by: Jean R. Robertson
Calfee, Halter & Griswold LLP; Cleveland
Jeff Cicarella
Calfee, Halter & Griswold LLP; Cleveland
An emerging strategy many hedge and private equity funds are pursuing is known as the "loan to own" investment. In this type of investment, a fund's investors acquire debt, and sometimes certain amounts of equity or management control, such as voting power or board seats, from a lender of a distressed company.
The fund often buys the debt at a deep discount, then nudges the company toward a bankruptcy filing where the fund can take advantage of the economic leverage associated with the face amount of the debt it acquired to turn the debt into an equity ownership of the company in the chapter 11 process.
The bankruptcy tool that is typically used to move from the pre-petition discounted debt and equity acquisition to the post-petition complete and clean ownership by the fund is the right to credit bid at a public auction sale of a company under §363(k) of the Bankruptcy Code, pursuant to which funds set the bidding threshold at the face amount of the debt, rather than at the discounted value paid.
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by: David H. Conaway
Shumaker, Loop & Kendrick, LLP
Charlotte, NC
Customers who don't pay are an unfortunate but inevitable reality of doing business. Some will tumble into bankruptcy; others will continue to operate and perpetuate the suppliers' risk of nonpayment. Usually in this environment, communication from the customer is substantially reduced, if not stopped. What can a supplier do to better evaluate this risk and act to minimize its potential loss?
There is a powerful "self-help" remedy for creditors in Article 2 (Sale of Goods) of the Uniform Commercial Code (UCC), which recognizes that the essential purpose of a contract is actual performance, not merely a promise and the right to win a lawsuit. Specifically, the remedy is a supplier's right to demand assurances of performance under §2-609, which provides as follows:
- A contract for sale imposes an obligation on each party that the other's expectation of receiving due performance will not be impaired. When reasonable grounds for insecurity arise with respect to the performance of either party, the other may in writing demand adequate assurance of due performance and until he receives such assurance may, if commercially reasonable, suspend any performance for which he has not already received the agreed return.
- Between merchants, the reasonableness of grounds for insecurity and the adequacy of any assurance offered shall be determined according to commercial standards.
- Acceptance of any improper delivery or payment does not prejudice the aggrieved party's right to demand adequate assurance of future performance.
- After receipt of a justified demand, failure to provide, within a reasonable time not exceeding 30 days, such assurance of due performance as is adequate under the circumstances of the particular case, is a repudiation of the contract.
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More than 250 members attended the 4th Annual Mid-Atlantic Bankruptcy Workshop which was held on the eastern shore of Maryland at the Hyatt Regency, Chesapeake Bay Golf Resort, Spa & Marina. Members convened for three days of blue crabs, networking and outstanding educational programs. Topics included ethics issues, non-bankruptcy alternatives, real estate issues, new claims rules, mediation and ADR, and more! The breakfast plenary session, "When Circuits Collide-Revisited," followed up on last year's plenary session of the same name. The panel, consisting of U.S. bankruptcy judges, discussed the different views taken by the courts on a number of issues. Prof. Jack Williams, ABI Resident Scholar, moderated the panel of judges which included Hon. Randolph Baxter, U.S. Bankruptcy Court (N.D. Ohio), Hon. Jean K. FitzSimon, U.S. Bankruptcy Court (E.D. Pa.), Hon. Robert E. Littlefield, Jr., U.S. Bankruptcy Court (N.D.N.Y) and
Hon. S. Martin Teel, Jr., U.S. Bankruptcy Court (D. D.C.). Included in the session materials was a paper by Judge Baxter on the addition of section 503(b)(9) to the Bankruptcy Code. Click below to review the paper.
Bench View: A Further Explanation Of section 503(b)(9) – Hon. Randolph Baxter, U.S. Bankruptcy Court (N.D. Ohio)
The Winter Leadership Conference will be held Dec. 4-6 in Tucson, AZ, at the Westin La Paloma. This year's conference will feature another great group of sessions and speakers, as well as some top-notch entertainment! The UTC committee session, entitled "Committee Professionals: A Different Standard? Solicitation, Disclosures, Conflicts – For Credit Professionals and Attorneys" will be held on Friday at 9:30 a.m. Frances Gecker of Frank/Gecker LLP in Chicago will moderate the panel which will include Scott Hazan of Otterbourg, Steindler, Houston & Rosen, PC in New York, Jeffrey N. Pomerantz of Pachulski Stang Ziehl & Jones LLP in Los Angeles and Roberta DeAngelis, Acting U.S. Trustee-Region 3.
Click here to register.
