We’ve all seen it. The business opportunity looks enticing but is laced with risk about a potential bankruptcy filing down the road. As bankruptcy lawyers we are often asked how deals can be structured to prevent a potential bankruptcy filing.
BACKGROUND
Halcrow Group Limited (HGL) and Halcrow Water Services Limited (together Halcrow), two subsidiaries of Halcrow Holdings Limited (HHL), were the sponsoring employers with legal responsibility for funding the Halcrow Pension Scheme (HPS).
Claims remain frequent in the construction industry, and so do insolvencies. In the wake of main contractor Carillion’s entry into liquidation, and rumours of forthcoming interest rate rises, it is worth looking at what effect different types of insolvency have on the ability to prosecute claims.
On 6 April 2017, the Insolvency Rules 2016 came into force. The new rules aim to modernise the insolvency process; and make it more efficient. Physical meetings, as the default decision making process, have been abolished. Where the debtor ‘customarily’ communicated with a creditor by way of email notices can be served by email under deemed consent, rather than through the post. The rules also introduce the use of websites to publish notices, without the need to inform creditors of any postings.
On February 1, 2010, the United States Bankruptcy Court for the District of Delaware revised its Local Rules. A clean copy of the Local Rules are available here.
The recession has highlighted a new risk for borrowers – the risk that a lender will be insolvent and default on its obligation to fund loans under the credit agreement. This has created unexpected issues under credit agreements, which were written at a time when lender insolvency was not a perceived risk.”34
On May 20, 2010 the Senate passed the Restoring American Financial Stability Act of 2010 (the "Senate Bill") 59-39, only hours after the cloture vote ended debate on the bill. The House passed its version—the Wall Street Reform and Consumer Protection Act of 2009 (the "House Bill")—in December 2009. The primary stated focus of the Senate and House Bills is to prevent the failure of the "too big to fail" institutions and to avoid government (taxpayer) bailouts in the future.
Introduction
The recent decision in the case of In re Erickson Retirement Communities, LLC, 425 B.R. 309 (Bankr. N.D. Tex. 2010) provides ammunition for those opposing the appointment of an examiner in a debtor’s Chapter 11 case and a cautionary tale for lenders entering into subordination agreements.
It is no surprise that there are risks inherent in doing business with a debtor in bankruptcy, including, of course, the risk that the debtor may not have the money to pay for goods sold to it on credit. Businesses can manage those risks by, for example, shortening trade credit terms, obtaining the debtor’s agreement to pay on delivery or in advance for product, or obtaining a deposit or letter of credit as security. But, once a debtor has paid for goods or services it actually received, most vendors would probably assume that the transaction cannot be challenged.
Longview Aluminum, LLC v Brandt (In re Longview Aluminum, LLC), 2010 WL 2635787 (ND Ill, June 28, 2010)
CASE SNAPSHOT