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The U.S. Bankruptcy Court for the District of Delaware recently extended the common-interest doctrine to pre-petition communications between the debtor and an informal committee of claimants in In re Leslie Controls Inc.  Gerald Gline and David Kohane, Members of Cole Schotz, and Jason Finkelstein, an associate at Cole Schotz, recently wrote an article for the American Bankruptcy Institute Journal about the common-interest doctrine’s role in bankruptcy proceedings.  Click here to read the article.
7 years 5 months ago
The Delaware Supreme Court today struck down the bylaw amendment that would have accelerated the expiration of one of Airgas’ class of directors.  The Court ultimately cited “practice and understanding” to conclude that directors of staggered boards should serve three full-year terms and that a bylaw requiring the company to hold its next annual meeting just four months after its prior meeting is invalid.  I expect this opinion will give considerable comfort to companies with staggered boards by allaying concerns that the lower court’s decision (upholding the bylaw) weakened their defenses.  That being said, companies with the opportunity to do so (which may only be pre-IPO companies and spin-offs) ought to consider providing in their charters that their board has unilateral power to set the date of annual meetings.  Here’s the Davis Polk memo on the decision.   Contact Phillip Mills.  
7 years 7 months ago
Here’s the Davis Polk newsflash on two recent Delaware rulings validating the widespread use of top-up options, so long as the top-up is excluded from the calculation of value for appraisals and is otherwise properly drafted.  When regulatory approvals and other closing conditions are expected to require less than two to three months, tender offers provide speed of execution advantages over one-step mergers.  The top-up option guarantees the ability to close the squeeze-out merger simultaneously with the tender offer closing which provides significant benefits.  In deals (like GTCR’s acquisition of Protection One earlier this year) where the top-up option does not require any increase in the minimum tender condition, there is also the possibility of more attractive financing commitments due to their shorter duration. Contact Phillip Mills.
7 years 9 months ago
The SEC has stayed implementation of its newly-adopted proxy access rules, including the amendments to Rule 14a-8, pending resolution of a legal challenge to the rule brought by the Business Roundtable and the US Chamber of Commerce.  These controversial rules will likely not be applicable before the 2012 proxy season, at the earliest. Click here to view the SEC order. Contact Phillip Mills.
7 years 9 months ago
Here’s the Davis Polk note on Vice Chancellor Strine’s recent decision upholding the Barnes & Noble poison pill. The decision is interesting because the court, for the first time, recognized a valid threat in an investor’s rapid accumulation of shares even though the investor’s stated goal was to elect a minority slate (and not a controlling slate) to the board. Applying the traditional Unocal test, the court gave substantial deference to the board’s concern that investor, Yucaipa, was potentially planning to acquire a controlling stake or form a joint bid with another large shareholder. Contact Phillip Mills.
7 years 11 months ago
As part of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (“BAPCPA”), Congress added Section 562 to the Bankruptcy Code. Section 562 governs the timing of damage measurements with respect to swap agreements, securities contracts, forward contracts, commodity contracts, repurchase agreements, and master netting agreements that are rejected or terminated in connection with a bankruptcy case.  Section 562 provides, in relevant part, that: (a) If the trustee rejects a…repurchase agreement,…or if a…repo participant… liquidates, terminates, or accelerates such contract or agreement, damages shall be measured as of the earlier of – (1) the date of such rejection; or (2) the date or dates of such liquidation, termination, or acceleration (b) If there are not any commercially reasonable determinants of value as of any date referred to in paragraph (1) or (2) of subsection (a), damages shall be measured as of the earliest subsequent date or dates on which there are commercially reasonable determinants of value.
7 years 11 months ago
As part of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (“BAPCPA”), Congress added Section 562 to the Bankruptcy Code. Section 562 governs the timing of damage measurements with respect to swap agreements, securities contracts, forward contracts, commodity contracts, repurchase agreements, and master netting agreements that are rejected or terminated in connection with a bankruptcy case.  Section 562 provides, in relevant part, that: (a) If the trustee rejects a…repurchase agreement,…or if a…repo participant… liquidates, terminates, or accelerates such contract or agreement, damages shall be measured as of the earlier of – (1) the date of such rejection; or (2) the date or dates of such liquidation, termination, or acceleration (b) If there are not any commercially reasonable determinants of value as of any date referred to in paragraph (1) or (2) of subsection (a), damages shall be measured as of the earliest subsequent date or dates on which there are commercially reasonable determinants of value.
7 years 11 months ago
Delaware’s Vice Chancellor Laster recently issued a decision in which he proposed that a board should get “business judgment review” of a going private transaction involving a controlling stockholder when the transaction is subject to BOTH a “majority-of-the-minority” tender or vote condition AND blessed by a qualified special committee.  This is a well litigated issue as a result of which Delaware courts have distinguished between the standards of review applicable to these types of transactions depending on whether the transaction is structured as a one-step merger or a two-step tender offer (applying entire fairness to one-steps but not to two-steps that contain certain procedural protections like a majority-of-the-minority tender condition).  This case attempts to harmonize the discrepancy by advocating a unified standard but the proposal will need the future blessing of the Delaware Supreme Court to be effective, given the existing law.  I expect it will remain an important judgment call for parties to decide whether to introduce the added risk of dual approvals (special committee and minority shareholders) in the hope of getting business judgment review; or to follow the traditional path of shifting the burden of proof in entire fairness to the plaintiffs through a well run special committee process.  Here’s the Davis Polk note. Contact Phillip Mills.
8 years 1 month ago
After much litigation and legal maneuvering, the Senior Secured Lenders prevailed at the auction for Philadelphia Newspapers.  The Lender’s winning bid is for approximately $139 million, and the parties expect to close on the sale by late June.  To read a summary of the sale, click here and here. Filed under: Uncategorized

