2023 has been a remarkable year with the past several months displaying an upward trend for the Business Restructuring + Insolvency Group at Morrison Foerster. We would like to provide our friends and clients with an overview of our current matters, each of which demonstrate our track record of being a go-to firm for complex restructurings across industries and jurisdictions.
Overview/Executive Summary
In response to the recent collapse of several prominent banking institutions, Morrison Foerster conducted a brief poll to gauge how companies and their employees are faring in the wake of these historic events. Our goal is to understand how this situation has impacted these organizations, including delving into which issues and challenges, if any, will be top of mind for business leaders and their respective organizations in the weeks and months ahead.
Methodology
The FDIC receiverships of Silicon Valley Bank and Signature Bank have caused certain early-stage companies to face potentially crippling near-term liquidity issues. These liquidity issues may result in a company becoming insolvent. Therefore, boards of directors of such companies need to consider their fiduciary duties as well as steps that can be taken to mitigate risks.
Fiduciary duties are typically owed to the company for the benefit of its owners.
The March 2023 banking crisis has been an unexpected “stress test” for dealing with liquidity issues.
When state regulators closed Silicon Valley Bank this past Friday, many startups understandably faced severe liquidity issues triggered by the sudden and unexpected loss of access to their deposits.
On October 17, 2022, Justice Andrea Masley of the NY Supreme Court issued a decision and order denying all but one of the motion to dismiss claims filed by Boardriders, Oaktree Capital (an equity holder, term lender, and “Sponsor” under the credit agreement), and an ad hoc group of lenders (the “Participating Lenders”) that participated in an “uptiering” transaction that included new money investments and roll-ups of existing term loan debt into new priming debt that would sit at the top of the company’s capital structure.
On October 14, 2022, the Fifth Circuit issued its decision in Ultra Petroleum, granting favorable outcomes to “unimpaired” creditors that challenged the company’s plan of reorganization and argued for payment (i) of a ~$200 million make-whole and (ii) post-petition interest at the contractual rate, not the Federal Judgment Rate. At issue on appeal was the Chapter 11 plan proposed by the “massively solvent” debtors—Ultra Petroleum Corp. (HoldCo) and its affiliates, including subsidiary Ultra Resources, Inc.
On July 6, Delaware Bankruptcy Court Judge Craig T. Goldblatt issued a memorandum opinion in the bankruptcy cases of TPC Group, Inc., growing the corpus of recent court decisions tackling “uptiering” and other similar transactions that have been dubbed by some practitioners and investors as “creditor-on-creditor violence.” This topic has been a hot button issue for a few years, playing out in a number of high profile scenarios, from J.Crew and Travelport to Serta Simmons and TriMark, among others.
On August 26, 2020, the Court of Appeals for the Third Circuit held that the Bankruptcy Code does not require subordination agreements to be strictly enforced in order for a court to confirm a cramdown plan, so long as the plan does not discriminate unfairly.
The COVID-19 pandemic is a public health crisis unprecedented in modern history, and the resulting economic dislocation has caused financial distress across supply chains worldwide. In light of this extraordinary crisis—and in anticipation of a wave of defaults by businesses large and small in the months to come—shippers, vendors, and other suppliers are assessing their potential exposures in the event of a customer failure.
On December 19, 2019, the Second Circuit held that appellants’ state law constructive fraudulent transfer claims were preempted by virtue of the Bankruptcy Code’s safe harbors that exempt transfers made in connection with a contract for the purchase, sale or loan of a security from being clawed back into the bankruptcy estate for