factors that contributed to the creditor control and creditor conflict phenomena, like for example historical factors. provide for secured financing. 26 At the same time, as stated earlier in this article, 'lenders generally are unwilling to lend unless they receive all the protection available'. 27 Indeed senior secured, super-priority post-petition financing has become the standard practice in DIP financing agreements, providing first priority lien and 'super' administrative expense ranking to the DIP lender's claims. 28 Such type of priority, and especially the existence of securityeven more so in the form of a priming lienexacerbates creditors' willingness to exercise increased control over the reorganisation so as to be in a position to closely monitor and protect their exposure from downside risk as well as to safeguard the value of their collateral. In order to exercise such control, creditors employ a series of techniques, which we will collectively analyse further below and examine their filtering impact on the reorganisation framework. 29 In explaining the exercise of creditor control under the US system, it is also crucial to underline that DIP financiers enjoy a pre-determined right to be given statutory priority for their loan, which may even reach as high as the level of a priming lien; this certainly empowers the negotiating position of the DIP financier and increases its leverage, as it engages in discussions with the debtor not from 'zero' (as it would have been the case under a non-statutory system of rescue financing), but rather from the starting point of an already prescribed statutory priority.
The most important feature though seems to be the court approval of the DIP financing. In this process, the court will review the market-based features of creditor control (eg strict covenants and milestones) embedded in the financing agreement and will 'play chicken' 30  to how much leeway the court has to convince such lender to loosen excessive creditor control terms of the loan. In such process of DIP financing authorisation, the unsecured creditors' committee may of course express its objections against terms of the prospective loan 31 but in the end, it is the court that plays the role of the 'ultimate arbiter' in deciding whether to approve the DIP financing or not (and with what terms). And in its turn, the court is aware that it only has very limited leeway to loosen or entirely reject the terms proposed by the DIP lender as this may lead to failure of the case. Not accepting (as such) the terms of the prospective DIP loan can well mean either detrimental delay in financing the debtor or even a withdrawal of the DIP financier's offer, both ultimately causing the debtor's liquidation. As such, it becomes evident that, in light of the risk of inadvertently 'torpedoing' the reorganisation, the court has limited, de facto, power to 'rein' the exercise of extensive creditor control through relevant terms embedded in DIP financing agreements. A characteristic example regarding the above can be found in the megacase of the Lyondell Chemical Company DIP financing. 'The loan, the largest DIP financing ever, has been met with objections from groups ranging from the official committee of unsecured creditors to local taxing authorities in the state of Texas. Most of the objections were overruled'. 32 '[…] Judge Gerber acknowledged the exorbitant cost of the facility in response to the Committee's objection, but then asked [the] Committee counsel in essence, do you want a DIP or do you not want a DIP?, in recognition of the fact that there was no other loan in town. This is becoming the view of Judges in middle market cases today'. 33 What this clearly demonstrates is that, the statutory model of DIP financing leaves the court with de facto very little power to restrict excessive creditor control in light of the fear of becoming the one 'stopping the music on a case', 34 ie becoming responsible for the collapse of the debtor's restructuring effort.
As such, what this article overall suggests is that, the development of a practice in the US of embedding market features in DIP financing agreements that 'cement' single-sided creditor control and may consequently result in filtering inefficiencies, can be actually attributed to the inner structure of the statutory and court-based model of DIP financing, which, by its nature, helps exacerbate and perpetuate the DIP financiers' negotiating leverage and as such leaves more scope for the development of single-sided creditor control. This is of course important in light of the viability-related implications 31 For further details on the role of the committee as 'objector', see footnote 68. 32  that the exercise of such creditor control may have on the outcome of the reorganisation, which will be analysed in detail below. Finally, the potentially filtering inefficient implications that the above statutory, court-based model of DIP financing may have on reorganisations may be further exacerbated by the so-called 'Bankruptcy Waivers' usually embedded in US law intercreditor agreements (ICAs). ICAs are not used in the US as frequently as in the UK 35 and whenever used, the enforceability of such 'bankruptcy waivers' is heavily debated. 36 What the use of such waivers fundamentally shows though, despite all the caveats, is the degree of single-sided creditor control that may potentially emerge within a US law context. 37 Characteristic example of such a waiver is that the first lien lender requires the second lien lender to 'consent in advance (or waive its right to object) to any DIP financing arrangement provided or approved by the first lien lender, agree to restrictions on its ability to provide DIP financing secured by liens equal or senior to the liens securing the first lien debt [or] consent in advance (or waive its right to object) to any use of cash collateral approved by the first lien lender'. 38 More generally, through the 'bankruptcy waivers', 'first lien secured parties […] try to ensure that the first lien secured parties control the course of the Chapter 11 proceeding to the maximum extent possible by seeking advanced waivers from the second lien secured parties of their bankruptcy rights as secured creditors (and, in some cases, as unsecured creditors) that effectively render the second lien secured parties ''silent seconds''' 39 and hence strengthen the position and substantial control that the senior creditor already has. 40 All in all, the 'bankruptcy waivers' therefore help exacerbate the leverage that the US statutory, court-based system of DIP financing already equips the senior creditor with and as such may amplify any potential, creditor control-driven filtering inefficiencies of the Chapter 11 system itself.

Exercise of creditor control and its implications
Creditor control is exercised through 'old' and 'new generation' techniques. In the first category we include traditional techniques used by DIP lenders, as for example case milestones, asset sale milestones, covenants, restrictions on the debtor's use of DIP loan proceeds, management turnover and limitations on 'carve-outs'. 41 The second category refers to a more recent phenomenon, branded 'Bankruptcy Processes for Sale' by Kenneth Ayotte and Jared Elias, 42 where the debtor is pushed into a DIP lender-favourable, pre-determined outcome of the restructuring process not merely through covenants and milestones ('old generation of creditor control'), but rather through an explicit side contract made with the DIP lender and called 'Restructuring Support Agreement' (RSA). 43 We analyse both categories of creditor control techniques in Sections 2.3.1. and 2.3.4.2.1. respectively.

'Old generation of creditor control' techniques
The most traditional creditor control techniques are case milestones, asset sale milestones, covenants as well as restrictions on the debtor's use of DIP loan proceeds. The exercise of control lies in that, should the obligations prescribed under the creditor control provisions not be fulfilled by the debtor, an event of default is triggered unless waived by the lender. Such an event of default first gives the lender the option to stop funding the reorganisation 44 and second, entitles it to either request a stay relief in order to enforce on its collateral, or even to take advantage of a stay lift clause, if such a provision has been explicitly contracted for in advance with the debtor in the financing agreement and approved by the bankruptcy court. 45  Case milestones and asset sale milestones require the debtor to satisfy certain objectives within a specified period of time. 46 The most frequent examples of case milestones set deadlines for important time points in the life of a Chapter 11 case, namely the filing of a disclosure statement, the filing of a reorganisation plan, the timing of the confirmation hearing, the timing of entry of an order confirming a reorganisation plan, the timing of the effective date of a plan etc. 47 Asset sale milestones come into play when the debtor intends to sell substantially all of its assets in a section 363 bankruptcy sale. 48 With such milestones, the DIP lender aims at a shortened sale timeline and as a consequence, at a quicker repayment of its loan. Examples of such milestones include, among others, a bidding procedures motion deadline, an auction deadline, a sale order deadline and a sale closing deadline. 49 It becomes evident that, through such milestones, creditors control almost absolutely the exact 'pace' of the reorganisation process.
In addition to the above, creditor control is also exercised through various types of covenants. By looking at the terms of recent DIP credit agreements, 50 46 Practical Law, 'Understanding DIP Financing Agreements Checklist, Practical Law Checklist w-001-4855'. 47 ibid 7. 48 ibid 7; A 'section 363 bankruptcy sale' is one occurring after a debtor has filed for bankruptcy and can be used to sell smaller assets but also all or substantially all of a debtor's assets. More specifically, the debtor must obtain court approval in order to be able to sell its assets outside of the ordinary course of business. Section 363 (b) provides the debtor with a process to obtain such court approval on a motion and a hearing. Section 363 sales should be distinguished from sale of assets under a plan of reorganisation ( §1123 (a) (5) (D)), see Practical Law Bankruptcy & Restructuring and Practical Law Corporate & Securities, 'Buying Assets in a Section 363 Bankruptcy Sale: Overview', page 2. 49 Practical Law (n 46) 7.
