Insider status in U.S. bankruptcy carries with it significant burdens. Insiders face a one year preference exposure rather than the 90 day period applicable to non-insiders; insiders are by definition disinterested persons and may not be retained to provide professional services and transactions among debtors and their insiders are subject to heightened scrutiny under the entire fairness doctrine.
Several recent legal and regulatory developments in the U.S. will likely alter the makeup of the group of arrangers and financiers willing to arrange and provide financing for certain highly leveraged transactions, and also provide guidance to those considering a loan-to-own or related acquisition strategy, in order to help avoid potential pitfalls.
Revised Leveraged Lending Guidance
Background
The ongoing saga of the Scottish Coal Company liquidation provides the background to East Ayrshire Council v Zurich Insurance [2014] CSOH 102.
East Ayrshire Council (EAC) granted planning permission for a surface mine at Dalfad subject to restoration obligations on Scottish Coal. These obligations were secured by a restoration bond granted by Zurich Insurance. Following Scottish Coal's liquidation, it and its liquidators, were unable to carry out the restoration work.
The Bankruptcy and Debt Advice (Scotland) Bill was passed by the Scottish Parliament on 20 March 2014, containing significant amendments to Scottish personal bankruptcy legislation.
Modernising Personal Bankruptcy
As is well known, the right to credit bid is the entitlement of a secured lender to bid the amount of its outstanding claims at the sale of its collateral. If the secured lender places the winning bid, no money is exchanged and the purchase price is offset against the existing claims. Credit bidding provides an important right to secured lenders in ensuring that their collateral is not sold for a depressed value. If a secured lender thinks its collateral is being sold too cheaply, it has the option of taking the collateral in exchange for some or all its claims.
The Financial Crisis, a difficult market situation and a tense liquidity status have led to remarkable difficulties for mid-sized businesses within the past years. Strategic and financial investors have and continue to utilize these circumstances to acquire interesting distressed companies for comparatively moderate purchase prices.
In order to benefit from these circumstances, investors need to understand how to avoid or minimize the risks of liability related to such acquisitions.
Introduction
Several recent legal developments will likely impact acquisition finance.
In our e-updates of 20 January 2010 and 16 August 2010, we looked at decisions of the English and Scottish courts from December 2009 and August 2010 in which it was decided that, in England and Scotland respectively, the Administrators of a tenant company are bound to account to the landlord of premises for rent due in relation to the period during which those premises are being u
Our government has a longstanding commitment to cutting red tape. One of the ways of doing this it seems is to propose an Act of Parliament running to 153 pages. Thus we are presented with the Deregulation Bill.
A few of the provisions of this Bill relate to insolvency. The most significant are: