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.
The EU insolvency law has resulted in insolvent debtors shopping for a better jurisdiction in which to become bankrupt. This article examines why and how.
Why?
The EC Regulation on Insolvency Proceedings 2000 (the ECIR), came into effect in May 2002, providing a framework for the national jurisdictions to work together by recognition of each states insolvency mechanisms. However the EC Regulation does not harmonise substantive differences in insolvency law between the subscribing nations.
The last several years have seen bankruptcy filings from prominent retail chains such as Borders, Circuit City, Blockbuster, Movie Gallery and Ritz Camera. Many of these cases have resulted in liquidation. For commercial landlords, retail bankruptcy cases present a number of potentially damaging issues, including nonpayment of rent, assignment of the lease to an unworthy tenant, vacant space in an otherwise popular location and going-out-of business sales.
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.
The United States Bankruptcy Court for the Western District of Louisiana has held that an insured versus insured exclusion does not apply to preclude coverage for claims brought by a duly appointed bankruptcy trustee against an insolvent corporation’s directors and officers. Central Louisiana Grain Cooperative v. Vanderlick, 2012 WL 293173 (Bankr. W.D. La. Jan. 31, 2012).
The last several years have seen bankruptcy filings from prominent retail chains such as Borders, Circuit City, Blockbuster, Movie Gallery and Ritz Camera. Many of these cases have resulted in liquidation. For commercial landlords, retail bankruptcy cases present a number of potentially damaging issues, including non-payment of rent, assignment of the lease to an unworthy tenant, vacant space in an otherwise popular location and going-out-of business sales.
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.
Regulation 7 of TUPE states that a dismissal will be automatically unfair if the main reason for dismissal is the transfer itself, or a reason connected with the transfer that is not an economic, technical or organisational reason entailing changes in the workforce (‘ETO reason’). This provision has caused some uncertainty where employees are dismissed by an administrator in order to make a business more attractive to a prospective (but as yet unknown) purchaser.
The TUPE Regulations contain some provisions designed to make struggling businesses more attractive to prospective purchasers. TUPE will not apply to transfer employees, and dismissals will not be automatically unfair, where insolvency proceedings have been instituted with a view to liquidation of assets (Regulation 8(7)). However, TUPE will apply to insolvency proceedings which do not aim to liquidate assets, and employees will have unfair dismissal protection (Regulation 8(8)).
Written Ministerial statement
Edward Davey, Minister for Employment relations, consumers and postal affairs; Department for Business, innovation and skills
In March 2011 I announced that we would be taking steps to improve the transparency and confidence of pre-pack sales in insolvency. We subsequently consulted interested parties on measures targeted at the sales of assets in insolvent companies where these are sold to connected parties (such as the directors or their close associates).