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8 years 2 months ago
While this Blog generally focuses on bankruptcy-related issues, I thought it would be interesting to provide some of the key information about the Government’s fraud investigation into Goldman Sachs; after all, the subprime debacle caused the most severe financial collapse since the Great Depression.  There is no doubt that the Government on both sides of the aisle is looking for blood from Goldman Sachs, but more than that, the Government is currently seeking financial reform. 

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8 years 2 months ago
In In re Erving Industries, Inc. et al., the Court held that the supply of electricity constituted the sale of goods so that the electric supplier was entitled to assert a 503(b)(9) administrative expense claim.  The Court’s opinion is very well-reasoned and its opinion along with a substantial appendix on the electric industry can be found here.    In short, Erving Industries, Inc., along with certain of its affiliates, filed for Chapter 11 on April 20, 2009.  Constellation NewEnergy, Inc. filed an administrative expense claim under 503(b)(9) in the amount of $281,667.88 (the “Claim”).  The Debtors and NewEnergy agreed that the amount sought in the Claim accurately represented the charges for electricity supplied to the Debtors during the relevant 20 day period, but the Debtors objected to the Claim on the grounds that electricity is not a good within the meaning of 503(b)(9).  The Debtors also contended that NewEnergy was a utility provider.  NewEnergy maintained that it did not perform the traditional service functions commonly associated with electric utilities.  It argued that while regulated utilities are responsible for the ultimate delivery of electricity to customers, NewEnergy says it has no role in the delivery and is involved solely in the sale of electricity as a “competitive supplier.” 

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8 years 3 months ago
Does a secured creditor have an absolute right to acquire its collateral, which is sold pursuant to a plan of reorganization, by credit bidding its debt? The Third Circuit Court of Appeals, in a strict constructionist opinion, has just answered this question in the negative.
8 years 3 months ago
Does a secured creditor have an absolute right to acquire its collateral, which is sold pursuant to a plan of reorganization, by credit bidding its debt? The Third Circuit Court of Appeals, in a strict constructionist opinion, has just answered this question in the negative.
8 years 3 months ago
In what is sure to be a controversial opinion, the Third Circuit Court of Appeals (No. 09-4349) has issued an Opinion holding that the lenders in the contentious Philadelphia Newspapers’ bankruptcy case pending in the United States Bankruptcy Court for the Eastern District of Pennsylvania, No. 09-11204, may not credit bid for the sale of substantially all of the assets of Philadelphia Newspapers during a proposed auction to be conducted under Section 1129(b)(2)(A).  The Opinion affirms the decision of the District of Pennsylvania, which overruled the decision of the Bankruptcy Court.  For a good summary of the case history, click here.  The Third Circuit’s opinion is well-reasoned (using statutory construction and analysis), and even though the opinion is 2-1, it is now the law of the land (at least in the Third Circuit) and its impact on the sale process in Chapter 11 cases will be known only over time.

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8 years 3 months ago
In an unprecedented paper entitled The Crisis, Alan Greenspan, the former Chairman of the Federal Reserve, acknowledges that the government failed to properly regulate the markets and banks under his leadership (although he also states that probably no amount of regulation could have avoided the Credit Crisis without significant and adverse effects on the economy).  Mr. Greenspan, who historically was in favor of less government regulation and deregulation, argues that regulation is necessary so that no financial institution is ever too big to fail, and states that “the primary imperative going forward has to be (1) increased regulatory capital and liquidity requirements on banks and (2) significant increases in collateral requirements for globally traded financial products.” 

