Recently, several courts have added to the growing body of decisions construing intercreditor agreements in bankruptcy cases.

The Bankruptcy Code dictates the priority of distributions to the holders of allowed secured and unsecured claims in accordance with various statutory priority schemes. However, the Bankruptcy Code also provides that consensual pre-bankruptcy agreements between or among creditors that prioritize the right to receive payments from an obligor will generally be enforced in a bankruptcy case subsequently filed by the obligor.

A senior creditor can obtain significant leverage over a chapter 11 debtor if it is able to vote not only its claim but the claims of junior creditors in connection with the solicitation of a plan of reorganization. Obtaining such leverage, however, has proven problematic in the past. Among other things, courts have been reluctant to enforce pre-bankruptcy assignments or waivers of voting rights contained in intercreditor agreements, holding that such assignments or waivers may violate the Bankruptcy Code and rules. In Avondale Gateway Center Entitlement, LLC v.

Must creditors holding claims denominated in a foreign currency against a debtor in a US bankruptcy case bear the risk of a postpetition decline in the value of the dollar? In In re Global Power Equipment Group Inc.,1 the Bankruptcy Court for the District of Delaware says yes, holding that, pursuant to section 502(b) of the Bankruptcy Code, a contested claim denominated in foreign currency must be converted into United States currency as of the petition date instead of a later judgment or breach date.

The Conversion Date Dispute

In a recent decision, Marrama v. Citizens Bank of Massachusetts1, the United States Supreme Court considered whether a debtor has an absolute right under Section 706(a) of the Bankruptcy Code to convert a case to Chapter 13, clarifying a growing split among circuits as to whether the debtor’s bad faith conduct prior to his proposed conversion results in the forfeiture of the debtor’s right to convert.

Defendants in a lawsuit didn’t waive their right to arbitrate even after moving to dismiss and answering a complaint, a court held last week. Arbitration wasn’t waived because the defendants hadn’t filed affirmative defenses or counterclaims and had taken no discovery. Trevino v. Select Portfolio Servicing, Inc. (In re Jose Sr. Trevino), Adv. Pro. No. 16-7024, 2018 Bankr. LEXIS 3605 (Bankr. S.D. Tex. Nov. 14, 2018).

Summary

This briefing sets out the key French corporate income tax issues in respect of debt restructurings. In summary, debtors and creditors may be faced with material tax consequences in case of a debt waiver, debt transfer, conversion of debt into equity or debt buy-back, so that such operations may require an appropriate structuring in order to mitigate potential tax issues.

Introduction  

This briefing summarises key French tax points relating to restructuring of indebtedness.  

Although safeguard proceedings have been used successfully as a negotiation tool in a number of high-profile cases (such as the Eurotunnel case), they have represented just 1 per cent of all insolvency proceedings in France since the Business Safeguard Act 2005 introduced the safeguard procedure in January 2006. The main reason for this lack of success is the continuing stigma that is attached to insolvency proceedings in France.

In In re Bryan Road LLC,1 the United States Bankruptcy Court for the Southern District of Florida considered whether a waiver of the automatic stay provision included in a prepetition workout agreement is enforceable in the debtor’s subsequent bankruptcy. The Bankruptcy Court enforced the waiver and held the creditor was not bound by the automatic stay after engaging in a four-factor analysis of the agreement and the circumstances surrounding its execution. The Bankruptcy Court cautioned, however, that relief from stay provisions are neither per se enforceable nor self-executing.

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.