A section 363 sale is usually conducted through a double auction process and, in brief, its key steps can be summarised as follows: (a) 'First auction: after marketing the assets, the debtor enters into an asset purchase agreement with a prospective buyer, who is usually selected in an unofficial miniauction. The buyer typically acts as a stalking horse, who functions to set the floor purchase price in the auction and to attract other prospective buyers to bid on the assets'; (b) Notice and a hearing: the court decides on whether to approve the sale of the assets; (c) Second auction: after the bankruptcy court approves the sale process, the buyer is usually picked through a court-supervised second auction; (d) 'Sale order: all of the transaction documents are submitted to the court for approval and the court enters an order authorizing the sale'; (e) Closing: either immediately after entry of the sale order or after the sale order has become final and non-appealable, see Practical Law Bankruptcy & Restructuring (n 48) 3.
Having the above in mind, what DIP lenders seek to do by imposing asset sale milestones is to expedite the above process as much as possible so as to consequently achieve a quicker repayment on their DIP loan. Below is a characteristic example of the wording used for (a) an auction deadline and (b) a sale order and sale closing deadline respectively: Monitronics International Inc., Approach Resources Inc., Biorestoratice Therapies Inc., Pier 1 Imports we identify that such covenants are usually divided into affirmative and negative ones. As per the affirmative, they impose reporting, financial and various other obligations on the debtor. These include, among others, the requirement to deliver financial statements, a DIP budget and variance report 51 to the lender within specified periodic timeframes, to maintain certain minimum levels of EBITDA, collateral ratios and liquidity, to comply with the permitted budget variances and maximum capital expenditures, to maintain appropriate insurance, to give notice of specified material events, to maintain its public rating, to engage a Chief Restructuring/ Transformation Officer etc. 52 When it comes to the negative ones, DIP financing agreements usually include the typical covenants found in outside-of-bankruptcy loan agreements as well as bankruptcy-specific ones. This means, among others, that the debtor is usually restrained (unless the DIP lender consents otherwise) from incurring additional debt and additional liens on its property, entering into a material contractual obligation, filing or supporting the confirmation of any reorganisation plan or liquidation other than the one accepted by the lender etc. 53 In addition, negative covenants may prohibit the borrower to assume contracts containing negative pledges restrictive of the rights of the DIP lender. Any potential negative impact on the DIP lender's priority may also be monitored through relevant negative covenants. 54 Finally, the DIP lender de facto fully controls the debtor's operations and disbursements via a 'DIP Budget' and permitted variances to it, agreed with the debtor as part of the DIP financing. The DIP Budget encompasses all the projected inflows and outflows of the debtor, as for example cash receipts, ordinary course operating expenses, bankruptcy-related expenses, 55 net cash flow, inventory receipts, total available liquidity, professional fees etc. The DIP financing agreement provides that the use of the loan proceeds shall be in accordance with the DIP Budget, 56 as well as with the interim and the final DIP order. 57 Apart from the techniques mentioned above, which could be characterised as 'direct metrics of creditor control', 58 DIP lenders may also use 'indirect' 59 methods of exercising their control over the debtor's reorganisation. In this context, Ayotte and Morrison suggest that the frequency of management turnover immediately before and after the filing of the bankruptcy petition constitutes such an indirect metric of creditor control. More specifically, according to empirical literature, 'loan-to-own' DIP financing 60 'is positively and significantly associated with the frequency of board turnover during a Chapter 11 reorganisation and direct representation on the board'. 61 On the other hand, 'loan-to-loan' DIP financing is not found to be associated with CEO turnover during the reorganisation, but it is nevertheless linked to such turnover before the bankruptcy filing. More specifically, 'loan-to-loan' DIP lenders are usually pre-petition secured bank lenders who choose to continue their lending relationship with the debtor but not to hold equity stake in it. 62 What usually happens is that, at some point during the life of the debtor-secured creditor lending relationship, the debtor's financials start to deteriorate, and such a decline triggers an event of default under the existing loan agreement. At exactly that point, the secured lender has the necessary negotiating power to 'insist that the company make significant changes'. 63 One of them concerns CEO turnover and hiring. As such, firms receiving 'loan-to-loan' DIP financing 'may have experienced CEO turnover even before the bankruptcy filing'. 'The very CEO at the time of a Chapter 11 filing is the one who has been installed by prepetition bank lenders'. 64 What we can therefore generally conclude is 56 See examples of DIP financing agreements in footnote 50. 57 Practical Law (n 46). 58 Case milestones, asset milestones, covenants and restrictions on the debtor's use of loan proceeds, all constitute terms of the post-petition financing. Ayotte and Morrison refer to such terms as 'direct metrics of creditor control', see Ayotte and Morrison (n 29) 520. 59 ibid. 60 'Loan-to-own' DIP lenders are activist investors (ie hedge funds or private equity funds) who provide DIP financing 'with the intention of controlling the restructuring process and/or converting the DIP loan into equity upon the debtor's emergence from Chapter 11'. This happens via trigger clauses allowing those lenders to 'replace senior debt with newly issued equity upon case resolution', see Kai Li and Wei Wang, 'Debtor-in-Possession Financing, Loan-to-Loan, and Loan-to-Own' (2016), 1 <https://ssrn. com/abstract=2275635> accessed 30 August 2021. Such lenders take a proactive approach in the governance of firms they decide to lend to with the aim to bring about improvements in the firm that would ultimately generate a financial upside on their initial investment. 61 ibid 19. 62 ibid 19. 63 Skeel (n 25) 1971; see also Li and Wang (n 60) 17. 64 Li and Wang (n 60) 17-18. that creditor control also manifests itself via management turnover, either before or after the bankruptcy filing.
On a final note, the pervasive creditor control across the entire practice of Chapter 11 can also be evidenced by limitations imposed by DIP lenders on 'carve-outs'. 'Carve-out' is a bankruptcy term of art to indicate the agreement made by the parties in a DIP financing agreement that a certain portion of the lien proceeds to which a DIP financier secured with all the debtor's assets is entitled to, will be set aside so as to cover specific administration costs of the case. Among such costs are professional fees of any official committee of creditors. 65 DIP lenders may attempt to squelch the voice of the unsecured creditors' committee and the potential objections it may raise against financing terms providing excessive control to the DIP lender through 'refusing to give the committee a carve out, or alternatively, providing the committee with a nominal amount in comparison to the amounts provided to the debtor's professionals'. 66 Such limitations in fact risk prejudicing the collective rights and expectations of all parties-in-interest in the case, 67 as they seek to marginalise the committee's 'watchdog' role in the DIP financing process. 68 2.3.2. Result: DIP financing as a governance device It follows from the above that DIP financing allows the DIP lender to de facto control every aspect of the debtor's business and every aspect of the reorganisation process, most notably what form the reorganisation will take, how long the debtor will take to form a plan or conduct a sale, how will the process move forward etc. 69

Creditor control and filtering efficiency
The crucial question arising from the above analysis is how creditor control interrelates with the notions of viability and filtering efficiency that constitute the core focus of this article. As will be shown in this section, DIP financing's monitoring effect can ultimately promote viability-oriented, filtering efficientresults and as such have an overall positive impact on the restructuring process.
To start with, DIP financing's monitoring role may assist the debtor in terms of value preservation. Through the various milestones and covenants employed, DIP financing counteracts potential value-destructive 'lingering' of the case, moves it along more briskly and as such helps preserve the debtor's going concern value. 72 Value preservation is also attained through the DIP financing's impact on the debtor's management. As we've seen earlier, management turn-over may take place shortly before the bankruptcy filing or during the reorganisation process; alternatively, it is possible that a Chief Restructuring Officer may be brought in by the DIP lender to assist the current management. In addition, DIP loans are short-termed 73 and loaded with restrictions limiting their use to certain permitted purposes only (eg for working capital). 74 All these elements combined ultimately mean that both the actual chances and the impulses that managers may have towards investing in value-destructive projects are effectively significantly reduced thanks to DIP financing agreements.
In addition, DIP financing may also contribute towards value creation through pushing for measures that are deemed necessary for the debtor's viability. In fact, in order to comply with the various restrictions and covenants imposed on it, the debtor may need to take measures that enhance its viability. United Airlines, where 'the DIP lender threatened to force a liquidation unless employees made significant wage and benefit concessions'. 75 Lowering debtor's expenses like the ones mentioned above means 'freeing up' value that may, ceteris paribus, ultimately enhance the debtor's overall viability. 76 Finally, it can be said that the extensive reporting and budgeting requirements associated with DIP financing and analysed in detail above also have a role to play in value creation: This extensive and constant monitoring of the firm's performance and cash flow position is exactly the kind of activity that creates value in the presence of information asymmetry. As pointed out in James (1987), a firm's commitment to periodic evaluations provides a positive signal of its future earnings prospects. For firms requesting DIP financing, this commitment is of the strongest form due to the extensive monitoring and evaluations performed by the DIP lender. 77 Value creation lies here in the positive signalling effect that extensive reporting and monitoring have. Positive signals regarding the debtor's prospective financial viability generate trust from the debtor's suppliers, trade creditors etc. Their continued support of the debtor's business at least preserves, if not enhances, the debtor's going concern value and thus its viability.
All in all, it can be supported that the positive impact of DIP financing's monitoring in terms of value preservation and value creation means better probability of successful reorganisation and/or earlier bankruptcy resolution for DIP-financed debtors.

Creditor control as a cause of filtering inefficiency
Increased creditor control may be, on balance, a salutary development.
[…] Creditor control can serve as a complement to […] recognized means of reigning in managers who lose their touch. For this to be the case, however, at least two things have to be true. First, creditor control must loom large enough to be a credible threat to managers. Short sticks do not cast long shadows. Second, creditors' self-interest must lead them to exercise control in a way that maximizes the value of the business. Levers of power can do as bad as well as good, and there is little reason to think that creditors with control rights will advance anyone else's interest except to the extent it advances their own. 78 The above passage most eloquently summarises the risk inherent in the exercise of creditor control. This consists in creditors promoting outcomes that are not viability-oriented, ie do not maximise the value of the debtor overall 75 'In the United Airlines case, for instance, the DIP loan agreement required the airline to meet strict cash flow requirements as a condition of keeping the financing in place. Although the lending agreement didn't explicitly require United to layoff workers and renegotiate its collective bargaining agreement, the lenders and the debtor's managers were well aware that the only way United could satisfy the cash flow provision was by cutting its labor costs', see Skeel (n 25) 1918, 1930. 76 Viability used here as 'economic viability'. 77 Chatterjee, Dhillon and Ramírez (n 73) 3108 (emphasis added). 78 Baird and Rasmussen (n 71) 1242-43 (emphasis added).
(and ultimately overall creditor satisfaction), but rather solely promote the interests and satisfaction of the DIP lender only. This risk, hereinafter called 'filtering inefficiency', may manifest itself in three ways: (a) squelching of debtor's beneficial risk-taking, (b) pushing viable debtors into liquidation ('liquidation bias'), or into a quick sale when the latter is value-suboptimal for the debtor and creditors as a whole and (c) the so-called 'Bankruptcy Process for Sale' [(b) and (c) collectively called 'resource misallocation'].
Before analysing the above, it is worth mentioning that the existence of filtering inefficient-creditor control can be evidenced by the numerous objections the unsecured creditors' committee usually raises in scenarios like the above. 79 At the heart of such committee objections is the fact that the terms of the DIP facility do not benefit the estate and consequently the creditors as a whole, but solely the First Lien Lender (DIP lender), 80 thus pointing out to the well-known hornbook law that 'a proposed financing will not be approved where it is apparent that the purpose of the financing is to benefit a creditor rather than the estate'. 81 2.3.4.1. Filtering inefficiency: excessive squelching 2.3.4.1.1. Risk of excessive squelching. As mentioned above, the first risk is that DIP lenders may abuse their control and monitoring powers causing squelching of even beneficial risk-taking by the debtor. This is due to the creditors' desire to minimise, as much as possible, the downside risk to the satisfaction of their claim which is attributed to the continuation of the debtor's business during a Chapter 11 reorganisation.
2.3.4.1.2. Counteracting the risk of inefficient squelching. Despite the above, it is not certain that the DIP lender will in all circumstances be guided by the short-eyed interest of the satisfaction of its claim. As stated earlier, most of the times the DIP lender is the debtor's pre-petition lender, who in fact may wish to continue its lending relationship with the debtor well beyond the successful completion of the Chapter 11 reorganisation. If that's the 79 For detailed analysis of the role of the 'Committee as Objector', see Practical Law (n 68). 80  case, let us see what may for example happen to the risk of excessive squelching: [A]ssume that the company could invest the $120 of assets in a project that will be worth either $200, if it succeeds, or $80 if it doesn't. If there is a fifty per cent likelihood of each outcome, the project is worth $140 to the company and should be pursued. But this may not be the way DIP-Bank looks at it. What DIP-Bank sees is a fifty per cent possibility that the venture will fail and the lender will get only $80, rather than the full $100 it is owed. DIP-Bank may pay less attention to the $200 upside, since its own upside is fixed at $100. As a result, DIP-Bank has an incentive to squelch the transaction, knowing that it will be paid in full if the company sticks with the assets it has. Now, there is at least one significant countervailing factor from the DIP Bank's perspective. DIP Bank's horizon may extend beyond the Chapter 11 case if it expects to continue its lending relationship with the reorganized firm. In this case, DIP Bank's stake is more than simply repayment of $100.
[…] The possibility of an ongoing lending relationship may give DIP-Bank an equity-like stake in the upside potential of the company. 82 As such, while it is possible that the DIP lender engages in monitoring that does not promote value-increasing, viability-oriented results for the debtor, this risk should not be considered as the norm and is in fact countervailed in such instances where the lender envisages the continuation of its lending relationship with the debtor well beyond the conclusion of the Chapter 11 reorganisation. the top of priority ladder, may suffer downside risk from a protracted reorganisation of the debtor compared to the satisfaction obtained through a quick enforcement of their collateral. The latter can be achieved with stringent covenants and milestones imposed by DIP lenders, through which such lenders can strategically 'torpedo' the reorganisation process and de facto channel the debtor into liquidation. 86 The ultimate effect is that viable debtors may end up in liquidation, which constitutes nothing less than clear filtering inefficiency and resource misallocation.
Along the same lines, an oversecured DIP lender may prefer (and therefore push for) a quick sale of the debtor's business, even if the latter is sold below its fundamental value, compared to a protracted traditional reorganisation process, which poses a greater downside risk to its satisfaction should the firm value deteriorate over time. 87 The DIP lender leverages its power to push forward a quick §363 sale from the milestones and covenants used, the very short duration of the funding provided to the debtor, as well as the fact that the DIP lender is usually the pre-petition lender. The latter usually has a business-wide lien on the debtor and possession of all of the debtor's cash and therefore entire control on the debtor's operations as it comes into bankruptcy. The pre-petition lender is subsequently 'blessed' into DIP lender, 'cementing' the control mentioned above, which ultimately dictates the very outcome of the debtor's bankruptcy. 88 Finally, reference should also be made to the phenomenon of 'Bankruptcy Processes for Sale' ('new generation of creditor control'), where the debtor is pushed into a DIP lender-favourable, pre-determined outcome of the restructuring process not merely through covenants, milestones (generally 'old generation of creditor control') and short-termed DIP loans, but rather through an explicit side contract made with the DIP lender and called 'Restructuring Support Agreement' (RSA). Ayotte and Elias suggest that this new form of creditor control has been observed since the early 2000s and has manifested itself in prominent cases recently like those of Neiman Marcus and J. Crew (2020). They define this phenomenon as a transaction in which the debtor's management agrees to transfer ('sell') control over the bankruptcy process to the DIP lender at a very early stage of the case in exchange for compensation. This early stage is the moment of conclusion of the DIP 86 As analysed above, breach of such DIP financing terms triggers an event of default, which entitles the lender to a stay relief and collateral enforcement with the consequence being that the debtor's Chapter 11 effectively heads to an end. The need for stay relief may be circumvented if pre-agreed 'drop-dead clauses' are in place. 87 Ayotte and Morrison (n 29) 514; 'Because they face a downside risk if the debtor's fortunes are volatile, but their upside potential is fixed, DIP financers have an incentive to minimize volatility and to compress the debtor's risk profile. In Chapter 11, the simplest way to do this is to convert most or all of the debtor's assets to cash through sales', see Skeel loan agreement with the prospective lender, with the agreement stipulating that the capital is tied to a pre-identified restructuring transaction beneficial to the DIP lender and attained under the latter's close supervision. Indicatively, such a pre-identified restructuring outcome may be a quick sale of the debtor's assets, 89 a debt-to-equity swap handling almost all equity in the reorganised debtor to the DIP lender etc. 90 According to Ayotte and Elias, one of the major reasons leading DIP lenders to a 'Bankruptcy Process for Sale' is the desire to protect their satisfaction from downside risk. 91 In the classic example they provide, the pre-petition first lien creditors buy complete control of the case through a DIP loan agreement. Assuming there exists a second lien creditor and that the DIP claim will usually not prime existing secured creditors, 92 the DIP lender is not entitled to satisfaction of its DIP claim until after the second lien is satisfied. This in turn creates a 'fire sale' problem situation, in which the first lien will prefer the faster resolution of the case. More specifically, as the value of the debtor increases thanks to DIP financing towards the amount owed to the first lien debt, and given that the first lien's satisfaction is capped, continuation of the reorganisation beyond that point adds potential downside risk that is detrimental to the first lien creditor and may only turn to the benefit of the second lien. Against this background, the DIP lender 'buys', ie pre-determines, the outcome of the restructuring process ex ante through the DIP financing agreement in exchange for liquidity to the debtor as well as compensation and several inducements to the management.
