On September 6, 2012, the National Credit Union Administration Board (NCUA) sued UBS in the United States District Court for the District of Kansas.  The NCUA filed the suit in its capacity as Liquidating Agent of U.S.

In Notice 2012-39 (the “Notice”), the IRS issued guidance announcing its intention to issue regulations with respect to certain transfers of intangible property by a U.S. corporation to a foreign corporation in a reorganization described in section 361 of the Internal Revenue Code (the “Code”), citing significant policy concerns involving certain intellectual property transfers that permit U.S. persons to repatriate earnings without U.S. income taxation. The IRS’ position in the Notice will impact repatriation planning strategies.

Background

On August 10, the FDIC in its capacity as receiver for Colonial Bank filed five lawsuits – three in Alabama state court, one in New York federal court, and one in California federal court – seeking $741 million in damages from a number of investment banks, including Bank of America Corp., JPMorgan Chase & Co., Citigroup, Inc., and others, for making allegedly false and misleading statements that induced Colonial Bank into buying mortgage-backed securities.

On August 2, 2012, the United States Court of Appeals for the Fifth Circuit issued a decision in the bankruptcy case for MBS Management Services, Inc. (the “Debtor”). The Fifth Circuit affirmed the district court’s opinion finding that an electric requirements agreement was a “forward contract” and, therefore, that payments made on the agreement were exempt from avoidance under the Bankruptcy Code.

I. Factual Background

The Bankruptcy Code provides a number of “safe harbors” for forward contracts and other derivatives. These provisions exempt derivatives from a number of Bankruptcy Code provisions, including portions of the automatic stay,1 restrictions on terminating executory contracts,2 and the method for calculating rejection damages.3 The safe harbor provisions also protect counterparties to certain types of contracts from the avoidance actions created under Chapter 5 of the Bankruptcy Code, such as the preference and fraudulent transfer statutes.4

1. Introduction

Recent cases interpreting Chapter 15 of the United States Bankruptcy Code (11 U.S.C. § 101, et seq., as amended) (the “Bankruptcy Code”) suggest that there are different standards for recognizing whether domestic entities and foreign entities have filed insolvency proceedings in the proper venue.

The Bankruptcy Abuse, Prevention and Consumer Protection Act of 2005, which was signed into law in the United States on April 20, 2005 and went into effect, for the most part, on October 17, 2005, created a new chapter of the United States Bankruptcy Code (11 U.S.C. 101, et seq., as amended) (the “Bankruptcy Code”) – Chapter 15. Chapter 15 replaces and modifies the earlier Bankruptcy Code sections that dealt with multi-national insolvency proceedings.

On July 9, 2012, the Seventh Circuit decided in Sunbeam¹ that the rejection of a trademark license by a bankrupt trademark licensor does not deprive the trademark licensee of its right to continue to use the trademark, and disagreed with the 1985 Fourth Circuit decision in Lubrizol² that held to the contrary.³ In reaction to the Lubrizol decision, which held that the rejection of a license by a bankrupt licensor of intellectual property terminated the rights of the licensee, Congress enacted Section 365(n) of the Bankruptcy

The Issue

The issue is whether the insolvency of a borrower under a non-recourse loan can trigger recourse liability for itself and its “bad boy,” non-recourse carve-out guarantors.

On June 13, 2012, the United States Bankruptcy Court for the Northern District of Texas (the “Bankruptcy Court”) published an opinion ruling on whether the Mexican Plan of Reorganization (the “Concurso Plan”) of the Mexican glass-manufacturing company, Vitro, S.A.B.