This chapter is taken from Lexology GTDT’s Practice Guide to Franchise, examining key themes topical to cross border franchising.

Introduction

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

In retail bankruptcies, it is important for suppliers consigning goods to merchants to be aware of the commercial law rules governing consignments. Disputes among consignors, inventory lenders, and bankruptcy debtors have been arising frequently in retail bankruptcy cases. Disputes like these can be avoided if consignors consider the basics of commercial law rules governing consignments, particularly under the Uniform Commercial Code, and take steps to protect their rights and interests.

Many tax-exempt organizations can now change their state of organization and retain their current tax exemption.

Amendment to Bankruptcy Rule 3002

Certain amendments to the Federal Rules of Bankruptcy Procedure (the “Bankruptcy Rules”) will become effective in all cases commencing after December 1, 2017.1

The amendment to Bankruptcy Rule 3002 is significant. As explained in detail below, the amendment does the following:

The Bankruptcy Code gives secured creditors certain rights and protections. For secured creditors whose collateral is worth more than the creditor’s claim, these rights may include payment of attorney’s fees and post-petition interest at a rate agreed to in the debtor’s and creditor’s prepetition agreement. A chapter 11 bankruptcy plan, however, may have provisions in it that expressly takes away a secured creditor’s right to post-petition interest.

Creditors lacking liens to secure their claim can fare poorly in a bankruptcy case. The “absolute priority rule” is a bedrock principle of bankruptcy law and provides that a creditor at a particular rung of the claim priority hierarchy must be paid in full before any money flows down to junior creditors. Secured creditors reside near the top of the hierarchy, followed by administrative expense claimants, priority claimants and general unsecured creditors.

Two key changes made to Australian insolvency law enhance restructuring efforts in Australia and could improve outcomes for US investors.