The consequence of the above may be that the debtor loses the opportunity to pursue an alternative that is value-maximising but falls outside of what has been agreed in the RSA. This may for example be continuation of the case instead of a quick sale, or any other type of transaction suitable in the circumstances. In discussing this point, Ayotte and Elias for example mention that 'a major secured creditor of Neiman Marcus, who was not involved with the deal, alleged that management had only signed on to the RSA because pursuing the value maximizing alternative transactiona mergercould cost them their jobs'. 93 What we may therefore observe from the above is that the DIP lender's impulse towards obtaining personal satisfaction of the 'greatest value as early as possible' may come in sharp contrast to the viability-oriented, value-maximising goal of the reorganisation process. Moreover, at the  91 The other reason is 'entitlement protection', ie protection from litigation against the DIP lender. 92 This is because priming can only be allowed with the consent of the existing secured creditors or through the mechanism of 11 U.S.C. §364 (d) (1), which requires the demanding proof of adequate protection. 93 Ayotte and Elias (n 42) 4. same time that the overall 'debtor value pie' remains smaller because of the DIP lender's choices, the other creditors' satisfaction is also negatively impacted, as in the end there is less value at stake for all other creditors involved compared to the hypothetical value-maximising alternative. This exact point has been eloquently summarised in In re Defender Drug Stores, where the court stated that: [d]ebtors in possession generally enjoy little negotiating power with a proposed lender […]. As a result, lenders often exact favorable terms that harm the estate and creditors.
[…] While certain favorable terms may be permitted as a reasonable exercise of the debtor's business judgement, bankruptcy courts do not allow terms in financing arrangements that convert the bankruptcy process from one designed to benefit all creditors to one designed for the unwarranted benefit of the postpetition lender. 94 In other words, in all scenarios described above, Chapter 11 may be 'hijacked', 95 with the process being 'metamorphosed into […] a federal unified foreclosure mechanism' 96 guided by the DIP lender's interest rather than by the aim of maximising the debtor's viability. It becomes therefore evident that creditor control and creditor conflict may distort economic outcomes in bankruptcy. 97

Counteracting the resource misallocation fears.
With regard to the liquidation bias, there nevertheless exist 'counteracting forces' that help scale down its effect on bankruptcy outcomes. One such force is the DIP lender's desire for repeated dealings with the debtor, which has been highlighted by both David Skeel and Mark Roe. 98 When the debtor is clearly viable, the said desire will prevail over liquidation bias. Liquidation is the right solution, on the other hand, for a clearly unviable debtor. As such, the real fear of resource misallocation lies 'on the margin', ie in marginal cases where the debtor's viability is not clear and such information asymmetry helps exacerbate biases, as for example the loss aversion bias leading to the DIP lender's liquidation bias. Skeel clearly summarises the above as follows: If the debtor's business is truly viable, and the lender hopes to continue its lending relationship with the firm, the desire for future business will counteract the impulse toward liquidation. there is a risk that DIP lenders will put pressure on the debtor to liquidate too many assets too soon if they are calling the shots. 99 But even in those marginal cases there exist 'counteracting forces' that mitigate the prospect of liquidation bias. The rise of secondary market debt trading means that lenders now have 'another exit route besides enforcement which is quicker [and] offers a certain price', 100 in other words 'offers the existing secured creditors a more certain and rapid method of monetizing their position that attempting to push for a liquidation transaction'. 101 This consequently means that the advantages of trading the debt may counteract the lender's impulse towards liquidation. Finally, it is undoubtedly true that nowadays the forces in favour of business rescue are multiple, especially under the current pressing economic reality, thus pushing forward even further the otherwise existing 'counteracting forces' analysed above.
Turning to Bankruptcy Process Sales now, it should be clarified that these are not inefficient per se; this rather depends on the debtor's specific circumstances. 102 For example, it may well be the case that an RSA-backed quick sale enables 'an efficient early end to the case when the junior creditors would continue the case too long at the expense of the first liens, and overall creditor recovery'. 103 Moreover, the allegation that there may exist a value-maximising alternative that is more efficient compared to the RSA-agreed transaction entails a degree of uncertainty. When for example referring to the allegation that an opportunity for a merger more efficient than the RSA-prescribed transaction was missed in the Neiman Marcus case, Ayotte and Elias do not forget to highlight that 'the validity of claims like this are hard to evaluate'. 104 105 Nor can we advocate with certainty that Bankruptcy Process Sales are, on the other hand, always efficient given that the debtor is at the end rescued. Along these lines, it has been suggested that a quick sale may in fact be justified where the debtor's junior creditors are informed, highly sophisticated and strong-adjusting as it prevents the spreading of financial distress into the debtor's operations: 'This argument holds where the consequence of secured creditor control is to prefer a form of transaction to deleverage the capital structure with lower transaction costs, even if it results in a potentially lower allocation of value to unsecured junior bondholders or mezzanine lenders than a Chapter 11 plan or reorganization.
[…] [T]hey ought not to be concerned if the selection of the sale transaction results in rapid, low-cost deleveraging of the capital structure; it only impacts junior unsecured lenders, bondholders, and equity who took the risk and reward of that complex, leveraged capital structure; and it reduces the risk that distress in the financial arrangements will spread to the business and operations of the firm', see Paterson (n 25) 121. This argument cannot stand as a 'one-size-fits-all' one and it rather depends on the circumstances of the case; a quick sale pushed forward by the controlling First Lien DIP lender, may for example contain too quick a timeline and the requirement that bids must pay the First Lien Lender in full, in cash (and cannot contain any currency other than cash), see American Bankruptcy Institute (n 80) 393. Both requirements will certainly chill competitive bidding, especially in the case of a non-public non-marketed As such, and in conclusion to all the above, DIP financing is undoubtedly beneficial and needs to be legislatively promoted and supported, with a certain degree of creditor control provisions being tolerated and with the granting of certain priority ranking to DIP financing claims to be ensured. What however needs also to be ensured is the existence of appropriate checks and balances so as to avoid excessive creditor control which may lead to filtering inefficient results that fail to put viability at the heart of the restructuring process.

Statutory provisions for rescue financing: administration and Part A1 moratorium
Contrary to the US, the UK is mostly based on a market-based model for rescue financing which will be examined in detail below. There are two exceptions to this market-based model pattern, which are the cases of administration and Part A1, Insolvency Act 1986 standalone moratorium, in both of which the UK legislator has decided to provide for statutory priority for the rescue financing in question.
To start with, rescue financing is legislatively granted priority ranking in administration for the course of current proceedings. 106 Once appointed, the administrator is responsible for managing the company's affairs. If the company does not have sufficient working capital, the administrator's duties include arranging financing for this purpose. 107 Such financing qualifies as an expense of the administration 108 and, in terms of repayment, it is granted statutory priority over the administrator's remuneration and expenses, 109 preferential claims and any sum payable to the holder of a floating charge. 110 It should be noted though that this UK-style 'super' administrative priority in no way takes priority over fixed charges 111 ; moreover, it company, where the information asymmetry is higher, with the consequence being that any chances of a higher valued sale of the debtor are eliminated in favour of a credit bid by the first lien. At the end of the day therefore, potential firm value is lost due to not choosing the value-maximising alternative, and the restructuring process is transformed into a mere foreclosure procedure in favour of the controlling creditor instead of a viability-oriented collective rehabilitation process. On this issue, see also the recording of American Bankruptcy Institute (n 30) at 76:67 ′ -78:35 ′ . (2) (a), as for example rent payable to landlords for occupation of premises during the administration. 112 As such, speaking in US-style terms, it is fair to say that the priority ranking granted to rescue financing during administration is neither 'priming', nor even a 'super' administrative priority one. Apart from administration, the new Part A1, IA 1986 standalone moratorium also provides for some sort of statutory priority for rescue financing. More specifically, s A26 IA 1986 provides for the possibility of obtaining secured moratorium financing. The moratorium is provided by the legislator on a standalone basis and may be combined, among others, with any of the existing statutory processes, namely a scheme of arrangement, a restructuring plan or a CVA. 113 It should be noted though that none of these statutory processes provides a rescue financing framework by itself and as such, unless combined with the said moratorium, they form part of the so-called 'market-based model' of rescue financing which will be examined in detail below.
