In a recent decision in the Southern District of New York, the court addressed a challenge to a secured-for-unsecured debt exchange offer that raised and answered a host of questions on the potential vulnerability of offers of this type. In Waxman v. Cliffs Natural Resources (SDNY December 6, 2016), the court dealt with standing to pursue a challenge; TIA §316(b) after Marblegate and MeehanCombs/Caesars; the no-action clause and allegations of conflict of interest of the trustee; the remedies clause; and discrimination against non-QIBs.

On Nov. 17, 2016, the United States Court of Appeals for the Third Circuit issued an important decision in favor of holders of more than $4 billion in secured first and second lien notes issued by Energy Future Intermediate Holding Co. LLC (EFIH), which unwillingly had their secured notes repaid ahead of schedule in bankruptcy without payment of the “make-whole” required under the indentures. In re Energy Futures Holding Co., No. 16-1351 (3d Cir. Nov. 17 2016).

In a three-line order, the Delaware Supreme Court recently affirmed the Court of Chancery’s dismissal of a suit by a creditor against Athilon Capital Corp. and its sole shareholder, Merced Capital Partners, arising from claims of self-interested transactions by Merced. Quadrant Structured Products Company, Ltd. v. Vertin serves as a reminder of the limited recourse of creditors against controlling shareholders of a debtor that is solvent, even in the cases of egregious conduct.

The Facts

The Office of Compliance Inspections and Examinations (OCIE) announced it is examining registrants’ compliance with key whistleblower provisions arising out of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act).

The new Companies Ordinance (Cap 622) enacted in 2012 was the first part of the effort to rewrite the statutory provisions relating to the incorporation and operation of companies. The remaining task of updating the winding up and insolvency provisions was completed in May 2016, when amendments to the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap 32) (CWUMPO) were passed into law. Although the implementation date of these amendments are to be announced by the government, it is time to look at the significant changes ahead.

The proposed bankruptcy sale of Golfsmith International Holdings to Dick’s Sporting Goods was recently approved, after the privacy ombudsman recommended that almost 10,000,000 consumer records (i.e., the personal information of consumers) of Golfsmith International Holdings can be transferred to Dick’s Sporting Goods.

Section 316(b) of the Trust Indenture Act, which prohibits action that would deprive individual bondholders of the right to receive principal and interest, has taken center stage of late with rulings on the scope of its applicability. But another provision of Section 316 of the TIA drives in the opposite direction, and is equally fundamental to the architecture of indenture debt as commonly issued in this country. Section 316(a)(1) prescribes the default rule that a majority of bondholders have the power to direct the remedial actions of the trustee.

A recent decision by an appeals court of the State of New York highlights the deceptive complexity of bringing non-contractual claims by or on behalf of noteholders under the seemingly boilerplate remedies provisions in trust indentures. At issue was the standard indenture language that defines the authority of a trustee to bring claims under the indenture, and in particular whether the trustee has the power to bring non-contractual claims under its own volition (not directed by a majority in principal amount of bondholders) against persons not party to the indenture.

In an August 2016 decision in the Aéropostale bankruptcy case,¹ the Bankruptcy Court for the Southern District of New York held that allegations of insider trading did not justify equitable subordination and were not “cause” to deny a credit bid. The decision helps bridge the gap between the treatment of insider trading allegations in bankruptcy court and their treatment everywhere else.

Rated and other debt issuances are often structured with borrowers that are special purpose entities, whose governance provisions are designed to inhibit bankruptcy filings. A recent District of Delaware bankruptcy court case, while not directly on point, throws into question the premises underlying the efficacy of such provisions.

Facts