U.S. Bankruptcy Judge Kevin Gross sitting in Delaware recently approved J.G. Wentworth’s (the “Debtor’s”) Chapter 11 plan after overruling an objection from the U.S. Trustee regarding third-party releases. The Debtor’s Chapter 11 reorganization plan was the second it has brought before the Delaware bankruptcy court in the last ten years.

The Debtor is a consumer finance company that specializes in purchasing and selling structured settlements and other assets in exchange for insurance payouts. After restructuring $370 million in term loan debt in 2009, the Debtor filed for bankruptcy on December 12, 2017 and brought another prepackaged chapter 11 plan to Delaware bankruptcy court. The plan called for a restructure of nearly $450 million in secured debt whereby senior secured lenders’ claims would be satisfied by receiving 95.5% of the new common equity in the reorganized J.G. Wentworth in addition to roughly 46% of their claims in a cash payout.

While the Debtor and the U.S. Trustee worked through the vast majority of issues regarding the Debtor’s plan, the U.S. Trustee objected to the way third-party releases could be granted absent any affirmative action by a creditor. The U.S. Trustee argued that consent is typically given by creditors to third-party releases in the form of an opt-in or opt-out clause, but here, no such clause or provision existed. Instead, creditors had to file an objection. The U.S. Trustee argued that requiring creditors to file objections to oppose the release of such consent rights imposed an undue burden on creditors. Such an imposition would require the financial burden of hiring and retaining counsel.

In response, J.G. Wentworth noted that the plan received no opposition from any creditors regarding the releases or the plan generally. J.G. Wentworth further argued that creditors were fully aware of their rights since they received a notice explaining the releases with explanatory definitions of all terms for clarity purposes.  The notice clearly stated releases within the plan could affect the creditors’ rights.

Although Judge Gross had denied certain third-party releases in the past, he approved these releases noting that they seemed consensual in the absence of any objections from creditors.

U.S. Bankruptcy Judge Martin Glenn recently decided that a fully-negotiated agreement would not be enforced in the absence of required signatures. The agreement contemplated a settlement between the General Motors bankruptcy trust and car purchasers and accident victims of General Motors cars following an alleged vehicle defect; both parties fully and unambiguously agreed to be bound by the terms of the agreement.

After filing for Chapter 11 protection in 2009, General Motors received $50 billion to operate its business, and the reorganized company was labeled by some as “New G.M.” While New G.M. resumed its business operations as a car manufacturer, Motors Liquidation Company, or “Old G.M.”, became a trust responsible for paying back creditors.

In 2014, G.M. became the target of a litigation whereby car accident victims accused the carmaker of defective ignition switches which led to the deaths of 124 people. In addition to recalling millions of cars, Old G.M. (or “the trust”) entered into a deal whereby it agreed to accept liability, make a $15 million payment and require the issuance of 30 million shares of common stock by New G.M. to its creditors. The combination of the $15 million payment and issuance of 30 million shares of stock totaled nearly a $1.02 billion settlement. Despite the plaintiffs’ attorneys and the trust agreeing to the deal, shortly thereafter New G.M. refused to cooperate. Instead, New G.M. brokered a deal with the trust whereby New G.M. would pay the trust’s legal fees in upcoming litigation with creditors in exchange for the trust withdrawing from the original agreement.

The plaintiffs argued that the settlement agreement should be binding under New York law.  The plaintiffs argued that the trust’s constant communication regarding its intent to be bound by the settlement constituted partial performance. In opposition, the trust argued that the agreement was never executed and therefore was not binding.

Judge Glenn’s decision turned on whether a provision within the settlement agreement, which called for signatures in order for the agreement to become “effective and binding”, was an essential part of the agreement or merely a boilerplate contractual provision. Judge Glenn held that contract law allows parties to withdraw from unsigned settlements and ruled that he could not enforce the deal without the trust’s signature. Judge Glenn left open whether plaintiffs may have other remedies against the trust.

Hogan Lovells is representing Scottish Re in the implementation of a sale and restructuring plan for its Cayman Islands subsidiary, Scottish Annuity & Life Insurance Company (Cayman) Ltd. (SALIC), and SALIC’s U.S. subsidiary, Scottish Holdings, Inc. (SHI). The sale and restructuring plan is being implemented through the commencement by SALIC and SHI of U.S. Chapter 11 proceedings in the United States Bankruptcy Court for the District of Delaware on January 28, 2018. The comprehensive restructuring of the companies’ debt and equity obligations is one of very few foreign insurance companies to seek relief under U.S. federal bankruptcy law.

The Hogan Lovells team is led by Business Restructuring and Insolvency practice partner Peter Ivanick, and also includes Lynn Holbert, John Beck, and Sean Feener.

For more details of the sale and restructuring please see Scottish Re’s press release.

On January 8, 2018, Senators John Cornyn (R-TX) and Elizabeth Warren (D-MA) introduced the Bankruptcy Venue Reform Act of 2017. The bill would require that individual debtors file in the district where their domicile, residence, or principal assets are located, and would require corporate debtors to file in the district in which their principal assets or their principal place of business is located.

