The Restructuring Industry in the Trump Era – Key Policy Shifts to Watch

White HouseAfter nearly 100 days in office, the Trump Administration and Republicans in Congress appear poised to have a significant impact on the restructuring industry. Although it is too early to tell exactly what the future holds in the Trump Era – even the so-called “Trump Bump” in the stock market appears to be pulling back – events taking place in Washington warrant close attention. On Capitol Hill, Republican efforts to enact a game-changing comprehensive tax reform plan, in addition to turning to financial services regulatory reform down the line, could mean significant changes are coming to the industry. This blog post briefly examines the policy implications of these potential changes and how they relate to restructuring practitioners, including: (1) tax reform; (2) financial services regulatory reform; and even (3) President Trump’s budget outline.

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To appoint, or not to appoint- that is the question!

To be or not...The recent Court of Appeal case of JCAM Commercial Real Estate Property XV Limited v. Davis Haulage Limited [2017] EWCA Civ 267 has set out the importance of there being a settled intention to enter administration and indicated that this is a pre-requisite to an out of court appointment being validly made.

The judge at first instance had held that it was not necessary for a company or its directors to have, at the point of filing a notice of intention (NOI), a settled intention to appoint an administrator. The Court of Appeal overturned this decision. In the judgment given by Lord Justice David Richards, there is a succinct overview of the out of court appointment process. It was held that conditional proposals to appoint administrators are not sufficient to trigger the entitlement and obligation to give and file an NOI to appoint administrators under paragraphs 26 and 27 respectively of Schedule B1 to the Insolvency Act 1986 (“the Act”).

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Insolvencies in Germany – New Avoidance Law in Force

German CourtOn 5 April 2017, an amendment to the German Insolvency Code (Insolvenzordnung – “InsO”) has come into force which provides for various changes to the avoidance rules and clawback laws in German insolvency proceedings.

The major change affects the right of an insolvency administrator to challenge transactions for willful disadvantage (§ 133 InsO).

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Spanish Court declares unlimited liability mortgage clause void

Spanish StreetSpain’s Civil Code provides that when the sale proceeds of a mortgaged property do not cover all the debt contracted with the bank, the debt continues to subsist and the bank may go against any other asset belonging to the customer, with the exception of properties that are untouchable, for the shortfall.

However, a Court in Barcelona has declared that an Unlimited Liability clause in a Mortgage document is void. Continue Reading

Take “Special” care: Not all Insolvency Rules change on 6 April

The wait is almost over!90331419

As reported in our recent blog Rules of Engagement for Creditors, the Insolvency Rules (England and Wales) 2016 (“IR2016”) are about to arrive heralding procedural reforms effective (subject to transitional provisions) on 6th April 2017.

Whilst most people’s attention will be on the changes introduced by IR2016, it should be noted that there are existing special regimes which will not be affected by the new rules – and also, other changes which are being introduced on or around 6 April. We highlight these below. Continue Reading

Equitable vs. Constitutional Mootness: The Eleventh Circuit Provides a Primer

We have written in the past about the doctrine School of Scavenging Lemon Sharksof equitable mootness.  A March 30, 2017 per curiam affirmance by the Eleventh Circuit Court of Appeals in Beem v. Ferguson (In re Ferguson) explores the concept and limitations of equitable mootness and distinguishes it from the related doctrine of constitutional mootness.

The Beem case can only be described as a litigation feeding frenzy.  In Beem, the debtor Gary Ferguson (Debtor) filed an individual Chapter 11 case.  After two years of contentious litigation, the Debtor filed a second amended plan of reorganization.  David Beem, a creditor asserting a $385,000 claim against the estate, filed an objection to the plan and also submitted a ballot rejecting the plan.  Unfortunately for Beem, both the objection and the ballot were submitted after their respective deadlines.  In response, the Debtor filed a motion to strike, arguing that Beem did not have an allowed claim and was not entitled to vote.  The Debtor also argued that Beem had worked with an attorney who had been suspended by the Florida Bar in order to fraudulently concoct his purported ballot.  The Debtor’s motion was granted, the objection and ballot were struck and the plan was confirmed.

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A Big Haircut for Indenture Trustee Counsel Fees

In Nortel Network’s (Child getting a haircut“Nortel”) chapter 11 case, In re: Nortel Networks Inc., et al., United States Bankruptcy Court for the District of Delaware, Case No. 09-10138(KG), Bankruptcy Judge Kevin Gross recently reduced the Indenture Trustee’s counsel fees by $913,936.00 in response to heavily litigated objections to the fees by noteholders, Solus Alternative Asset Management LP (“Solus”) and PointState Capital LP (“PointState”) (collectively the “Objecting Noteholders”).  The court’s opinion has several important takeaways for indenture trustees and their legal counsel that go well beyond the reductions the indenture trustee’s two law firms received.

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We’ve heard it all before: re-running arguments in bankruptcy proceedings

I will not copy againThe Court of Appeal in Harvey v Dunbar Assets plc [2017] EWCA Civ 60 has confirmed that parties cannot re-litigate failed arguments that have previously been presented in bankruptcy proceedings.

This will be welcome news for creditors in situations where debtors rehearse the same arguments at several stages of the bankruptcy process in an attempt to deter enforcement by driving up legal costs and drawing out proceedings. Continue Reading

Jevic Holding: The Supreme Court Puts an End to Non-Consensual Structured Dismissals That Violate Bankruptcy Code Priority Scheme

Road Stop SignYesterday, the Supreme Court issued is highly awaited ruling in Czyzewski et al. v. Jevic Holding Corp. et al.  The Jevic case presented the question whether bankruptcy courts may approve non-consensual structured dismissals that vary the distribution scheme established by the Bankruptcy Code.  With Justice Breyer writing for the majority, the Court held that bankruptcy courts may not approve structured dismissals that provide for distributions that run afoul of the Code’s priority rules without the consent of affected creditors.  The Court’s ruling is sure to have a dramatic impact upon Chapter 11 cases and is certainly required reading for bankruptcy and restructuring professionals.

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Taxation of restructuring profits – a new and unexpected obstacle for restructurings in Germany

Lifebuoy and BusinessmanThe question whether restructuring profits are taxable or not has been answered differently in Germany in the past. However, on 7 February 2017, a decision of the Grand Senate of the Federal Fiscal Court (the “FFC Decision”) was published, in which the highest German tax court declared the Restructuring Decree as unlawful. The FFC found that the administration had acted as legislator violating its obligation to apply the existing law. The FFC Decision has far-reaching consequences not only for future restructurings, but also raises the question who may rely on the Restructuring Decree for past restructurings.

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