Facility agreements almost always contain events of default based on a borrower's insolvency. Defining insolvency is therefore key. In this article published in July 2013 we discussed how, following Eurosail1 , the common law was beginning to move the statutory tests of insolvency towards a more commercial view.
When undergoing a restructuring, a borrower/officeholder's main focus is often the company's lenders. However, there are occasions when HMRC's agreement can be just as key to ensuring any process runs smoothly. In this article, Sonia Jordan and Hayley Çapani discuss some key areas where HMRC's agreement is essential to ensuring a smooth restructuring or insolvency process.
English schemes of arrangement (Schemes) have become a useful and established procedure for restructuring the debts of foreign companies incurred under English law finance documents. For an overview of why they are useful and how they work, see our July 2011 article "Financial restructurings of foreign companies through English schemes of arrangement".
The insolvency of the borrower is a standard event of default in facility agreements. As well as covering the borrower's cash flow insolvency, these clauses also often cover other, earlier signs of distress. Two recent cases have seen lenders try to exploit these outer reaches of their insolvency event of default clauses. Hayley Çapani and Adam Pierce explain why these cases are significant for parties negotiating new deals, and for lenders considering their enforcement options on existing deals.
Negotiations with creditors for rescheduling
The U.S. Court of Appeals for the Seventh Circuit in Chicago has issued a decision with significant implications for licensees of trademarks whose licensors become debtors in bankruptcy. In Sunbeam Products, Inc. v. Chicago American Manufacturing, LLC, the Court considered whether rejection of a trademark license in bankruptcy deprives the licensee of the right to use the licensed mark.1 Disagreeing with the holding of the Court of Appeals for the Fourth Circuit in Lubrizol Enterprises, Inc. v.
The Trustee overseeing the liquidation under the Securities Investor Protection Act (“SIPA”) of Lehman Brothers Inc. (“Lehman”) in the U.S. and the Joint Administrator of Lehman Brothers International (Europe) (“LB Europe”) in the U.K. have reached an agreement in principle to resolve $38 billion in asserted claims among Lehman, LB Europe and subsidiaries and affiliates. The agreement is subject to definitive documentation and approval by the Bankruptcy Court in New York and the English High Court. The parties set December 15, 2012 as the deadline to reach a final agreement.
In the Summer 2009 issue of the Legal Canvas, we wrote about the wisdom of filing a UCC financing statement when art work is consigned to a gallery. Specifically, we said that the filing of a financing statement that reflects the consignor’s interest in the work provides protection against the gallery’s creditors. Financing statements take no time to prepare and cost less than $50 to file.
It could be money well spent.
U.S. bankruptcy law permits debtors-in-possession and trustees to sell assets free and clear of claims, liens and other interests. But a federal judge in New York ruled recently that a purchaser does not necessarily buy free and clear when a product manufactured pre-bankruptcy causes injury after a sale closes. Morgan Olson L.L.C. v. Frederico (In re Grumman Olson Indus., Inc.), No. 11 Civ. 2291, 2012 U.S. Dist. LEXIS 44314 (S.D.N.Y. Mar. 29, 2012) (JPO). In this situation, the purchaser can remain liable for injuries caused by the asset purchased from the debtor.
LEHMAN BANKRUPTCY
In re: Lehman Brothers Holdings, Inc., et al., No. 08-13555
On March 6, 2012, Lehman Brothers Holdings Inc. and its affiliated debtors announced that their Modified Third Amended Joint Chapter 11 Plan, which had been confirmed by the United States Bankruptcy Court for the Southern District of New York on December 6, 2011, had become effective. Distributions under the Plan will begin on April 17, 2012.
Earlier today AMR Corporation, its subsidiary American Airlines, Inc., and 18 other affiliates ("Debtors") filed petitions under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the Southern District of New York in Manhattan.1 The case was assigned to Bankruptcy Judge Sean H. Lane. The Debtors have asked the Court to consolidate all 20 cases for procedural purposes under the captionIn re: AMR Corporation, Case No. 11-15463.