Introduction

Clearly there are some major economic challenges ahead.

Many businesses may be able to withstand the challenges ahead but it may very well be that their trading counterparties (whether suppliers, customers or other stakeholders) will not. Whilst these times can represent an opportunity for some, such as potential acquirers (whether of businesses, assets or distressed debt), in most cases, the climate represents a threat to businesses.

On Dec. 21, 2011, the U.S. Bankruptcy Court for the District of New Jersey approved a liquidation plan for collateralized-debt obligation issuer (“CDO”) Zais Investment Grade Limited VII (“ZING VII”). The plan incorporates a settlement between senior noteholders who had initiated the bankruptcy case by filing an involuntary petition against the CDO, and junior noteholders who were appealing the Bankruptcy Court’s April 26, 2011 order granting the involuntary petition.

The U.S. Bankruptcy Court for the District of New Jersey recently held that a Cayman Islands collateralized-debt obligation issuer (“CDO”) could be a debtor under Chapter 11 of the U.S. Bankruptcy Code (the “Bankruptcy Code”) and declined to dismiss an involuntary case commenced against the CDO by certain noteholders on the grounds that the notes held by such noteholders were “non-recourse” notes. Below is a discussion of the court’s decision and its potential implications. The decision is currently being appealed.