When a business entity that is regulated by the Federal Energy Regulatory Commission (FERC) is closely related to another business entity, FERC takes the position that under some circumstances it may treat the two different legal entities as if they were one single entity.
The Bottom Line
In Gavin/Solmonese LLC, Liquidation Trustee for the Citadel Creditors’ Grantor Trust, successor to Citadel Watford City Disposal Partners, L.P., et al. v. Citadel Energy Partners, LLC, et al., Ch. 11 Case No. 15-11323; Adv. Proc. No. 17-50024 (Bankr. D. Del. May 2, 2019) (“Citadel”), the Bankruptcy Court for the District of Delaware held that creditors of insolvent limited partnerships and limited liability companies do not have standing to sue derivatively on behalf of the company under applicable state law.
On May 20, 2019, in Mission Product Holdings, Inc. v. Tempnology, LLC, 587 U.S. ---, 139 S. Ct. 1652 (2019), the Supreme Court resolved a split among the circuits, holding that a licensor’s rejection of a trademark license in bankruptcy constitutes a prepetition breach, but does not terminate the license.
On Aug. 8, 2018, the U.S. Court of Appeals for the First Circuit upheld the right of Kramer Levin’s bondholder clients to seek a receiver for the Puerto Rico Electric Power Authority (PREPA) — the first appellate court in the history of municipal bankruptcy to do so. The First Circuit reversed U.S. District Judge Laura Taylor Swain, who presides over all proceedings under Title III of the Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA). PREPA bondholders alleged that PREPA’s mismanagement had depreciated revenues pledged to them as collateral.
In response to the increasing prevalence of general partner (GP)-led secondary fund restructurings, the Institutional Limited Partners Association (ILPA) has released guidance regarding this practice. The purpose of this guidance is to promote transparency and efficiency in the secondary process.
The ILPA has defined these restructurings as transactions that offer one of the following:
The Singapore High Court recently issued the first-ever super-priority order for debts arising from rescue financing under Section 211E(1)(b) of the amended insolvency laws in the Companies Act. The decision shows that the court is open to adopting relatively unique deal structures, and could be a benefit for more business-centric solutions.
In Part 1, we discussed how, despite widespread usage, termination in the event of bankruptcy clauses (“ipso facto” clauses) are generally unenforceable pursuant to the bankruptcy code. In this second part, we discuss why these clauses are still prevalent in commercial transactions and the exceptions that allow for enforceability in certain situations.
Why Do Ipso Facto Clauses Remain in Most Contracts?
If ipso facto clauses are generally not enforceable, then why do practically all commercial agreements continue to include them? There are several reasons.
Practically all commercial transactions, including licenses, services agreements, and supply agreements, contain a provision that triggers termination rights, without notice, to a party whenever the other party files for bankruptcy or experiences other insolvency-related event. In Part 1 of a two-part series, we discuss how the commonly used termination-on-insolvency clauses are generally unenforceable despite their widespread use.
Standard Ipso Facto Provision