On this point, it is characteristic to mention that the UK legislator had explicitly considered legislating priority ranking for rescue financing during debtor-in-possession rescue in the context of the Government consultation preceding the introduction of the Part 26A restructuring plan. It concluded though that the issue would best be left to the market, stating the underlying rationale for rejecting the introduction of priority ranking to be the following: […] respondents' experience that such measures were not necessary, as the market already functioned well in offering rescue finance to viable businesses, and the potentially serious and negative consequences on lending if measures were introduced, provided compelling reasons not to legislate in this area. 114 3.1.1. Embedded viability in statutory provisions vs market-based viability assessment Given that, as mentioned above, priority ranking for rescue financing is mostly a market-based than a statutory issue in the UK, there are consequently very few instances where we could 'distil' from the legislative administrator approaches existing lenders for new money and they can therefore negotiate the terms on which it will be lent. Typically the lenders may require an intercreditor agreement pursuant to which the obligation to repay the new moneys will have priority. There is no statutory mechanism by which the existing lenders can be forced to enter into such an agreement', see Philip  provisions any embedded references to viability. One of these can be found in the context of the said Part A1 standalone moratorium. The relevant provision reads as follows: (1) During a moratorium, the company may grant security over its property only if the monitor consents.
(2) The monitor may give consent under subsection (1) only if the monitor thinks that the grant of security will support the rescue of the company as a going concern. 115 The above provision facilitates secured borrowing that is enforceable during the Moratorium.
[…] The debt in respect of which security is granted is a "moratorium debt" that must be paid during the Moratorium, and in addition, A23 provides that such security is enforceable during the Moratorium. Whilst this does not deal with priority over pre-existing security it does allow companies in a Moratorium to obtain Moratorium financing. 116 What we can infer from the provision indirectly dealing with rescue financing above is a reference to the economic viability of the debtor in question; this becomes evident from the reference to a hypothetical, prospective rescue of the company as a going concern. In this context, the monitor acts as the 'ultimate arbiter' regarding the embedded viability assessment. 117 Apart from the provision mentioned above, it is fair to say that 'distilling' the debtor's viability is generally more of a market-based than a statutory process when it comes to rescue financing in the UK. This has also been clearly reflected on the longstanding debate surrounding the potential introduction of super-priority ranking for rescue financing in the UK. More specifically, first in 1995 the then Department of Trade and Industry 'looked at CVA procedures and rejected super-priority on the grounds that the comfort of super-priority might militate against a lender's giving proper consideration to the viability of the business'. 118 Later on, in 2002, an attempt to introduce statutory super-priority financing in administration through a proposed amendment to the Enterprise Bill did not finally go forward, as the Government feared that such a statutory priority would in essence nullify the market-based viability assessment process. By guaranteeing a return to super-priority financiers, such priority would de facto disincentivise them to 115  evaluate the viability and prospects of the debtor in question before deciding to grant the financing, 119 thus creating an overinvestment problem. Finally, introduction of statutory super-priority financing was considered again in 2016, when the Government launched its consultation for reform of the Corporate Insolvency Framework. 120 The said consultation resulted, some years later, in the Corporate Insolvency and Governance Act 2020 introducing, among others, the new Part 26A Restructuring Plan. One of the responses to the consultation is clearly revealing the said debate regarding the potential impact of a statutory super-priority for rescue financing on the market-based viability assessment conducted by rescue financiers: Encouraging rescue finance needs to be coupled with an assessment of the viability of the relevant business. Rescue finance should not be available to extend the life of a dying business. At present, this economic assessment has been left to the market i.e. credit providers (existing or new) who undertake the risk analysis before deciding to lend to a distressed company and the legal system does not interfere with this. However, if measures are introduced to assist providers of rescue finance by giving them contractual priority or additional security, this mechanism will need to ensure a proper valuation of the business is undertaken so that the playing field is not unevenly skewed in favour of opportunistic lenders making use of the insolvency regime to benefit at the expense of others. 121 As mentioned earlier, the Government did not finally go forward with legislating super-priority financing under the new Part 26A Restructuring Plan, it seems though that it contemplates re-considering the issue in the near future. 122 It remains to be seen how such a change could impact on the UK's market-based viability assessment model analysed above. financing. 'Under a scheme of arrangement or a CVA, priority must be specifically arranged, and is only permitted limited effect'. 123 Along the same lines, no statutory priority for post-petition financing exists under the new Part 26A Restructuring Plan, it seems though that the Government contemplates introducing one in the near future. 124 The market-based model in essence means that there is no statutory priority prescribed for rescue financing in the legislation and any such priority has to be rather specifically negotiated and provided to the rescue financier in the case in question.
When contractually arranging such priority, there are various possible outcomes: first scenario is that the rescue financing is obtained on an unsecured basis and hence is placed at the bottom of the creditor waterfall, to be satisfied pari passu with other unsecured creditors.
It is far more often though for rescue financiers to request some sort of security to be provided to them and hence for rescue financing to be provided on a secured basis. In such case, there are two possible scenarios: in the first, the rescue financier may be provided with security on unencumbered assets of the debtor or with junior priority on already encumbered assets. Prima facie, neither of the two requires other (secured) creditors' approval. However, 'typically the current finance documentation will contain a negative pledge or similar restrictive covenants preventing any further lending or security being granted without the consent of the lenders which benefit from these restrictions'. 125 This ultimately means that, de facto, approval of the existing (secured) creditors will be required for rescue financing to be granted. In such a scenario, we can thus well imagine either tripartite negotiations taking place among the debtor, its existing creditors and the prospective rescue financier regarding the terms of the rescue loan, or, at least some 'check-and-balances' review of the prospective loan's terms by the existing creditors before they grant their approval on this.
In the second scenario, the existing secured creditors may revisit the contractual priority arrangements in place in order to provide the rescue financier with some sort of priming priority. Such a process necessarily requires the contractual agreement of the existing (ie to be primed) secured creditors with all the prospective loan terms' review that such an agreement entails.
The hypothesis therefore to be made on the basis of the above scenarios is that, in the market-based model of rescue financing the existing creditors will hold 'in balance' the prospective rescue financier by preventing the emergence of excessive, single-sided creditor control phenomena by the part of the latter. Existing creditors will, in any of the above scenarios, be involved in the process of reviewing the terms of the prospective loan before they consent to it or decide to grant it senior priority and as such, they will necessarily 'hold the rescue financier in balance' by leaving less scope for potentially value-detrimental, excessive creditor control terms to the benefit of the rescue financier only. Coupled with the fact that the rescue financier has reduced leverage given that it needs to engage in a 'give-and-take process' in its negotiations rather than start from a pre-determined statutory priority, the market-based model of rescue financing is hypothesised to be overall more effective in preventing the emergence of single-side creditor control phenomena that may potentially result in filtering inefficient outcomes for the restructuring process.

A. When the rescue financier is the incumbent lender
It is often the case in the UK that the incumbent lender steps in to become the rescue financier of the case. In such a scenario, we should distinguish between two sub-cases, namely (a) when the incumbent lender rescue financier is the only pre-existing creditor of the debtor, and (b) when the incumbent lender rescue financier is one among the multiple pre-existing creditors of the debtor. Such distinction is necessary in order to understand the different bargaining dynamics existing in each case and as such to test the above hypothesis accordingly.
In the first sub-case, we assume that the incumbent lender is the only creditor of the debtor. This means that, when the incumbent lender becomes the rescue financier, there are no competitive forces in place to help 'rein' the potential exercise of control by the incumbent lender rescue financier and as such, the hypothesis proves ineffective. In other words, the absence of other pre-existing creditors of the debtor means that no 'checks-and-balances' that could 'hold the rescue financier in balance' exist, thus leaving ample scope for the occurrence of potential filtering inefficiencies.
In the second sub-case, we assume that the debtor has multiple pre-existing creditors and that the incumbent lender rescue financier is one of them. Whether the latter can possibly exercise excessive creditor control depends first on the type of priority it will try to negotiate.
