Cancellation of commercial agreements under German insolvency law

Commercial agreements usually provide for extraordinary termination rights or even automatic cancellation in the case of insolvency of one of the parties. Such a cancellation right may, however, contradict the general principles of German insolvency law.

There have been a number of recent English Court judgments of interest in the corporate field and this corporate update reports on cases relevant in relation to warranties and representations in M&A transactions, restrictive covenants in acquisition agreements, the enforcement of foreign judgments in cross-border insolvency proceedings and the piercing of the corporate veil.

WARRANTIES OR REPRESENTATIONS? - Ensuring clarity of intention when drafting acquisition agreements

The highly anticipated decision of the Supreme Court of Canada in Re: Indalex was released this morning.

Here are the key highlights:

On July 6, 2012, in Lightsquared LP (Re),¹ the Ontario Superior Court of Justice (the "Ontario Court"), released reasons that clarify the criteria for the identification of the centre of main interest ("COMI") of an applicant seeking recognition of foreign insolvency proceedings as "Foreign Main Proceedings" pursuant to Section 46 of the Companies' Creditors Arrangement Act ("CCAA").²

introduction

The British Columbia Supreme Court recently reviewed the considerations to be applied on an application by a secured creditor to lift a stay of proceedings granted in an initial order under the Companies' Creditors Arrangement Act (the "CCAA"). In Re Azure Dynamics Corp.,¹ Madam Justice Fitzpatrick confirmed that the classic "doomed to fail" argument will not be persuasive where the applicant creditor is not prejudiced, and where the objectives of the CCAA are best served, by allowing the stay of proceedings to continue.

background

On May 14, 2012, in 9-Ball Interests Inc. v. Traditional Life Sciences Inc.¹, the Ontario Superior Court of Justice (the "Court") rendered another decision that demonstrates the importance of full disclosure and transparency in applications made to the Court.

On May 29, 2012, the Supreme Court of the United States, in the chapter 11 cases of RadLAX Gateway Hotel, LLC, and RadLAX Gateway Deck, LLC (the “RadLAX Cases”)¹ held by a vote of 8-0² that a chapter 11 plan cannot be confirmed if the plan (i) is rejected by a class of secured claims, (ii) provides for the sale of collateral free and clear of liens securing such claims, and (iii) deprives the holders of such claims of the right to credit bid at the sale of collateral.  

A year after the uncertainty created in the Canadian corporate debt financing world by the Ontario Court of Appeal's pensions-friendly decision in the Indalex CCAA restructuring matter², the Quebec Superior Court, in April 2012, determined in a lengthy and well-reasoned decision that the key restructuring and pensions law principles underpinning Indalex do not apply in Quebec when considering the treatment of defined benefit amortization payment and deficit claims in a restructuring.

Preliminary Remarks

On March 1, 2012, the Act for the Further Facilitation of the Restructuring of Companies (ESUG) came into effect. The main aim of the ESUG is to improve the prospects of an early and successful restructuring of distressed companies, to involve creditors in the selection process of the (preliminary) insolvency administrator and to improve the reliability and predictability of particular insolvency plan proceedings. The main changes of the ESUG to the current German insolvency law (InsO) comprise: