When a secured creditor appoints a receiver it is usual for them to sign an agreement setting out the terms of the receiver’s appointment, including payment of the receiver’s remuneration, costs and expenses. Appointment documents commonly contain indemnity clauses in which the secured creditor agrees to indemnify the receiver in specified circumstances.

Like the wild prairie rose that punctuates the North Dakota plains, the issue of whether a debtor can reject its midstream agreements is back after a brief period of dormancy. In Hot Topics in Oil and Gas Restructurings, Volume 3, we described how the U.S.

Some term loans allow borrowers to redeem debt. But to protect a lender’s expected yield, such loans often impose a “make-whole premium” on redemption. That is, they require compensation to the lender for the borrower’s premature termination of interest payments.

In our previous bulletin we discussed the ‘safe harbour’ model in the Government’s suggested reforms to the current insolvency laws.

This bulletin considers another of the focus questions in the Proposal Paper: the voiding of ipso facto clauses relating to insolvency events.

Background

On 29 April 2016, the Federal Government released a Proposals Paper titled ‘Improving bankruptcy and insolvency laws’.

The Government is proposing these reforms to encourage entrepreneurship and investment. It hopes to reduce the stigma and detriment around failed business ventures, while still balancing the need to protect creditors.

Yes, Gathering Agreements Can Be Rejected as Executory Contracts (At Least Under One Court’s Interpretation of Texas Law)

Can Gathering Agreements Be Rejected as Executory Contracts?

In 2015, the energy sector accounted for more than one-half of all public company bankruptcy filings, including eight of the 10 largest filings. Current oil prices and bond values indicate that 2016 will be another active year. As of late January 2016, crude oil prices hovered around $30 per barrel. These low prices are reflected in the bond market, where in December 2015, approximately $80 billion in non-defaulted oil and gas debt was trading below 50 cents on the dollar.

Where a court has ordered the winding-up of a company, a shareholder may be able to have the winding up terminated under section 482 of the Corporations Act 2001.

Relevant factors

The power of the court to terminate a winding-up is discretionary. Relevant factors to be considered, which are not exhaustive, include the following:

If a director can exercise a right of set-off against a company in liquidation for a debt owed to the director or for a liability of the company to the director (which may be unascertained in amount or contingent), it may help to cancel out or significantly reduce the director’s liability to the company for insolvent trading.