In a recent decision, EMA GARP Fund v. Banro Corporation, No. 18 CIV. 1986 (KPF), 2019 WL 773988 (S.D.N.Y. 21 February 2019), District Judge Katherine Polk Failla of the U.S. District Court for the Southern District of New York enforced a foreign reorganization plan in the United States on the basis of international comity, notwithstanding that no application for recognition and enforcement had been made under Chapter 15 of the U.S. Bankruptcy Code. Banro Corp. Inc., a public corporation headquartered in Canada, underwent a restructuring proceeding in Ontario under the Companies’ Creditors Arrangement Act (CCAA). The approved reorganization plan extinguished the interests of the company’s equity holders (including stockholders’ securities law claims against the company) and provided releases for the company and its directors and officers. Stockholders of the company chose not to participate in the CCAA proceeding and instead brought securities law claims against the company and its CEO in New York.

Continue Reading Foreign reorganization enforced in New York on international comity grounds

In a unanimous 25 February panel decision, the Second Circuit Court of Appeals held that the trustee liquidating Bernard L. Madoff’s investment firm can claw back billions in Ponzi scheme proceeds from investors who received the proceeds indirectly through non-U.S. “feeder funds” (funds that aggregate investor capital to invest in funds such as Madoff’s).

The ruling is significant because it affirmed the power of U.S. bankruptcy trustees to pursue estate funds to their ultimate destination, even if the paper trail involved transactions between non-U.S. entities. The effect of the ruling is to revive 88 adversary cases against international investors by Irving Pickard, the trustee of Bernard L. Madoff Investment Securities LLC (Madoff Securities) who is seeking to recover roughly US$4 billion in funds on behalf of customers who lost money in the Madoff Ponzi scheme.

Continue Reading New U.S. Second Circuit Court of Appeals ruling in Madoff liquidation extends the long arm of fraudulent transfer law

Recently finance partners Paul Mullen, Jo Robinson, and Tom Astle sat down with Joelle Jefferis, Debtwire to discuss what has happened so far in distressed direct lending scenarios and what can be expected in the future.  The short podcast covers areas such as how many unitranches have already been at restructuring stage, to how distressed talks differ when there are just two lenders at the table and also the problems that can arise from poor planning in the intercreditor.  Click here to listen to the podcast.

A cross-practice team led by partner Tom Astle has advised a syndicate of c.75 lenders under a bespoke €1.06bn super priority loan to distressed Croatian food producing and retail giant Agrokor (the “SPFA“) on an English law scheme of arrangement proposed by the company. The scheme of arrangement was approved by 97.92% in number of the lenders under the SPFA, representing 99.99% in value of scheme claims, at the creditors’ meeting earlier this week, and was sanctioned by Mr Justice Fancourt this morning.

Continue Reading Agrokor(king) success: Scheme of arrangement sanctioned by English court

Recently the German legislature passed a new law, exempting extraordinary profits created by the waiver of claims under restructurings from income tax liability. The amendment was necessary because the German Federal Tax Court had previously held the original administrative decree (which in a conceptually different manner avoided the tax burden on such profits) unlawful. This article gives a brief overview over the legislative history and the practical consequences of the amendment. Continue Reading Extraordinary profits created under restructurings according to German law – to be exempt or not to be exempt, that is the question!

The Recast Insolvency Regulation 2015/848 governs cross-border insolvency proceedings within the European Union. It provides in particular for the opening of the main proceedings by the jurisdiction of the member state where the centre of the debtor’s main interests is located (presumed to be the place of its registered office) and the opening of one or more secondary proceedings in the member states where the debtor possesses an establishment.

