A recent decision by the U.S. Court of Appeals for the Second Circuit, In re Tribune Company Fraudulent Conveyance Litigation,1 represents a significant victory for shareholders who may get cashed out in connection with a leveraged transaction that precedes a company bankruptcy.
Several recent legal and regulatory developments in the U.S. will likely alter the makeup of the group of arrangers and financiers willing to arrange and provide financing for certain highly leveraged transactions, and also provide guidance to those considering a loan-to-own or related acquisition strategy, in order to help avoid potential pitfalls.
Revised Leveraged Lending Guidance
In the last several months, there have been some significant legal developments that could impact acquisition finance. This article will survey some of the more notable ones.
In a case with implications for buyers of assets in a bankruptcy court-ordered sale under section 363(b) of the Bankruptcy Code, the Bankruptcy Court for the Southern District of New York recently issued a decision limiting the ability of manufacturers that are debtors in a bankruptcy case to sell assets free and clear of future liabilities.
Industry observers have been waiting to see when bank failures arising out of the recent financial crisis would produce a wave of Federal Deposit Insurance Corporation (“FDIC”) litigation similar to that seen in the early 1990s after the savings and loan crisis. With its second suit in recent months, the FDIC has shown that it will aggressively pursue claims against directors and officers in connection with failed depository institutions.
Key Takeaways
In a recent decision, the Court of Appeals for the Sixth Circuit held that the election of a tenant, under Section 365(h) of the Bankruptcy Code, to remain in possession of real property governed by a rejected lease causes a third-party guaranty on another rejected agreement to remain in effect, to the extent such agreement and the lease are part of an integrated transaction.
Key Takeaways
Merit Management
Are Trademark Licenses Protected in Bankruptcy? The Confusion Continues
Recently, the United States Bankruptcy Court for the District of Connecticut held that while a bankrupt licensor may reject a trademark licensing agreement, the trademark licensee may elect to retain its rights to the debtor’s trademark. The Bankruptcy Court noted that its ruling disagrees with a contrary decision issued by the First Circuit only a few months earlier.
Executory Contracts and the IP Exception
The existing insolvency rules in the UK have been recast with the aim to "modernize and consolidate" the procedural framework for insolvency processes in the UK and promote efficiency. The Insolvency (England and Wales) Rules 2016 (the “New Rules”) came into force on April 6, 2017.
A key feature of the New Rules is a welcome overhaul of the provisions regarding communication with creditors, to allow for electronic communications instead of paper documents and physical meetings.