Deal structure matters, particularly in bankruptcy. The Third Circuit recently ruled that a creditor’s right to future royalty payments in a non-executory contract could be discharged in the counterparty-debtor’s bankruptcy. The decision highlights the importance of properly structuring M&A, earn-out, and royalty-based transactions to ensure creditors receive the benefit of their bargain — even (or especially) if their counterparty later encounters financial distress.

Background

This article first appeared in Accountancy Daily on 20 January 2023.

With supply chain problems, war in Europe and other issues leading to higher inflation and an increasingly uncertain economic outlook, this article explores the options available to companies experiencing financial distress.

The active trading of loans made to a borrower that has become unable to repay in full (known as non-performing loans or distressed debt) has been a feature of the North American and European loan markets for a number of years.

On 4 November 2021, the High Court of Australia heard the arguments put forward by Wells Fargo Trust Company, National Association and Willis Lease Finance Corporation, together Wells Fargo, and the administrators (the Administrators) of the Virgin Australia Airlines group, which entered into administration on 20 April 2020. The dispute primarily concerned who should pay for the redelivery of four aircraft engines capable of being used on B737s (the Engines) to the lease redelivery location in Florida.

In what could prove to be a landmark judgment, a Dubai court ruled earlier this month that the directors of a company in bankruptcy should be personally liable for the company’s debts, to the sum of almost AED 450,000,000 (around US$ 122,000,000).

Article 144 of Federal Law No.9 of 2016 (the “Bankruptcy Law”) allows a court to order directors to pay a bankrupt company’s debts where:

Over the summer, we wrote about why health care companies may want to consider buying assets out of bankruptcy, taking advantage of the Bankruptcy Code Section 363 sale process (a “363 Sale”). We are back with our second post, to provide more detail to the process and discuss some pros and cons of 363 Sales.

This two-part blog series discusses why buyers looking to make strategic purchases in the health care industry might want to take advantage of the Bankruptcy Code Section 363 sale process (363 Sale) and the pros and cons of buying assets out of bankruptcy through a 363 Sale.

Businesses in a wide range of industries may now be forced to consider bankruptcy given the unprecedented economic challenges caused by the COVID-19 pandemic. This advisory is designed to provide a high-level view of issues to be considered by human resources when considering filing for Chapter 11 bankruptcy. Please note that this advisory focuses specifically on a Chapter 11 bankruptcy (pursuant to which a business will be reorganized) rather than Chapter 7 bankruptcy (pursuant to which a business will be liquidated).

Tolstoy warned that “if you look for perfection, you’ll never be content”; but Tolstoy wasn’t a bankruptcy lawyer. In the world of secured lending, perfection is paramount. A secured lender that has not properly perfected its lien can lose its collateral and end up with unsecured status if its borrower files bankruptcy.

Last week, President Trump unveiled his proposal to fix our nation’s aging infrastructure. While the proposal lauded $1.5 trillion in new spending, it only included $200 billion in federal funding. To bridge this sizable gap, the plan largely relies on public private partnerships (often referred to as P3s) that can use tax-exempt bond financing.