It has long been the law that creditors are rarely entitled to contractually prohibit a debtor from filing for bankruptcy, whether such restriction is contained in the debt instruments or in the corporate governance documents. In contrast, governance provisions which condition a bankruptcy filing on the vote or consent of certain equity holders that are unaffiliated with any creditor are frequently enforced. Many equity sponsors, for example, wear two hats: they are both shareholders and lenders to their portfolio companies.

Pre-pack administrations are becoming more common. Four Holdings' purchase of Agent Provocateur illustrates the attraction of pre-packs — the ability to cherry-pick the best assets, acquire the goodwill of a well-known business that continues to trade, and retain its key staff without having to take on liabilities to creditors —and why existing management is likely to be supportive.

In Nortel Networks, Inc., Case No. 09-0138(KG), Doc. No. 18001 (March 8, 2017), the Delaware Bankruptcy Court ruled on the objections of two noteholders who asked the Court to disallow more than $4.4 million of the $8.1 million of the fees sought by counsel to their indenture trustee. Given the detailed rulings announced by the Court, the decision may establish a number of guidelines by which future fee requests made by an indenture trustee’s professionals will be measured.

Matters Handled by the UCC

The English High Court in Lehman Brothers International (Europe) (In Administration) [2016] EWHC 2417 (Ch), in one of a series of cases arising from the Lehman insolvency, has had to consider (among other issues) the meaning of “Default Rate” under the ISDA Master Agreement.

Editor’s Note: Our good London colleague Ed Marlow recently published this as a Bryan Cave client advisory.

Including an unsecured creditor  in an agreed payments waterfall does not by itself confer on that unsecured creditor  the benefit of a mortgagee’s usual duties on enforcement of security, or a direct claim against the sale proceeds.

The English High Court in Fondazione Enasarco v Lehman Brothers Finance S.A. and Anthracite Rated Investments (Cayman) Limited [2015] EWHC 1307 (Ch) applied a common sense approach in the circumstances to the determination of Loss under the 1992 ISDA Master Agreement. The judgment of the judge (Mr Justice David Richards) is useful reading for those involved in structured products and derivatives.

Background

“The question that he frames in all but words

Is what to make of a diminished thing.”

                             Robert Frost, “The Oven Bird”

In a significant expansion of the potential risk for distressed claims traders, the Delaware bankruptcy court has recently ruled¹ that traders who engage in insider trading may have their claims subordinated to equity, and that traders who amass claims sufficient to block a plan of reorganization owe fiduciary duties to all other creditors and shareholders during plan negotiations.