In the case at hand, insolvency proceedings were opened in 2012 in Romania against Izoplac, its headquarters being in Romania. In 2014, Izoplac was placed under judicial liquidation in France upon the request of a creditor. The court set the insolvency date and the Public Prosecutor petitioned for a ban on managing against the manager for failing to file for insolvency within 45 days. Continue Reading First insolvency proceedings opened held to have priority, with consequences regarding managers’ liability (Com. 7 févr. 2018, FS-P+I, n° 17-10.056)

The recently published report on the evaluation of the ESUG, the German law to facilitate the restructuring of companies, states that the changes introduced by the ESUG have been received positively overall, but that there is still room for improvement in many areas. Should the EU Restructuring Directive actually be adopted at the beginning of 2019, the legislator would have the opportunity to improve the ESUG legislation and implement the EU requirements for pre-insolvency restructuring proceedings in one bill. This would give the legislator the opportunity to further increase the global competitiveness of the German insolvency code and thereby strengthen the German market as such. Continue Reading Evaluation of the ESUG – essentially a success!?

In 2016, the insolvency and bankruptcy landscape in India was radically overhauled by the introduction of the new Insolvency and Bankruptcy Code (IBC). In addition to consolidating the complex set of existing laws and regulations on insolvency and bankruptcy into a single law, the IBC introduced time bound and creditor driven resolution process for distressed companies overseen by the newly formed National Company Law Tribunal (NCLT).

These changes were supported by amendments to the Banking Regulation Act to enable the Reserve Bank of India (RBI) to force banks to file insolvency applications against defaulting borrowers under the IBC. Since the new law was enacted, more than 500 cases have been admitted by the NCLT with around 1000 applications pending. The restructuring and/or liquidation of these companies under the new system and the accompanying foreign investment reforms has opened up a number of opportunities through different avenues for foreign investors to invest in distressed Indian assets.  Continue reading for a summary of the principal avenues for foreign investment in India.

Continue Reading New insolvency and bankruptcy law creates opportunities for foreign investment in India

 

In July 2017, we wrote about the case of Hamersley Iron Pty Ltd v Forge Group Power Pty Ltd (in liquidation) (receivers and managers appointed)[1], in which the Western Australian Supreme Court held that rights of set off enjoyed by an insolvent company’s contractual counterparties would not apply if the company had granted a security interest over the relevant contractual rights under the Personal Property Securities Act 2009 (PPSA).

The decision has been overturned by the Court of Appeal of the Supreme Court of Western Australia[2], such that the existence of a security interest will not necessarily of itself preclude the operation of statutory or contractual set off rights in favour of third parties.

The decision is significant because it potentially has a dramatic impact on the competing rights of secured and unsecured creditors in liquidation, and may prevent secured creditors from enjoying a windfall at the expense of unsecured creditors. It also places the emphasis firmly on the terms of the relevant security interest and underlying contract, which will now need to be considered in detail each time there is a claim for set off by the insolvent company’s contractual counterparties.

[1]               [2017] WASC (2 June 2017)

[2]               Hamersley Iron Pty Ltd v Forge Power Group Pty Ltd (in liquidation) (receivers and managers appointed) [2018] WASC 163

 

Continue Reading Court of Appeal overturns Hamersley Iron v. Forge Group Power – set off rights in liquidation restored

Nearly a year ago, the Italian Parliament passed Law 155/2017 giving the Government twelve months to adopt a root and branch reform of the rules governing business distress and insolvency procedures, taking into account European legislation (EU Regulation 2015/848, Commission Recommendation 2014/135) and the principles of the United Nations Commission on International Trade Law.  On 11 October 2018 the Italian Government issued the long-awaited draft of the legislative decree establishing the new Code for Distress and Insolvency (Codice della crisi d’impresa e dell’insovenza, the “New Code“).

The demise of insolvency?

At the heart of the New Code is the concept that the notion of “bankruptcy” (fallimento) is a thing of the past, to be replaced by “judicial liquidation” (liquidazione giudiziale), which becomes the last resort, available only when the debtor has failed to propose any other suitable solution. Seeking to ensure the best interest and satisfaction of creditors, the New Code prioritises procedures aimed at overcoming the crisis by keeping the business as a going concern (even if under new ownership).

Continue Reading Business Restructuring and Insolvency in Italy – a revolution in the making?