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    Club deal: collaboration or collusion?
    2008-06-10

    The current liquidity drought is pushing more businesses toward some form of financial reorganization. As the restructurings become more frequent, two different trends–one in bankruptcy and the other in private equity–will intersect. The result may surprise dealmakers searching the detritus for investment opportunities.

    Filed under:
    USA, Insolvency & Restructuring, Litigation, Reed Smith LLP, Public company, Punitive damages, Bankruptcy, Shareholder, Debtor, Private equity, Federal Reporter, Anti-competitive practices, Investment funds, Collusion, US Department of Justice, US DoJ Antitrust Division, Title 11 of the US Code, United States bankruptcy court, Fifth Circuit, Court of equity
    Location:
    USA
    Firm:
    Reed Smith LLP
    ‘Deepening insolvency’ claim unsuccccessful
    2008-06-10

    The “deepening insolvency” doctrine received another blow1 when a federal bankruptcy judge dismissed claims against the former directors and shareholders of a corporation for allegedly covering up massive fraud perpetuated by the business.

    Filed under:
    USA, Insolvency & Restructuring, Litigation, Reed Smith LLP, Bankruptcy, Shareholder, Breach of contract, Fraud, Dividends, Fiduciary, Standing (law), Reinsurance, Bad faith, Goldman Sachs, Trustee, United States bankruptcy court, US District Court for the Southern District of New York
    Location:
    USA
    Firm:
    Reed Smith LLP
    Mandatory subordination of claims under Section 510(b): three new Delaware decisions
    2008-05-31

    Section 510(b) of the Bankruptcy Code provides that claims for “damages arising from the purchase or sale of . . . a security” of the debtor or an affiliate of the debtor are subordinated to any claims not based on stock. 11 U.S.C. § 510(b). Because there is rarely enough value in a bankrupt company to satisfy all claims, a determination that a particular claim is subject to mandatory subordination under section 510(b) means that, as a practical matter, the claim is unlikely to receive any distribution from the estate.

    Filed under:
    USA, Insolvency & Restructuring, Litigation, Cadwalader Wickersham & Taft LLP, Bankruptcy, Shareholder, Employee Retirement Income Security Act 1974 (USA), Debtor, Security (finance), Breach of contract, Fraud, Fiduciary, Consideration, Arbitration award, Liquidation
    Location:
    USA
    Firm:
    Cadwalader Wickersham & Taft LLP
    Private equity firm faces potential liability for deepening insolvency damages
    2008-06-25

    A recent decision by the Delaware bankruptcy court highlights the issues which must be considered by private equity firms, investment funds and other entities who play an active role in the management of their financially distressed portfolio companies.

    Filed under:
    USA, Delaware, Insolvency & Restructuring, Litigation, Dentons, Shareholder, Breach of contract, Fiduciary, Debt, Negligence, Investment funds, Title 11 of the US Code, Delaware Supreme Court, United States bankruptcy court
    Location:
    USA
    Firm:
    Dentons
    Enforcement of creditors' rights under the UCC: is shareholder consent required?
    2008-06-19

    Boards of directors of troubled companies must balance their fiduciary obligations to shareholders and creditors. Insolvent companies owe duties to creditors and not solely to shareholders and, under evolving case law, companies acting in the "zone of insolvency" owe a duty to creditors as well as to shareholders.

    Filed under:
    USA, Insolvency & Restructuring, Richards Kibbe & Orbe LLP, Shareholder, Debtor, Collateral (finance), Fiduciary, Board of directors, Debt, Consent, Mortgage loan, Foreclosure, Liability (financial accounting), Common law, Refinancing, Secured creditor, Certificate of incorporation, Uniform Commercial Code (USA)
    Location:
    USA
    Firm:
    Richards Kibbe & Orbe LLP
    Bankruptcy court dismisses fraud claims against Alphastar’s former shareholders, directors and officers
    2008-06-18

    AlphaStar Insurance Group Ltd. ("AlphaStar") (f/k/a Stirling Cooke Brown Holdings Ltd) was a group of companies which provided, among other services, reinsurance brokerage and intermediary services through companies in London, Bermuda and the United States. The companies collapsed and eventually declared bankruptcy, largely as a result of their involvement in the personal accident reinsurance market. Richard E.