Currently, corporations are permitted to file in their places of incorporation or in districts where their affiliates have pending bankruptcy cases. This means that many cases are filed in the District of Delaware, where more than half of U.S. publicly-traded companies are chartered, or in the Southern District of New York, which “benefits from [New York City’s] status as a dominant financial center,” according to Reuters. Statistics released by USCourts.gov indicate that in the one year period ending September 30, 2017, the Southern District of New York saw 587 chapter 11 filings, making up 8% of total filings nationwide. Similarly, the District of Delaware saw 435 chapter 11 filings, or 6% of total filings over the same period.

In a joint press release, Senator Cornyn noted that the bill is meant to “clos[e] the loophole that allows corporations to ‘forum shop’ for districts sympathetic to their interests.” Bankruptcy Courts would be required to transfer or dismiss cases filed in the wrong district, which would prevent debtors from “cherry-picking courts that they think will rule in their favor,” according to Senator Warren. Delaware Governor John Carney (D), Representative Lisa Blunt Rochester (D-Del.), and Senators Chris Coons (D-Del.) and Tom Carper (D-Del.) have released a joint statement in opposition to the bill.

On September 18, 2017, the iconic US-based retailer Toys “R” Us filed for Chapter 11 in the US Bankruptcy Court for the Eastern District of Virginia in front of Judge Keith L. Phillips. The company filed twenty-five entities, explaining that its $5.3 billion debt obligations and operational issues had led to the need for reorganization.

 The company’s Canadian subsidiary also began parallel proceedings under the Companies’ Creditors Arrangement Act (CCAA) in Canada. Meanwhile, the Company’s operations outside of the U.S. and Canada, including its approximately 255 licensed stores and joint venture partnership in Asia, which are separate entities, are not part of the Chapter 11 filing or CCAA proceedings.

 Since the company went private in 2005 it has had approximately $400M of annual debt service payments- these obligations have inhibited reinvestment in the core operations of the business.

 The company is optimistic that Chapter 11 offers an opportunity for Toys “R” Us to deleverage, relieve itself of unprofitable lease obligations, and invest back into their business in the U.S. and Canada. At present the company has a total of $3.1 billion of DIP financing, including two $450 million term loans and a $1.85 billion revolver.

 The Company intends to pay vendors in full under normal terms for goods and services delivered on or after the filing date. As the Company’s international subsidiaries are not part of the Chapter 11 filings and CCAA proceedings, Toys “R” Us’ international subsidiaries will pay vendors for all goods and services in the normal course.

 

 

Hogan Lovells business restructuring and insolvency practice partners Ron Silverman, Robin Keller, and Shaun Langhorne recently joined Debtwire senior legal content specialist Richard Goldman to discuss some “game-changing” revisions to Singapore’s insolvency regime. During the discussion, the panel addresses how Singapore, in an effort to market itself as an international forum for debt restructurings, transformed its restructuring laws from a creditor-based tool premised on English insolvency statutes into a debtor-friendly system more akin to Chapter 11 of the U.S. Bankruptcy Code. The panel also breaks down some key concepts that, while common to U.S. restructurings, were completely foreign to Singapore insolvency proceedings, including automatic moratoriums against creditor self-help, postpetition DIP or rescue financing, cramdown availability, and enhanced disclosure requirements. Finally, the panel provides notable considerations that practitioners and investors should take into account when navigating this yet-to-be tested regime.

Click here to listen to the podcast.

These days, the threat of counterparty insolvency looms over the energy sector: whether it is a natural disaster or precipitous decline in the price of oil, perhaps no industry is more susceptible to the financial decline and potential default of contracting parties.  Continue Reading Energy disputes: Countering counterparty insolvency

The Singapore parliament recently passed a bill bringing in U.S. Chapter 11-inspired changes to its debt-restructuring framework, including provisions allowing (i) courts to approve financing with priority ahead of existing senior secured facilities; (ii) courts to approve a scheme even if there are dissenting creditor classes; and (iii) international assistance proceedings.

These provisions borrow heavily from the existing provisions in the U.S. Bankruptcy Code.

In light of these changes and the impact on future restructurings, we hosted a webinar on the current and coming use of U.S. Chapter 11 and Chapter 15 proceedings in Asian restructurings.

Some of the topics discussed included:

  • Why Asian debtors might look to a Chapter 11 solution over other procedures such as Schemes of Arrangements;
  • How the equivalent provisions in the U.S. Bankruptcy Code are applied and the key concepts parties will need to be familiar with; and
  • The likely need for U.S. counsel to provide expert testimony in Singapore proceedings regarding the application and interpretation of the new U.S.-based provisions.

Click here to view the webinar.

Hogan Lovells’ U.S. Business Restructuring and Insolvency Practice head Chris Donoho and partner Ron Silverman, along with Jefferies’ Restructuring and Recapitalization Group co-head Richard Morgner, recently joined Debtwire legal analyst Richard Goldman to discuss current issues concerning cross-border restructurings.

During the discussion, the panel addressed the factors that prompt foreign-based companies to avail themselves of the U.S. Bankruptcy Code in lieu of local insolvency proceedings, the hurdles that such companies must overcome to secure a U.S. court’s administration of their Chapter 11 cases and pitfalls that foreign-based companies may encounter in the U.S.

The panel also reflected on some recent cross-border cases, including Abengoa, Hanjin Shipping, and Baha Mar.

Click here to listen to the podcast.