Under the BVI Business Companies Act, 2004 (the “Act”) there are two types of court supervised arrangements.
The provisions of Part IX of the BVI Business Companies Act, 2004 (as amended,1 the Companies Act) deal with corporate reconstructions, specifically:
- mergers;
- consolidations;
- sales of assets;
- forced redemptions of minority shareholders;
- arrangements; and
- provisions dealing with dissenting members.
In the recent case of Re Masonite International Inc., the Ontario Superior Court approved a plan of arrangement under the Canada Business Corporations Act (“CBCA”), notwithstanding that certain insolvent entities were involved. This was a short but complex cross-border restructuring which commenced and was principally completed prior to the recent Canadian insolvency legislation amendments coming into force.
Many multinational corporations ("MNCs") are either restructuring or actively considering restructuring their China operations, given the current economic conditions and forecasts. Restructuring efforts often include consolidating legal entities, business units, and operations; closing down operations and factories; and workforce reductions. Implementing such restructuring efforts often raises complicated legal issues, many of which require careful analysis in light of recent legislation and policy considerations.
Consolidating Operations
In the current economic environment, there are a number of entities that are being restructured. Our current experience has been that such restructurings fall into two areas, namely a debt for equity swap or a release of “toxic” assets from a group structure in order to minimise exposure to this asset class.
Debt for Equity Swap
Recently, the Federal Deposit Insurance Corporation (FDIC) and the Federal Reserve Board (FRB) each issued rules related to different aspects of the Dodd-Frank Act. The FDIC published in the Federal Register an interim final rule clarifying how it will treat certain creditor claims under the new orderly liquidation authority (OLA) granted under Title II of the Dodd-Frank Act.
On April 25, 2011, as widely expected, a group of Lehman creditors holding claims arising from terminated derivatives transactions filed a competing plan of reorganization and related disclosure statement in the Debtors' chapter 11 cases. As a result of the new filing, there are now three competing plans – (1) the Debtors’ Plan, (2) the Ad Hoc Group’s Plan (filed by a group of bondholder creditors) and (3) the Non-Consolidation Plan (filed by the derivative claimants) - in the Lehman bankruptcy proceedings.
In general, substantive consolidation allows for the assets and liabilities of affiliated debtor entities to be consolidated and disbursed as if the assets were held and the liabilities were owed by a single legal entity. Unlike joint administration, which promotes procedural convenience and efficiency without affecting the substantive rights of creditors, substantive consolidation can force creditors of a solvent debtor to share in the debtors’ aggregate asset pool in parity with creditors of less solvent debtors.
With the recent decline in housing and real estate generally, companies in the homebuilding and construction markets face serious challenges. Some projects have already been forced into Chapter 11 and others will almost certainly require either a bankruptcy filing or out-of-court restructure. In the event a bankruptcy is filed, vendors, contractors, subcontractors and other interested parties should be aware of the impact of important bankruptcy code provisions on their relationship with troubled companies.
Automatic Stay
Opinion Serves to Remind Lenders That “Bankruptcy Remote” Does Not Mean “Bankruptcy Proof”
Judge Allan L. Gropper of the Bankruptcy Court for the Southern District of New York issued a much-anticipated order on August 11, 2009, in the challenge to the bankruptcy filings by certain special-purpose-entity (“SPE”) affiliates of General Growth Properties, Inc. (“GGP”).