 |
|||||
 |
Editor's Note At the risk of stating the obvious, we are all living and working in truly fascinating times. While not so long ago, debates on issues of insolvency would have been left for conference panellists and the pages of professional journals and magazines, they are now a frequent feature on the 6 o’clock news as we wait to see who will be the next bank, insurer, automaker or entire country to fail. In our highlight article this month, Bingham McCutchen LLP provides an overview of the role of the Federal Deposit Insurance Corporation (the “FDIC”) in dealing with a distressed bank or thrift institution in the United States that is insured by the FDIC. The FDIC was created in response to the strain placed on the economy by the numerous bank failures of the Great Depression. It was formed to administer and safeguard the deposit insurance fund and foster the public’s confidence in the US financial system. The FDIC, like President Obama, certainly has its work cut out for it. One issue that has been much debated as governments around the world do their best to stem the effects of the global financial turmoil is the extent to which government should intervene in the financial markets and industry and the ramifications of such intervention. In this issue, White & Case examines the US Federal Government’s recent attempts to bail out the US auto industry and controversial efforts to forcibly subordinate existing secured debt to new loans that were to be issued by government. In keeping with this theme, Minter Ellison reports on a recent decision of the Full Court of the Federal Court of Australia which considered the ability of the Australian Tax Office to jump the queue in a liquidation in respect of its claim for unpaid taxes where a secured creditor has not already fixed its charge. Other interesting reading in this issue includes a report by Pepper Hamilton on the recent Chevron case dealing with triangular setoffs under US Bankruptcy law, an article by Mariano Jiménez in Eurofenix considers the impact of Spanish bankruptcy proceedings on prior leveraged buy-outs and an update from Israel Creimer on recent developments in Uruguayan insolvency law. Please also check out INSOL International Case Study No. 2 on the conflict between English and Australian insolvency laws in the context of the collapse of the HIH group of insurance companies. Naomi Moore |
|
|||
| Highlight of this Issue | |||||
|
The FDIC and Creditors’ Rights in the Event of an Insured Bank Failure A short time ago the topic of creditors’ rights in the event of an insured bank becoming insolvent was most relevant to legal specialists and historians. Now, in the midst of the greatest financial market crisis since the “Great Depression”, any individual or organization that interacts with a bank including depositors, borrowers, trust and custodial clients and all service providers need to be generally aware of the practical implications of a depositary institution failing. This article gives a general overview of the role of the Federal Deposit Insurance Corporation (the “FDIC”) in dealing with a distressed bank or thrift institution insured by the FDIC, and in paying claims of creditors of a failed depository institution insured by the FDIC. After a brief introduction, it describes what depository institutions are insured by the FDIC, summarizes the different capacities in which the FDIC may act, gives an overview of the insolvency process, describes the special rights and powers that the FDIC has as receiver or conservator to deal with claims, sets forth the priority of payment on claims among different classes of creditors, and provides an overview of how claims are presented to the FDIC. It then describes special provisions applicable to so-called “qualified financial contracts”. For the full paper please click here. Ed Smith, Neal Curtin, & Jim Rockett |
|||||
| Case Decisions | |||||
|
Has the Bell Tolled for Triangular Setoffs? In Re SemCrude, L.P., et al., January 9, 2009, Case No. 08-11525 In July 2008, SemGroup, L.P., and certain of its direct and indirect subsidiaries, commenced chapter 11 bankruptcy cases in Delaware. Prior to the bankruptcy filings, Chevron USA, Inc. (Chevron) had entered into a series of contracts with three of the debtors which contained identical setoff and netting provisions that purported to authorize Chevron to offset amounts owed to or from one debtor against amounts owed to or from another debtor. As of the petition date, Chevron owed approximately $1.4 million to one debtor and was owed approximately $13.5 million by the other 2 debtors. Chevron filed a motion to obtain relief from the automatic stay so that it could effect a setoff of the amounts owed under the contracts pursuant to the setoff provisions. Objections were filed by the debtors and various other parties contending that setoff was not authorized under section 553 of the Code. The United States Bankruptcy Court for the District of Delaware, held that “triangular setoff” is impermissible under the provisions of section 553 of the Bankruptcy Code and parties may not contract out of section 553’s “mutual debt” requirement through private agreements. For a case note please see Pepper Hamilton Bankruptcy Update, 16th January 2009. For the full judgment please click here. Commissioner Jumps the Queue – Section 260-5 Notices Still Effective After Liquidation Commissioner of Taxation vs. Bruton Holdings (in liquidation) [2008] FCAFC 184 In Australia, the Deputy Commissioner of Taxation has for many years been able to issue a notice to someone that owes money to a tax payer requiring them to pay the debt to the Australian Taxation Office. If that payment is made, the tax payer and any secured creditor whose charge is not fixed cannot complain. The notice is issued under section 260-5 of the Taxation Administration Act, 1953 (Cth) which replaced the former section 218 of the Income Tax Assessment Act, 1936 (Cth). In this case, the Full Court of the Federal Court of Australia overturned an earlier decision of Allsop J, and held it still valid. The Commissioner can issue a notice and effectively enter into possession of the debtor's property, provided any secured creditor has not already fixed their charge over them. For a case note please see Alert by MinterEllison, on 4th February 2009. | |||||