If the incumbent lender rescue financier tries to negotiate priming priority for the rescue financing, consent of the primed lender(s) is required. This means that at least certain pre-existing creditors will have a 'say' in the said process and therefore the bargaining dynamics will be such that could 'hold in balance' the rescue financier from exercising excessive creditor control through its rescue financing documentation.
In the alternative event now that the incumbent lender rescue financier tries to negotiate any other non-priming secured priority, it depends on a range of factors whether true competitive forces that could act as 'market checks-and-balances' preventing rescue financier-induced filtering inefficiencies could actually develop. The first such factor is whether the debtor's other pre-existing creditors benefit from restrictive covenants that provide them with a 'say' and thus bargaining leverage in the process in the first place. Such covenants prevent the debtor from obtaining any further credit or granting any further security without the consent of the creditors benefiting from them. Obtaining therefore rescue financing and/or granting priority to the rescue financier without prior consultation of the creditors benefiting from such covenants would constitute a covenant breach and consequently event of default, entitling those creditors to termination and acceleration.
While it is obvious that the above prima facie gives to the said creditors a welcome,from a filtering efficiency standpoint -, 'say' and leverage in the rescue financing negotiation dynamics, the degree of such leverage is in itself dependent on a set of other factors, with the first being the amount of money that is at stake from the part of those creditors benefiting from the restrictive covenants. More importantly though, it depends on the 'fall-back' scenario in case of acceleration: if, in a hypothetical insolvency process following covenant acceleration, the incumbent lender rescue financier is to be ranked pari passu with all other creditors, the creditors benefiting from the restrictive covenants indeed have bargaining power in the rescue financing negotiation process; if on the other hand,and as it is usually the case 126 -, the incumbent lender rescue financier is the senior lender, with all other pre-existing creditors being only junior in priority, the latter do not actually have bargaining power in the process; this is because it is still the incumbent lender that will be the first (and maybe the only, depending on estate sufficiency) to be satisfied and thus benefit from a hypothetical event of default and subsequent covenant acceleration thanks to the senior priority ranking of its claim. Overall, this ultimately means that the absence of credible bargaining dynamics in the 'game' leaves ample scope for potential exercise of excessive creditor control by the part of the rescue financier and as such for potential filtering inefficiencies.
Overall, the market-based model of rescue financing does not therefore seem to 'perform' significantly better compared to the American statutory model of DIP financing in terms of preventing the risk of potential filtering inefficiency, at least when it comes to the incumbent lender becoming the rescue financier.
a. When the rescue financier is a third party What if, though, the rescue financier is not an incumbent lender but rather a third party, eg an alternative capital provider? In this case, our initial hypothesis seems to have better prospects of success: the 'give-and-take' bargaining process and its ensuing 'disciplining effect' against the prospective rescue financier can better develop between, on the one hand, the debtor's preexisting creditors and the third-party financier compared to the scenario where the senior incumbent lender uses the rescue financier position in order to de facto 'cement' its pre-existing control to a further extent. In other words, having a third-party step in as rescue financier may act as a 'market check-and-balance' itself, namely as a competitive force that prevents the incumbent lender from leveraging its existing position and informational advantage to exercise even greater control from the position of a rescue financier. 127 As things currently stand, however, the UK does not have a developed rescue financing market. In the words of the Insolvency Service, the UK 'lacks a broad and long-established market in specialist rescue finance'. 128 '[T]raditional lenders still provide the majority of lending and alternative sources of debt finance, such as the capital markets, are still in their infancy'. 129 Moreover, even if a market participant willing to act as a rescue financier is indeed found, market failures occasionally take place, preventing rescue financing from finally reaching the debtor. More specifically, there are certain instances where the debtor's existing creditors benefiting from the restrictive covenants mentioned above, would not at all agree to engage in the consensual process that the market-based model of rescue financing entails due to the fear that this would compromise their claim satisfaction. This ultimately leads to inability to attract the necessary funding and subsequent collapse of the debtor, hence a result that is clearly filtering inefficient. Such instances have been pointed out by the Insolvency Service and referred to in its Consultation: Negative pledge clauses, a common feature of corporate lending agreements, limit a company's ability to grant security against property already subject to a security arrangement. We believe this acts as a strong barrier to distressed 127 In the US this has become even more evident through the use of 'roll-ups' and 'cross-collateralisations'. Commenting on the potential of a third-party to act as a 'competitive force' vis-à-vis the incumbent lender and the potential advantages of this for rescue financing , Paterson writes that '[W]here a third-party was available, it reduced the power of the debtor's existing lenders to dictate the strategy for the case, because the debtor was not reliant on the existing lenders for funding in order to trade through the Chapter 11 case. Even if the existing lenders ultimately provided the attractive DIP financing, they were aware that the debtor had other options, so that their strategic power was reduced', see Paterson (n 25) 116. 128 The Insolvency Service (n 120) 28. 129 ibid 30. companies obtaining rescue finance even though such property may have sufficient value to discharge additional finance. In some circumstances, the difficulty in obtaining additional funding due to this inability to grant the new lender satisfactory security may lead to the company failing when it could otherwise have been rescued. 130 The same point has also been further elaborated elsewhere in the Consultation: Security for any new finance extended to a company in distress will usually be a key determinant in whether or not that finance is provided. Where a company has equity in charged assets, the Government does not believe it is fair for the company and for creditors as a whole not to be able to secure rescue finance because an existing charge holder, by relying on a negative pledge clause, refuses to permit the granting of new security even though their indebtedness could be fully discharged by the proceeds of sale of the charged assets. 131 What all the above mean is that, in order to benefit from the comparatively 132 lower risk of filtering inefficiency that a market-based model of rescue financing presents when the rescue financier is a third party, we need to, first, create a market of rescue financing and second, prevent market failures from happening in such market.
For both 'bootstrapping' a market of rescue financing as well as for addressing those rare circumstances of collective action problems ('market failures') mentioned above, the introduction of statutory priority for rescue financing seems to be the key. Such priority would first attract market players into the rescue financing 'business', hence create a market for specialist rescue finance, and second, directly place the rescue financier within the ladder of priorities, hence side-line the collective action problems referred to above.
As per the type of statutory priority, it seems logical that, to have an incentive to 'come to the negotiation table', the prospective rescue financier should be granted secured priority 133 at least equal to the debtor's most senior pre-existing creditor. 134 Given however the impact/risk that 130 ibid 29 (emphasis added). 131 ibid 31 (emphasis added). 132 Compared to the risk of filtering inefficiency inherent in the statutory model of DIP financing in the way this has been developed in the US. 133 See for example the situation in the US, where, in practice, administrative expense priority 'does not suffice' and DIP financiers always seek to obtain far higher (secured) priority for their financing (see footnotes 12 and 27). In the same direction, Ferriell and Janger state that '[i]n many cases, the Code's provisions that authorize priority to unsecured credit extended outside the ordinary course are of little significance. Prospective creditors are simply reluctant to provide any unsecured credit to the debtor, even with an administrative or super-priority status, for the simple reason that a struggling debtor has great difficulty obtaining unsecured credit under any circumstances. Those who are willing to extend credit at all to a reorganizing debtor usually want every possible personal guarantee and scrap of collateral that is available', Jeffrey Ferriell and Edward J Janger, Understanding Bankruptcy (4th edn, Carolina Academic Press 2019) 293. 134 To prevent from expropriation, some form of 'adequate protection' similar to the one under US law (see Sections 2.1 and 2.1.1 above) would have to be provided to the pre-existing secured creditor.
encumbering the debtor's assets for the purpose of post-petition secured credit presents for pre-petition creditors, it is obvious that, under such a proposed statutory priority framework, an 'authoriser' of the rescue financing would also need to be in place and such role could be left to the court. The question that arises, however, immediately thereafter is whether the introduction of statutory secured priority and court approval for rescue financing in the UK risks bringing the English system too close to the high risk of filtering inefficiency that the American statutory system of DIP financing presents due to the proposed approximation of characteristics of the two frameworks. To avoid such risk, we take account of the extensive analysis of the US framework conducted above and propose below a framework that, while being statutory, it aspires to present less risk of filtering inefficiency compared to its American counterpart.
3.2.3. A proposal for a statutory rescue financing framework in the UK: lessons learned from the US and the way forward As analysed extensively above, two are the elements of the American statutory framework that inherently help sustain creditor control phenomena: first, the high priority ranking given to the rescue financier, reaching potentially even priming secured status, and second, the way court approval de facto works. In respect of the second, we have previously highlighted that the court, supposedly the 'ultimate arbiter' of DIP financing, has de facto limited power to 'take on board' objections raised by the unsecured creditors' committee regarding potential exercise of extensive control by the DIP financier and to consequently 'strike down' (provisions of) the DIP financing. This happens in light of the risk that the court faces in being held responsible as the one 'torpedoing' the debtor's reorganisation. It is obvious that any proposal for a statutory rescue financing framework in the UK should try to minimise, to the maximum extent possible, the filtering inefficiency risk that the above two elements present.
Turning to the proposal made by this article, the prospective rescue financier would be granted secured priority at least equal to the debtor's most senior pre-existing creditor. This means that, while the financier's secured priority and consequent potential enforcement bias will still characterise the proposed framework, the latter will minimise their effect by depriving the rescue financier from priming secured priority (and the threat thereof). 135 Given that granting secured priority to the rescue financier has become commonplace and, in practice, the 'absolute minimum', 136 the 135 'Priming' defined here as security interest that is of senior ranking to the one already encumbering the property (ie not of equal ranking). 136 See footnote 133. above proposal ensures that, by starting from equal priority to that of the debtor's most senior pre-existing creditor, the rescue financier does not enjoy the negotiation advantage and leverage that (the threat of) a priming priority would have otherwise given it.
Turning now to the second element creating concern, namely the role of the court in guarding against potential financier-induced filtering inefficiency, this article proposes that the court's role in the rescue financing process be transformed from 'ultimate arbiter' to 'filtering safeguard'. This proposal changes the burden 'falling on the shoulders' of the court from being the one responsible for positively addressing creditor control/filtering inefficiency allegations to rather being the one 'safeguarding' that such issues have been duly addressed elsewhere and by someone else within the process.
To elaborate further on this, the rescue financier would have to come to the 'negotiation table' with a financing proposal that would need to be voted upon by the debtor's pre-existing creditors through a process similar to what would have been followed for a restructuring plan itself, albeit on top of and in addition to the restructuring plan process and with different characteristics from it. 137 This means that the terms of the rescue financing would have to be considered by the entirety of the debtor's creditors in a process that imitates the 'give-and-take' bargaining dynamics of the market-based model of rescue financing, albeit within an otherwise statutorily-organised framework. Within such a 'give-and-take' negotiation process the prospective rescue financier could eg 'bargain' for higher than the statutory priority and 'trade' it with certain creditor control terms of the financing documentation. Ultimately, the fact that the financing plan would have to be approved by a certain statutory majority through this separate process will inevitably lead involved parties to reach mutual concessions, and consequently the rescue financier to be 'held in balance' from embedding excessive control terms in the financing documentation.
The proposed framework differs from the DIP financing approval process followed under the US Bankruptcy Code: in the US, following the appointment of the unsecured creditors' committee by the US Trustee, the DIP lender and the debtor negotiate with the creditors' committee, the US Trustee and other objecting parties on the terms of the prospective DIP loan. 138 Despite such negotiation taking place, the ultimate burden of approving the DIP loan terms 'falls on the shoulders' of the court: the committee may raise objections vis-à-vis excessive control terms embedded in the prospective financing but the power rests with the court, as the 'ultimate arbiter' of DIP financing, to strike them out or not. Such power resembles the role of the court as 'ultimate arbiter' in motions for triggering Chapter 11's filtering mechanisms. Such mechanisms are the relief from the stay and the conversion/dismissal of the Chapter 11, which effectively allow the reorganisation's 'torpedoing' when the debtor's viability lapses. 139 Playing the role of the 'ultimate arbiter', however, does not fit the court well when it comes to DIP financing given that the issues at stake are different: the process of DIP financing approval is not about reorganisation 'torpedoing' once the debtor's viability lapses; this is why the court is de facto very reluctant in rejecting (as such) the proposed DIP financing terms following the committee's potential objections. The court knows that, by doing so, it risks significant delays or even a withdrawal of the financing offer by the financier, hence effectively 'torpedoing' a viable debtor's reorganisation when such issue is not at all what is at stake.
The proposal made in this article for an English statutory rescue financing regime suggests a role for the court that is not one of an 'ultimate arbiter' but rather one of a 'filtering safeguard'. Under this proposal, the primary burden of checking the rescue financing's embedded control terms against potential risk of filtering inefficiency will rest with the debtor's pre-petition creditors, who will collectively (and not only as unsecured creditors' committee) have to vote on the proposed financing plan, the allocation of priorities and the inclusion of control terms in the financing documentation through the separate process proposed by the article. After mutual, 'give-and-take' concessions have taken place in the process of bargaining and voting over such plan and after any collective action problems have been addressed through statutory measures (eg majorities required for the approval of such plan), the court would deal not with a series of objections raised by the unsecured creditors' committee but rather with a financing plan, as approved by informed creditors, over which the court would play the role of a 'filtering safeguard'. Such role would not consist in taking a proactive stance in evaluating the terms of the rescue financing following substantive objections raised against it, but rather in 'safeguarding' that potential filtering inefficiency risks have indeed and duly been considered and evaluated by all creditors. This involves the court ensuring that the right process, majorities and disclosures that would allow a proper evaluation of the issues by the parties involved in the financing plan vote have actually been followed, as well as that certain relevant standards have been met. Such standards could indicatively include that: (1) the credit transaction is necessary to preserve assets of the estate; (2) the financing is in the best interests of the estate and its creditors; 139 See Tsioli (n 1) 406.
(3) no better financing offers, or timely proposals are before the court; (4) the financing agreement was negotiated in good faith and at arm's length. 140 Ultimately therefore the role of the court would be rather procedural, consisting in ensuring that the market-like bargaining dynamics that are better in 'reining' potential filtering inefficiencies have been duly taken place during the otherwise statutory process of the financing plan's approval by the debtor's creditors.

Intercreditor agreements, creditor control and rescue financing
At least in the UK, it is very common for the restructuring to be effectuated not through a statutory process but rather in accordance with the provisions of an intercreditor agreement. Intercreditor agreements are usually put in place in leveraged finance transactions and their key purpose is 'to ensure that each type of debt used in the transaction has a risk commensurate with its pricing, i.e. senior debt (which has a lower return) has less risk than the more expensive junior debt'. 141 Central to this is that the intercreditor agreements regulate the ranking and subordination of creditors (namely that senior debt ranks ahead of junior debt), as well as restrictions on payments to junior creditors. 142 In addition, intercreditor agreements also regulate what happens in case of debtor distress through detailed restrictions on certain categories of creditors taking enforcement action, as well as, more generally, through provisions regarding the control of enforcement strategy and the release of security and claims. 143 More specifically, '[i]f a distress scenario leads to the triggering of a standstill period under the ICA and the parties cannot reach a purely consensual arrangement concerning the restructuring, the senior lenders usually form a coordination group to lead the negotiations'. 144 'However, if the parties are unable to reach a negotiated restructuring or other arrangement dealing with the distress scenario, the ICAs offer two connected mechanisms for carrying out the restructuring: enforcement of transaction security and a distressed disposal, including a liabilities sale'. 145 'The group controlling the enforcement of the transaction security and distressed disposals under the LMA S/M 146 ICA is the 'instructing group', which is defined as the senior lenders whose participation aggregates to more than a set percentage of the senior liabilities'. 147 More accurately, the 'instructing group' should be defined as 'the majority senior creditors until all senior debt has been repaid, and the majority junior creditors thereafter'. 148 To make the above more concrete, suffices to look at an actual restructuring effectuated pursuant to an intercreditor agreement. This is for example the case of Monier in early 2009. The holding company of the international group Monier was based in Luxembourg, but operationally and headcountwise the group was centred in Germany. Monier had been acquired through a leveraged buy-out and an English law-governed intercreditor agreement was in place among the different tranches of debt. The security agent implemented the debtor's restructuring through an enforcement of the lenders' share pledge over the main Luxembourg holding company ('Topco') (enforcement of the transaction security) and a sale of the group into a new lender-owned holding structure by way of a Luxembourg private sale process (distressed disposal). 149 What we can conclude from the above is that the use of intercreditor agreements in English law is shaped in such a way that it creates a detailed allocation of control rights in financial distress ex ante, leaving consequently no scope for ex post opportunism by rescue financiers. The detailed provisions of an intercreditor agreement concerning the instructing group, the powers of the security agent and the way in which the restructuring will be effectuated through enforcement of the transaction security and a distressed disposal, collectively make a 'well-knit web' of market-based provisions which pre-determine the allocation of control over the restructuring among not only the different classes of creditors but also between the instructing group and the security agent. Such allocation does not leave room for an extensive ex post, potentially filtering efficiency-detrimental empowerment of the rescue financier of the type we've seen under US law. 150 The above have been also eloquently summarised by Sarah Paterson, who recently noted the following: Financial creditors in England nonetheless agree detailed allocation of control rights in financial distress in the intercreditor agreements which they enter into when the finance arrangements are put in place. […] [T]he intercreditor agreement ordinarily covers the whole of the leveraged capital structure […].
In contrast, in the US an intercreditor agreement is only likely to be put in place if there is more than one group of lenders secured over a common collateral pool.
[…] On the other hand, in the many US capital structures in which there is only a senior secured loan tranche and subordinated, unsecured bond debt, there is very likely to be no intercreditor agreement at all.
If Chapter 11 were to recognize and enforce similar intercreditor arrangements, it would encourage efficient ex ante bargaining over control rights in distress and reduce the inefficiencies which are created by the current bargaining environment. Oliver Williamson describes the effect in the following way, 'Transactions that are subject to ex post opportunism will benefit if appropriate safeguards can be devised ex ante '. 151 In addition, it can well be said that the collectivisation occurring in the face of the security agent within an intercreditor agreement reduces the risk of abusive control by the senior creditor majority. As Lehtimäki puts it, [d]espite the extensive enforcement rights and the senior creditor majority control, the distressed disposals and releases are conditional on the security agent fulfilling the procedural obligations set out in the ICA. These obligations protect the subordinated creditors and the investors and aim to deal procedurally with the risk of senior creditor moral hazard that may result from extensive enforcement and release rights. 152 The above is supported even further by the explicit obligation of the security agent to obtain a 'fair market price in the prevailing market conditions' 153 in case of a distressed disposal. This obligation is guided by the principle of value preservation/value maximisation and as such contributes towards achieving viability-oriented, filtering efficient results in the restructuring process. This comes in sharp contrast to the situation described above under Section 2.3.4.2. regarding the potential resource misallocation that may result from the development of extensive, single-sided creditor control by the part of the rescue financier in the US. As we described under that section, an oversecured DIP lender's impulse towards obtaining personal satisfaction 'of the greatest value as early as possible' may result in such lender pushing the debtor's business into a quick sale, even if the business is sold below its fundamental value, as this poses less risk to the oversecured creditor compared to a protracted reorganisation or because it constitutes the predetermined outcome prescribed under the Restructuring Support Agreement. In such scenarios it becomes evident that the Chapter 11 process is metamorphosed into one guided by the DIP lender's interest than by the aim of maximising the debtor's viability. It can thus be concluded that the collectivisation occurring in the face of the security agent under an ICA and the relevant obligations guiding the exercise of the latter's functions ensure more effectively value preservation/maximisation for the debtor in question and as such an ICA-driven restructuring serves well the ultimate goal of viabilityoriented, filtering efficient results.
Turning now specifically to the provision of rescue financing under an ICA, there are three possible scenarios that need to be examined, but all three ultimately underpin the general conclusions made above regarding the increased filtering efficiency of an ICA-driven restructuring. Under the first scenario, it is possible that the contracting parties have already pre-agreed and the terms of the ICA therefore explicitly provide for specific senior ranking to be given to any rescue financing given to the debtor. For example, in the restructuring of Monier, 'a super senior new money tranche could be made available via a permitted facility change mechanism contained in the creditor agreement'. 154 Another possible scenario is that, under the terms of the ICA, there is already a pre-agreed 'senior headroom', namely a set upper limit of how much a senior creditor may increase the senior debt while continuing to benefit from the same priority position. 155 Such a provision can be said to indirectly serve in the direction of limiting the exercise of potential senior creditor control. Finally, if the rescue financing does not fall under any headroom and the ICA-bound parties have not pre-agreed a specific priority to be granted to such financing, it becomes obvious that a collective agreement among the ICA-contracting creditors will be needed in order to be able to bring about any change in the existing waterfall of priorities to the benefit of any rescue financier.
At this point, it has to be noted though that this last scenario may have certain efficiency-related drawbacks. In the absence of a pre-agreed ICA priority to be granted to rescue financing, a unanimous agreement of the ICAbound parties is required in order to bring about any change to its terms, including granting priority to rescue financing. First, such process may prove very time-consuming and as such detrimental in its impact on a cash-starved debtor, especially when compared to the relative speediness of the statutory process under Chapter 11, where at least the interim DIP order and consequently the closing and funding of the interim DIP amount is effectuated only 1-2 days after the bankruptcy filing. 156 Second, it may prove burdensome and costly for the debtor, especially in case certain 154 Asimakopoulos and Bickle (n 150) 43. 155 It should be noted though that similar senior headrooms may also be found in US ICAs and are usually termed as 'first lien debt caps', see Bradford  techniques are employed in order to try to overcome the unanimity requirement. Such techniques may for example include negotiating and putting in place a 'turnover agreement' under the terms of which the rescue financier would benefit from a contractual 'turn over' of proceeds by those lenders consenting to the agreement until the rescue loan had been repaid in full and without the rescue lender obtaining any formal security or priority over the debtor's pre-existing lenders under the ICA. 157 Alternatively, a restructuring plan or scheme of arrangement may be used to effectively cram down non-consenting parties, attain the majorities required for a modification to the ICA and as such grant the desired priority to the rescue financier. 158 All these techniques are certainly burdensome and time-consuming, requiring costly expert advice and as such, render the debtor's restructuring a difficult task. 159 In this specific context, it may not be an exaggeration to say that the above technical difficulties might sometimes make debtors resort to business disposals instead of full-blown restructurings, 160 which in turn, from a viability perspective, might sometimes prove to be a choice of necessity rather than the most value-maximising option under the circumstances.
What is however true to say in any case, is that under an ICA, be it directly or through one of the said techniques, rescue financing has to 'pass the muster', either ex ante or ex post, of the collective review of its terms by the existing creditors. In other words, rescue financing under an ICA is subject to 'market checks and balances' that prevent the emergence of extensive, single-sided creditor control through terms embedded in the rescue financing. It is the existing creditors as 'market forces' that help hold the rescue financier 'in balance', consequently preventing excessive creditor control phenomena.

Conclusion
This article has sought to examine the impact that the different current approaches to rescue financing across the US and the UK have on the overall filtering efficiency of their respective restructuring frameworks. The article first looks into the statutory model of DIP financing used in the US and explains the way in which certain of its elements inherently help sustain excessive creditor control phenomena and ensuing filtering inefficiencies. The article then turns to the UK and analyses the market-based model of rescue financing which is mainly employed in that jurisdiction. It finds that, when the rescue financier is the incumbent lender, which happens most frequently, the model does not have the prospect of 'performing' significantly better in terms of preventing potential filtering inefficiencies compared to the American statutory model. The article suggests that the development of a third-party, specialist rescue finance market in the UK could better 'guard' against potential filtering inefficiencies but such market, in turn, presupposes a statutory rescue financing framework in order to develop.
For this reason, the article undertakes the task to propose the optimal form that a statutory rescue financing framework introduced in the UK should take. Such framework should be crafted in full consideration of what has not worked well under the American statutory model of DIP financing and with 160 Talking about a potential statutory framework for rescue financing in the UK, McCormack suggests that such a statutory framework 'stimulates more an emphasis on corporate rescue as distinct from creditor wealth maximisation through asset sales and business disposals' and Payne refers to the absence of such a statutory framework as 'sometimes the aim to avoid those elements that inherently help sustain potential filtering inefficiencies in the US. For this reason, the article proposes a statutory model for the UK that entails a different statutory priority and a different approval process for rescue financing compared to the one under the US model and elaborates on how such proposal could work in practice. Finally, the article also examines the way in which rescue financing works under the provisions of intercreditor agreements; such agreements are frequently used in the UK as basis for effectuating a restructuring and as such it is important to also evaluate the interrelation between rescue financing and such a restructuring technique from a filtering efficiency standpoint.
Overall, the article aspires to contribute to a topic,rescue financing -, that is well-known, albeit from a perspective, -filtering efficiency -, that has largely been overlooked in the literature so far. Especially given the multiple attempts of the legislator to introduce a statutory rescue financing framework in the UK in the past, as well as given the current efforts of the European Member States' legislators to transpose the European directive on restructuring and insolvency 161 into national law, it is hoped that this article will provide some useful guidance in the direction of crafting an optimal,from a viability perspective -, framework for rescue financing in the UK and elsewhere.