    Filed under:
    USA, New York, Insolvency & Restructuring, Insurance, Litigation, White Collar Crime, Jorden Burt LLP, Bankruptcy, Shareholder, Fraud, Fiduciary, Reinsurance, Initial public offerings, Prejudice, Brokerage firm, Goldman Sachs, Trustee, US District Court for the Southern District of New York
    Location:
    USA
    Firm:
    Jorden Burt LLP
    Equity and debt decoupling: derivative instruments challenge fundamental assumptions of corporate and bankruptcy law
    2008-06-13

    The rapid growth in derivatives as hedging instruments, particularly through equity swaps, credit default swaps ("CDS") and loan credit default swaps ("LCDS"), has challenged fundamental assumptions underlying corporate governance law, federal shareholder disclosure requirements and bankruptcy law. Corporate law has long relied on a "one share one vote" model, which presumes that a shareholder's economic interests in a corporation are inextricably linked to their voting power.

    Filed under:
    USA, Derivatives, Insolvency & Restructuring, Litigation, Richards Kibbe & Orbe LLP, Share (finance), Corporate governance, Bankruptcy, Shareholder, Debtor, Security (finance), Swap (finance), Hedge funds, Debt, Credit risk, Economy, Credit default swap, Securities Industry and Financial Markets Association
    Location:
    USA
    Firm:
    Richards Kibbe & Orbe LLP
    Breach of fiduciary duty claims dismissed, but conduct might still support equitable subordination or recharacterization
    2008-06-30

    In Mukamal v. Bakes,1 the trustee of two trusts created under a chapter 11 plan of reorganization filed a complaint (the “Complaint”) against the former directors and officers of the debtors, the dominant shareholders of the debtors and the debtors’ accounting firm, alleging, among other things, various breaches of fiduciary duties.

    Filed under:
    USA, Delaware, Insolvency & Restructuring, Litigation, Cadwalader Wickersham & Taft LLP, Shareholder, Debtor, Unsecured debt, Collateral (finance), Arbitration clause, Waiver, Fiduciary, Audit, Board of directors, Trustee
    Location:
    USA
    Firm:
    Cadwalader Wickersham & Taft LLP
    Fifth Circuit emphasizes harm to other creditors as requirement for equitable subordination
    2008-07-14

    In a recent case,1 the Fifth Circuit emphasized its rule that a creditor's claim may be equitably subordinated to the claims of other creditors only to the extent necessary to offset the harm that the other creditors have suffered, based on specific findings and conclusions.

    Background

    Filed under:
    USA, Insolvency & Restructuring, Litigation, White & Case, Shareholder, Debtor, Unsecured debt, Collateral (finance), Debt, Intangible asset, Default (finance), Secured creditor, Secured loan, Title 11 of the US Code, United States bankruptcy court, Fifth Circuit
    Location:
    USA
    Firm:
    White & Case
    Good-faith Chapter 11 filing determination defeats fiduciary duty breach claim
    2008-08-01

    For the third time in as many years, the Delaware Chancery Court has handed down an important ruling interpreting the interaction between federal bankruptcy law and Delaware corporate law. The thorny question this time was whether a bankruptcy court’s determination that the directors of a corporation acted in good faith when they authorized a chapter 11 filing precluded a subsequent claim that the directors breached their fiduciary duties by doing so. The Delaware Chancery Court concluded that it did, ruling in Nelson v.

    Filed under:
    USA, Delaware, Company & Commercial, Insolvency & Restructuring, Litigation, Jones Day, Bankruptcy, Shareholder, Breach of contract, Fiduciary, Debt, Good faith, Balance sheet, Bad faith, Line of credit, Secured creditor, Collateral estoppel, Chief executive officer, Delaware Court of Chancery, United States bankruptcy court
    Location:
    USA
    Firm:
    Jones Day

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