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8 years 3 months ago
Pursuant to section 104(a) of the Bankruptcy Code (11 U.S.C. § 104(a)), starting April 1, 1998, and at each three year interval ending on April 1 thereafter, the dollar amounts in effect under various sections of the Bankruptcy Code are subject to adjustment. The adjustments are based upon the consumer price index, and a rounding to the nearest $25 amount that represents such change, with such adjusted amounts to be published in the Federal Register by the Judicial Conference of the United States not later than March 1 of each three year interval. Such adjustments apply only with respect to cases commenced after the effective date of such adjustments. On or about February 25, 2010, the Judicial Conference published the adjustments that will take affect as of April 1, 2010 (see Federal Register/Vol. 75, No. 37/Thursday, February 25, 2010/Notices, Page 8747-8749.) The following are a few of the increases that would be relevant to business bankruptcy cases: a.  Under the 28 U.S.C. § 1409(b), venue of proceedings arising under or related to cases under Title 11 to recover a debt against a non-insider of less than $11,725.00, may be brought only in the district court for the district in which the defendant resides. This is an increase from $10,950.
8 years 4 months ago
Pursuant to section 104(a) of the Bankruptcy Code (11 U.S.C. § 104(a)), starting April 1, 1998, and at each three year interval ending on April 1 thereafter, the dollar amounts in effect under various sections of the Bankruptcy Code are subject to adjustment. The adjustments are based upon the consumer price index, and a rounding to the nearest $25 amount that represents such change, with such adjusted amounts to be published in the Federal Register by the Judicial Conference of the United States not later than March 1 of each three year interval. Such adjustments apply only with respect to cases commenced after the effective date of such adjustments. On or about February 25, 2010, the Judicial Conference published the adjustments that will take affect as of April 1, 2010 (see Federal Register/Vol. 75, No. 37/Thursday, February 25, 2010/Notices, Page 8747-8749.) The following are a few of the increases that would be relevant to business bankruptcy cases: a.  Under the 28 U.S.C. § 1409(b), venue of proceedings arising under or related to cases under Title 11 to recover a debt against a non-insider of less than $11,725.00, may be brought only in the district court for the district in which the defendant resides. This is an increase from $10,950.
8 years 4 months ago
In a recent decision, the United States Court of Appeals for the Third Circuit further defined its standard for awarding a break-up fee to an unsuccessful “stalking horse” bidder for a debtor’s assets. In In re Reliant Energy Channelview LP, ___ F.3d ___, 2010 WL 143678 (C.A. 3 (Del.) 2010), the debtors sought to sell their largest asset, a power plant, pursuant to Section 363 of the Bankruptcy Code. Following a comprehensive marketing process, the debtors accepted a $468 million bid of Kelson Channelview LLC (Kelson). The contract with Kelson simply required the debtors to seek an order approving certain bid protections and procedures, including the payment of a $15 million break-up fee to Kelson, if the bankruptcy court were to require the debtors to hold an auction, which it subsequently did.
8 years 5 months ago
In a recent decision, the United States Court of Appeals for the Third Circuit further defined its standard for awarding a break-up fee to an unsuccessful “stalking horse” bidder for a debtor’s assets. In In re Reliant Energy Channelview LP, ___ F.3d ___, 2010 WL 143678 (C.A. 3 (Del.) 2010), the debtors sought to sell their largest asset, a power plant, pursuant to Section 363 of the Bankruptcy Code. Following a comprehensive marketing process, the debtors accepted a $468 million bid of Kelson Channelview LLC (Kelson). The contract with Kelson simply required the debtors to seek an order approving certain bid protections and procedures, including the payment of a $15 million break-up fee to Kelson, if the bankruptcy court were to require the debtors to hold an auction, which it subsequently did.
8 years 5 months ago
On November 2, 2009, CIT Group, Inc., a leading provider of financing to small businesses and middle market companies, filed for bankruptcy in the United States Bankruptcy Court for the Southern District of New York.  Click here for a copy of the CIT Voluntary Petition.  Only two of CIT’s business units filed for bankruptcy, and CIT has stated that none of its operating subsidiaries, including CIT Bank, its business segments or its international business operations, are part of the bankruptcy filing and it expects business as usual will continue throughout the reorganization process.  CIT also states that it has the liquidity to serve its customers. CIT listed $71 billion in assets and $64.9 billion in liabilities. CIT is over 100 years old, and provides significant capital to small and middle market businesses.  CIT is huge, really huge:  its customers employ more than 90 million employees, it’s the leading provider of financing to the retail sector and to women-, minority- and veteran-owned small businesses.  An outright failure of CIT could have significant adverse effects on the US economy, which is currently in a very fragile state at best. 

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8 years 8 months ago