Summary

This briefing sets out the key French corporate income tax issues in respect of debt restructurings. In summary, debtors and creditors may be faced with material tax consequences in case of a debt waiver, debt transfer, conversion of debt into equity or debt buy-back, so that such operations may require an appropriate structuring in order to mitigate potential tax issues.

Introduction  

This briefing summarises key French tax points relating to restructuring of indebtedness.  

In Ocean Rig [1], the Grand Court sanctioned four inter-related schemes of arrangement (the “Schemes”), as part of a group restructuring of over US$3.69 billion of New York law governed debt – in value terms, the largest judicially approved restructuring in the Cayman Islands.

Following our previous updates (Ebert Construction Receivership – What You Need to Know and Ebert Construction – Receivership and Liquidation), on 12 November 2018 the High Court ordered that the Receivers of Ebert Construction Ltd (in rec and liq) (Ebert) be appointed as the receivers

Late last month, the Supreme Court granted a petition for certiorari review of the Fourth Circuit Court of Appeals’ decision in PEM Entities LLC v. Eric M. Levin & Howard Shareff. At issue in PEM Entities is whether a debt claim held by existing equity investors should be recharacterized as equity. The Supreme Court is now poised to resolve a split among the federal circuits concerning whether federal or state law should govern debt recharacterization claims.

The Third Circuit recently affirmed that a debtor in Chapter 11 can use a tender offer to settle claims without running afoul of the Bankruptcy Code. Although In re Energy Future Holdings Corp.is limited to its particular facts and circumstances, the decision could lead to increased use of tender offers prior to confirmation of a bankruptcy plan.

The Indiana Lawyer Announced on March 31, 2011, that the Fair Finance Co.’s bankruptcy trustee had reached a $371,000 settlement with an Indianapolis attorney who was accused of defaulting on a 2003 loan from the business. The trustee had sued the Indiana attorney and his wife, saying that the couple failed to pay off a $250,000 loan that matured in 2006. Accrued interest had raised the amount owed to over $370,000.

Trust preferred securities (TRUPs), the highbred security that counted as Tier 1 regulatory capital but generated tax deductible interest payments, were a favored source of capital for community banks. When the financial crisis hit, many bank holding companies (BHCs) with troubled bank subsidiaries exercised the right to defer interest payments on their outstanding TRUPs for up to five years. Interest continued to accrue during the deferral period, but the deferral was not a default and there was nothing that the TRUPs holder could do but wait.

On the somewhat unusual occasions when your judgment debtor has assets, the question turns to how do I maximize my judgment and collect every penny legitimately owed to my client?  Here are some thoughts:

In a recent Fifth Circuit decision, Western Real Estate Equities, LLC v. Village at Camp Bowie I, L.P., No. 12-10271 (5th Cir. 2013), the court held that the acceptance vote from a minimally and “artificially impaired” class of claims meets the 11 U.S.C. § 1129(a)(10) requirement for the confirmation of a non-consensual “cramdown” chapter 11 plan.

In two recent decisions in the General Growth Properties, Inc., et al. chapter 11 cases, the United States Bankruptcy Court for the Southern District of New York upheld certain loan provisions which provided for an automatic event of default and imposition of a default rate of interest upon the commencement of a bankruptcy case, and held that certain creditors were entitled to receive postpetition interest at the contractual default rate.  General Growth Properties, Inc. and its affiliated debtors own, develop, and operate regional shopping malls across the United States.