Editorial | Restructuring Directive  

Editorial | CEE

Reasoning behind the changes

In the two years that the "new" bankruptcy regime – the Bankruptcy Act of September 2015 (Stečajni zakon; the "BA") – has been in place, the number of pre-bankruptcy procedures initiated in Croatia has plummeted to only 273, with 58 restructuring plans being accepted. By comparison, under the previous pre-bankruptcy regime from 2012 to 2015, 8,262 pre-bankruptcy procedures were initiated, with 2,224 restructuring plans being reached.

The recently adopted Croatian Bankruptcy Act ("SZ")[1] sets out a new integrated pre-bankruptcy and bankruptcy regime. SZ has entirely replaced the previous bankruptcy act that was in force for 18 years, as well as provisions regulating pre-bankruptcy settlement proceedings prescribed under the Act on Financial Operations and Pre-bankruptcy Settlement

Finds Bankruptcy Court to be Proper Forum for Claim Objection Despite Forum Selection Clauses in Investor Agreements

The Southern District of New York recently reiterated the critical difference between creditor claims and equity interests in the bankruptcy context.  In a recent opinion arising out of the Arcapita Bank bankruptcy case, the Court was faced with an objection to a proof of claim filed by an investor, Captain Hani Alsohaibi, who characterized his right to recovery against the debtors as being based on a “corporate investment.”

On March 9, 2012, Susheel Kirpalani, the court-appointed examiner for Dynegy Holdings LLC (Dynegy), concluded that the debtor's transfer of certain assets to its parent company, Dynegy Inc., prior to its bankruptcy filing may be recoverable as a fraudulent transfer. Kirpalani further determined that Dynegy's board of directors breached its fiduciary duty in approving the asset transfer. Dynegy Inc. vigorously disputes the examiner's findings.

On March 9, 2012, Susheel Kirpalani, the court-appointed examiner for Dynegy Holdings, LLC (Dynegy), concluded that the debtor's transfer of certain assets to its parent company, Dynegy, Inc., prior to its bankruptcy filing may be recoverable as a fraudulent transfer. Kirpalani further determined that Dynegy's board of directors breached its fiduciary duty in approving the asset transfer. Dynegy, Inc. vigorously disputes the examiner's findings.

In late 2011, bondholders in the bankruptcy case of power company Dynegy Holdings, LLC (Dynegy) moved for the appointment of a bankruptcy examiner to investigate certain transactions that occurred immediately prior to the filing of Dynegy's bankruptcy petition. The transactions at issue involve the alleged transfer of millions of dollars in assets to Dynegy's parent company (a non-debtor) approximately two months prior to the bankruptcy filing.

In a case illustrating the effective use of a bankruptcy examiner, the examiner appointed by the court in the North General Hospital bankruptcy case has concluded that the hospital made over $3 million in unauthorized post-bankruptcy filing payments to the detriment of unsecured creditors. Prior to its bankruptcy filing, North General Hospital and certain related corporate debtors operated a hospital in the Harlem section of Manhattan.

The U.S. Bankruptcy Code provides for the appointment of a bankruptcy examiner to investigate the debtor with respect to allegations of fraud, dishonesty, incompetence, misconduct or mismanagement. The right examiner, with a clearly defined mission, will have a major influence on the bankruptcy process. The difference between a successful financial restructuring or liquidation-resulting in substantial recoveries for the key constituencies-and a time-consuming (and asset-consuming) meltdown, can depend on the approach of the examiner and the examiner's support team.