Senior Transeastern Lenders v. Official Comm. Of Unsecured Creditors of TOUSA, Inc. (In re TOUSA, Inc.), 2012 US App. LEXIS 9796 (11th Cir. May 15, 2012)

Yesterday, the Supreme Court of the United States ruled that a Chapter 11 plan that provides for the sale of assets free and clear of a creditor’s lien must allow the creditor to “credit bid” at the sale. In upholding the Seventh Circuit’s decision,¹RadLAX Gateway Hotel, LLC v. Amalgamated Bank resolved the circuit split on this issue between the Seventh Circuit, on the one hand, and the Third and Fifth Circuits, on the other.

BANKRUPTCY CODE

English schemes of arrangement under the Companies Act 2006 (Schemes) have been increasingly used by non-English companies as a powerful tool to restructure their financial indebtedness. Recent prominent examples of German companies that have utilized Schemes to cramdown non-consenting or “holdout” creditors in order to restructure the company’s balance sheet include TeleColumbus, Rodenstock and Primacom.

There are several reasons for this trend:

Nearly a year has passed since the Supreme Court held, in Stern v. Marshall,¹ that bankruptcy courts may not determine a potentially broad range of “private rights” disputes arising in bankruptcy proceedings. Lower courts have grappled with the practical implications of Stern, but it is not yet clear whether the decision will ultimately result in a significant curtailment of bankruptcy court power or prove narrower in application.

“In chapter 11, a creditor should be able to assert the full amount of any guarantee claim against the debtor without reducing the claim for recoveries against another obligor.”

“Whether the Nortel Senior Notes will be entitled to post-petition interest, and at what rate, in the chapter 11 cases are open questions that may hinge, among other things, on proving solvency of the Nortel chapter 11 debtors.”

We would like to introduce you to a great new feature of the revised German Insolvency Act which makes debt-equity-swaps in Germany (e.g., as part of loan-to-own transactions) a lot more attractive. It eliminates troubles caused by change-of-control provisions in agreements between an insolvent company and third parties.

Introduction: Debt-Equity- Swaps Now Possible Under German Insolvency Act

On March 1, 2012 a number of important changes to the insolvency regime in Germany came into force.¹ The main objective of the reforms is to facilitate the restructuring of companies and to enhance creditor’s involvement. The German government believes – in light of the recent financial crisis – that these reforms are necessary to facilitate complex restructurings.

NEW PRELIMINARY CREDITORS’ COMMITTEE

Amendments to the rules of deductibility of interest expenses

Further restrictions to deductibility of interest expenses incurred in relation to a share purchase¹

On April 26, 2011, the Supreme Court of the United States adopted amendments to Rule 2019 of the Federal Rules of Bankruptcy Procedure (Amended Rule 2019) and submitted the proposed amendment to Congress for approval. Amended Rule 2019 was approved by Congress and became effective on December 1, 2011. The rule governs certain disclosure requirements for groups consisting of multiple creditors or equity security holders acting in concert in Chapter 9 or Chapter 11 cases.

The Court of Appeal in England has unanimously upheld a first instance decision that a Financial Support Direction (FSD) issued by the Pensions Regulator to an entity after it has commenced insolvency proceedings will rank as an expense of the administration, therefore affording it superpriority over floating charge holders and other unsecured creditors. This decision has significant implications for lenders to groups with UK defined benefit pension plans if any of their security is taken as a floating charge.