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
Are the courts of England and Wales establishing themselves as a flexible forum for cross-border enforceability? Here, we consider this question in light of two recent High Court decisions: Re Silverpail Dairy (Ireland) Unlimited Co. [2023] EWHC 895 (Ch) (Silverpail) and Invest Bank PSC v El-Husseini & Ors [2023] EWHC 2302 (Comm) (Invest Bank).
Until recently, courts in the Ninth Circuit have generally followed the minority view that non-debtor releases in a bankruptcy plan are prohibited by Bankruptcy Code Section 524(e), which provides that the “discharge of a debt of the debtor does not affect the liability of any other entity on, or the property of any other entity for, such debt.” In the summer of 2020, the Ninth Circuit hinted that its prohibition against non-debtor releases was not absolute, when the court issued its decision in Blixseth v. Credit Suisse, 961 F.3d 1074 (9th Cir.
If a creditor is holding property of a party that files bankruptcy, is it “exercising control over” such property (and violating the automatic stay) by refusing the debtor’s turnover demands? According to the Supreme Court, the answer is no – instead, the stay under Section 362(a)(3) of the Bankruptcy Code only applies to affirmative acts that disturb the status quo as of the filing date. In other words, the mere retention of property of a debtor after the filing of a bankruptcy case does not violate the automatic stay.
Leveraged loans continue to be a topic of interest in the current environment, particularly when they are pooled and securitized as collateralized loan obligations. A recent decision sheds light on whether and when leveraged loans and similar instruments may be classified as securities and, therefore, be subject to securities laws.
Transfers and transactions up to ten years old may be scrutinized, unwound and recovered by a trustee, the bankruptcy court sitting in Massachusetts recently held in the NECCO (think chalky wafer candy) bankruptcy case. The ruling, in a case of first impression in Massachusetts, expands the reach back period from the typical four-year period for fraudulent transfer recovery, so long as the IRS is a creditor in the case.
The Dutch Supreme Court has confirmed the decision of the Amsterdam Court of Appeal, which found that the bankruptcy of the Russian based oil company, Yukos, could not be recognised in the Netherlands because it violates Dutch public policy.
The High Court of Hong Kong refused to allow a Chapter 11 Trustee to disclose a Decision from Hong Kong winding up proceedings in the US bankruptcy court. The US proceedings were commenced to prevent a creditor from taking action following a breach of undertakings given to the Hong Kong court in circumstances where the company had no jurisdictional connection with the US.
The Australian Federal Court has clarified the limitations for foreign entities and their office holders in pursuing action in Australia to access the voidable transaction provisions of the Australian Corporations Act.
Control to Serbian Creditors- the amendments to the Serbian Insolvency Act
The recent amendments to the Serbian Insolvency Act enacted 9 December 2018 have placed more control into creditors’ hands allowing them to suggest the insolvency administrator to be appointed, as well as providing less restrictive provisions on the proposers of reorganisation proposals.