This article has been contributed to the blog by Joshua Hurwitz and Waleed Malik.
This briefing note provides an outline of the different processes of voluntary and compulsory winding up under the Companies (Guernsey) Law, 2008 (as amended) (the “Law”). It does not cover striking off companies or the specific provisions on winding up of protected cell companies and incorporated cell companies. Further information on the effect of the Law on the winding up of these company structures can be found in our separate briefing notes on those subjects.
The mechanics of a voluntary winding up
This briefing note describes the key features of the incorporated cell company (“ICC”) and summarises the formation, structure and liquidation procedures particular to this type of company.
Key features
Shareholders’ Rights and Shareholders’ Meeting
A contractual waiver of an entity’s right to file for bankruptcy is generally invalid as a matter of public policy. Nonetheless, lenders sometimes attempt to prevent a borrower from seeking bankruptcy protection by conditioning financing on a covenant, bylaw, or corporate charter provision that restricts the power of the borrower’s governing body to authorize such a filing. One such restriction—a lender-designated “special member” with the power to block a bankruptcy filing—was recently invalidated by the court in In re Lake Mich.
Must a foreign debtor's insolvency representative obtain permission from a United States bankruptcy court before exercising the debtor's rights as shareholder to remove and replace directors and officers of a US corporation? The Bankruptcy Appellate Panel (BAP) of the Ninth Circuit recently held not, provided that the representative does not require judicial assistance to exercise these rights.1
In a recent adversary proceeding brought by a chapter 7 trustee to recharacterize a creditor’s claim from a debt claim to an equity interest, the United States Bankruptcy Court for the District of South Carolina denied a creditor’s motion to dismiss for failure to state a claim where the trustee had alleged that the lender assumed control over the corporation after the date of the credit agreement.
Corporate financial uncertainties or troubles frequently require corporate directors to make difficult choices that affect shareholders, creditors and others having an interest in the corporation. In that situation, the question naturally arises: Do directors' duties change when a corporation is experiencing financial difficulties, is nearing insolvency or becomes insolvent? The short answer is that the fiduciary duties of corporate directors under Delaware and Texas corporate law do not change, but that the ultimate beneficiaries of those duties may shift.
This article has been contributed to the blog by Joshua Hurwitz and Waleed Malik.
Must a foreign debtor's insolvency representative obtain permission from a United States bankruptcy court before exercising the debtor's rights as shareholder to remove and replace directors and officers of a US corporation? The Bankruptcy Appellate Panel (BAP) of the Ninth Circuit recently held not, provided that the representative does not require judicial assistance to exercise these rights.1