In a recent decision, the Swiss Federal Supreme Court has clarified equitable subordination risks in connection with shareholder loans. The key takeaways are as follows:

A bedrock principle underlying chapter 11 of the Bankruptcy Code is that creditors, shareholders, and other stakeholders should be provided with adequate information to make an informed decision to either accept or reject a chapter 11 plan. For this reason, the Bankruptcy Code provides that any "solicitation" of votes for or against a plan must be preceded or accompanied by stakeholders' receipt of a "disclosure statement" approved by the bankruptcy court explaining the background of the case as well as the key provisions of the chapter 11 plan.

In Short

The Situation: The U.S. Supreme Court considered whether § 363(m) of the Bankruptcy Code, which limits a party's ability to undo an asset transfer made to a good-faith purchaser in a bankruptcy case, is jurisdictional.

In addition to amendments to the Debt Enforcement and Bankruptcy Act (DEBA) and the Criminal Code (SCC), the Federal Act on Combating Abusive Bankruptcy also brings important changes to the Code of Obligations (CO) and the Commercial Register Ordinance (CRO). The new Act aims at increasing the hurdles for a company to release its debts to the detriment of its creditors. The amendments to the law and ordinances are expected to enter into force in January 2024. 

Background

Das Bundesgesetz über die Bekämpfung des missbräuchlichen Konkurses bringt neben Anpassungen im Schuldbetreibungs- und Konkursgesetz (SchKG) sowie dem Strafgesetzbuch (StGB) auch wichtige Änderungen im Obligationenrecht (OR) und in der Handelsregisterverordnung (HRegV). Dadurch sollen die Hürden für die Befreiung von Schulden zum Nachteil der Gläubiger künftig erhöht werden. Die Gesetzes- und Verordnungsänderungen werden voraussichtlich im Januar 2024 in Kraft treten.

Ausgangslage

À côté des adaptations à la Loi fédérale sur la poursuite pour dettes et faillite (LP) et au Code pénal (CP), la Loi fédérale sur la lutte contre l'usage abusif de la faillite entraîne d'importantes modifications du Code des obligations (CO) et de l'Ordonnance sur le registre du commerce (ORC). Elle vise ainsi à augmenter les obstacles à la libération des dettes au préjudice des créanciers. Les modifications de la loi et des ordonnances devraient entrer en vigueur en janvier 2024.

Situation actuelle

The ability of a bankruptcy trustee or chapter 11 debtor-in-possession ("DIP") to assume, assume and assign, or reject executory contracts and unexpired leases is an important tool designed to promote a "fresh start" for debtors and to maximize the value of the bankruptcy estate for the benefit of all stakeholders. However, the Bankruptcy Code establishes strict requirements for the assumption or assignment of contracts and leases.

Madoff

On April 19, 2021, the U.S. Supreme Court declined to hear the appeal of a landmark 2019 decision issued by the U.S. Court of Appeals for the Second Circuit regarding the applicability of the Bankruptcy Code's safe harbor for certain securities, commodity, or forward contract payments to prevent the avoidance in bankruptcy of $8.3 billion in payments made to the shareholders of Tribune Co. as part of its 2007 leveraged buyout ("LBO").

On October 26, 2020, the U.S. Bankruptcy Court for the Southern District of Texas issued a long-awaited ruling on whether natural gas exploration and production company Ultra Petroleum Corp. ("UPC") must pay a make-whole premium to noteholders under its confirmed chapter 11 plan and whether the noteholders are entitled to postpetition interest on their claims pursuant to the "solvent-debtor exception." On remand from the U.S.