| Legislation | |||||
|
Americas New Uruguayan Law Relating to Insolvency Proceedings Until recently, the Bankruptcy Act number 18,387 regulated the insolvency of enterprises. With time, trading activities had undergone significant changes and consequently the laws relating to insolvency proceedings had become somewhat obsolete, old-fashioned and chaotic. For years, the political system had been aware of the need for a new law to regulate insolvency proceedings. On August 21, 2006, the Executive Power of the Government submitted a Bill to the Congress containing a law regulating insolvency proceedings. The new law was inspired by the models currently available in Europe. The revised law was passed and duly published in the Official Gazette of November 3, 2008. This article highlights some of the changes that have been introduced by the new law. For more details please see article by Israel Creimer, Attorney at Law and Professor of Law. |
|||||
| Articles | |||||
|
Hitting the Brakes on Legislative Interference with the Property Rights of Automakers' Secured Creditors If there's a further bailout of the auto industry by the federal government, Congress could make the liens of secured creditors subordinate to those of the government's. If this happens, the automaker's secured creditors would not have to take the forced subordination of their liens lying down. There are strong constitutional arguments that such action would require actual compensation, and, given US Supreme Court precedent, secured creditors would have a good chance of success in a lawsuit for their damages. For more details please see White & Case Insolvency Notes, 30th January 2009. Bankruptcy Proceedings in Spain : Possible Effect on Prior Leveraged Buy-out Operations In recent years, leveraged buy-outs (LBO) have been very frequent in Spain. These Operations are characterised by being acquisitions of a majority percentage of the share capital of a target company and the acquisition being financed by loans obtained from a third party and guaranteed with the assets of the target company itself or are repaid by being charged to corporate assets and cash flows expected from the same. It may even be that the acquisition price is deferred and paid to the sellers by the target company itself, which is merged after its acquisition - and prior to payment of the price - with a special purpose vehicle incorporated by the investor for the sole purpose of purchasing the shares. Consequently, the result of the LBO is that the purchaser transfers to the target company the cost of its own acquisition. In this article the author examines the pros and cons of the leveraged buy-out option. For the full article please see Eurofenix, Winter 2008/2009, P.26 | |||||
| Publications | |||||
|
INSOL International Case Study – No. 2 HIH Casualty & General Insurance Ltd. & Other Companies Until its collapse in March 2001, the HIH group was the second largest insurance group in Australia. This case relates to four of its companies of which three were based and operating in London. The central issue in the case was how to distribute the companies’ assets located in England. Unlike English insolvency law, Australian law of the Corporations Act of 2001 gives priority to insurance creditors with respect to reinsurance recoveries. English insolvency law, on the other hand, does not recognize such a preference and would allow a distribution to all creditors involved on a pari passu basis. Thus, certain creditors in Australia would gain if Australian law were to be applied, whereas certain English creditors would lose if Australian law were to be applied. This study provides the background information of the case, the procedural history, issues in disputes and the ruling and analysis of the court. |
|||||
| News | |||||
|
INSOL 2009 - Eighth World Congress Vancouver, 21st-24th June 2009 Early Bird Deadline 3 March 2009 INSOL Conferences are becoming must attends in everyone's diaries and the Quadrennial is defiantly the meeting not to miss in 2009. It is a truly international Congress - a meeting of minds of those interested in what's happening in the world of the turnaround and insolvency profession. It's less than one month before the early bird booking fee closes and you are reminded to get your bookings completed well ahead of time to ensure you reserve your place. For the main registration brochure please click here. INSOL 2009 - Ancillary Meetings Vancouver, 20th-21st June 2009 Following the great success of previous ancillary meetings and due to popular demand, INSOL is organising a number of ancillary meetings to be held during the week-end prior to commencing the main Congress. The technical programs will cover key areas that are current hot topics and will be presented by reputable market leaders. The sessions will be interactive and delegates are encouraged to participate in the discussions. Delegate places are limited and you are encouraged to register early to avoid disappointment. Please click on the links below for further details.
INSOL International Rio de Janeiro One Day Seminar - Thursday 2nd April 2009 INSOL International, the Association of Insolvency, Restructuring and Bankruptcy Professionals in association with Instituto Brasileiro de Direito Empresarial (IBRADEMP) will be hosting a one day educational regional seminar in Rio de Janeiro on 2nd April 2009. The educational program will cover a number of international cross-border issues of relevance to Brazil, Argentina and other Latin American countries. The seminar will benefit from simultaneous translation in Portuguese, Spanish and English. For further information on this seminar or for sponsorship information please contact: Penny Robertson, Communications Manager, INSOL International, 2-3 Philpot Lane, London EC3M 8AQ Tel: +44 207 929 6679, Fax: +44 207 929 6678 or pennyr@insol.ision.co.uk |
|||||
|
|||||
|
This issue was kindly sponsored by:
|
|||||
|
|||||
|
INSOL Contacts If you would like to send an article for inclusion in one of our forthcoming issues please contact our Technical Manager, Sonali Abeyratne at sonali@insol.ision.co.uk If you would like to introduce a new member to INSOL International please contact, Jelena Sisko at jelena@insol.ision.co.uk |
|||||
|
|||||
|
|||||
