On January 17, the US Court of Appeals for the Second Circuit rendered a much anticipated decision in Marblegate Asset Management, LLC v. Education Management Corp., No. 15-2124-cv(L), 15-2141-cv(CON), reversing the Southern District of New York's holding that only a non-consensual amendment to an indenture's core payment terms violates Section 316(b) of the Trust Indenture Act (TIA).

On November 17, 2016, the US Court of Appeals for the Third Circuit in Delaware Trust Co. v. Energy Future Intermediate Holding Co. LLC, No. 16-1351 (3d Cir. Nov. 17, 2016) clarified the often-muddy interplay between indenture acceleration provisions and "make-whole" redemption provisions, holding that Energy Future Intermediate Holding Co. LLC and EFIH Finance Inc. (collectively, "EFIH") were unable to avoid paying lenders approximately $800 million in expected interest by voluntarily filing for bankruptcy.

Background

The infamous history of MF Global is closer to ending after the administrator for the bankrupt holding company filed a proposed notice of settlement that, if approved, would provide a payment of US $132 million to resolve most outstanding litigation against the company and individual former officers by certain customers and other creditors. The funds would come from insurance proceeds from policies maintained on behalf of the former officers of MF Global that were named as defendants in the litigation, including John Corizine, former chief executive officer.

The bankruptcy court overseeing the Lehman Brothers chapter 11 cases rejected efforts by Lehman Brothers Special Financing Inc. (LBSF) to recover roughly $1 billion in payments made to numerous noteholder defendants from the liquidation of collateral originally pledged to secure both obligations under notes issued by special purpose entities and credit default swap (CDS) obligations to LBSF, holding that the termination of the swap and liquidation and distribution of the collateral were protected by the Bankruptcy Code’s safe harbor.

The Board of Governors of the Federal Reserve System proposed a rule that would require US global systemically important banking institutions to amend their contracts for certain common financial transactions to preclude the immediate termination of such contracts if a firm enters bankruptcy or a resolution process. Relevant contracts – termed “qualified financial contracts” – that would have to be amended include those used for derivatives, securities lending and short time financing such as repurchase agreements.

There have been a number of recent instances, including this year, of quoted companies calling general meetings to seek shareholder approval to remedy dividends that were paid unlawfully. Invariably these have been for non-compliance with a statutory formality rather than because the company did not have sufficient distributable profits to make the dividend.

Why are companies prepared to suffer the embarrassment and expense of going to their shareholders to fix the breach rather than simply doing nothing?

On April 6, the Federal Deposit Insurance Corporation (FDIC) rescinded Financial Institution Letter (FIL) 50-2009 entitled “Enhanced Supervisory Procedures for Newly Insured FDIC-Supervised Depository Institutions.” The FIL, among other measures, had extended the de novo period for newly organized, state nonmember institutions from three to seven years for examinations, capital maintenance and other requirements.

The Court of Appeal has reiterated some important rules for funders involved in debt purchase. Banking Litigation specialist Alasdair Urwin looks at the recent case of Bibby Factors Northwest v HDF and MCD [1].

Buyer beware

This case concerned a factoring agreement, pursuant to which a funder (Bibby) purchased unpaid invoices from another company (the Assignor), including debts owing from the defendant companies (the Customers).

The financial pressure on the oil and gas industry is well known. Dozens of oil and gas companies have defaulted on credit facilities or filed bankruptcy recently and industry observers expect many more to follow.