The Law and Practice of Restructuring in the UK and US

534 Pages·2011·1.47 MB·English

by  Chris Mallon

THE LAW AND PRACTICE OF
RESTRUCTURING IN THE UK AND US
This page intentionally left blank
THE LAW AND
PRACTICE OF
RESTRUC TURING
IN THE UK
AND US
Edited by
Christopher Mallon and Shai Y. Waisman
1
1
Great Clarendon Street, Oxford ox2 6dp
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PREFACE
The world debt markets are dominated by two systems of law—the laws of
England and the laws of the United States, particularly New York. For the vast
majority of the time they co-exist happily but every so often, particularly where a
company is faced with severe stress or distress, they run hard up against each
other.
Any company of any size operating across borders will almost certainly have debt
governed by English law and New York law. Where this is the case a troubled
company will require expert practitioners from both disciplines to work quickly
and effectively together to fi nd common solutions (or an effective compromise)
to the issues facing the company. What had become patently clear to Shai and me,
as we have worked on cases together over recent years, was that there is no single
text available to a practitioner which could help him identify the many issues
facing a troubled company in this situation.
This book is an attempt to fi ll that gap. As far as we are aware, this is the fi rst
attempt to grapple with these issues from both an English law and a US/New York
law perspective in a single volume. Both Shai and I are immensely grateful for
the efforts of all our contributors in what has been a challenging and revealing
process. The subjects addressed in the book cover different stages in the spectrum
from dealing with the fi rst signs of stress through to full blown insolvency. They
also address seperately the discrete problems that will almost always arise for
companies in areas such as governance, tax, pensions, and employment. It has not
proved possible, in all cases, to examine the law relating to a particular subject in
a given jurisdiction separately and then go on simply to compare and contrast the
law in the other jurisdiction. In some areas (for example, in relation to pre-packs),
the regulatory framework and the law and practice are so different that the real
value of the book springs from the realization that an expression used in the con-
text of one legal system has a totally different meaning in another or that there is
no obvious parallel for a particular process in the other jurisdiction. This has
resulted in a very different approach being taken to the analysis of a particular
subject in one part of the book from the approach taken in another. We make no
apologies for this and believe that the book is immeasurably stronger for recogniz-
ing and adapting to the different demands of these sometimes very different
topics.
v
Preface
There are many people whom we need to thank for their help and support which
have enabled our idea to become a reality. The partners and staff of both Skadden,
Arps, Slate, Meagher & Flom LLP and Weil, Gotshal & Manges LLP have been a
constant source of inspiration and this book would not have been possible with-
out their immense dedication and commitment. We are also very grateful to our
editors at OUP, particularly Rachel Mullaly, Jessica Huntley, and Benjamin
Roberts. As we say above, our contributors deserve our undying gratitude and
thanks, not least for reading and re-reading their texts and for patiently enduring
and accepting our many vexing questions and comments. To the extent that any
errors and omissions remain, they are of course ours.
We dedicate this book to our respective families.
CM
SW
vi
CONTENTS
List of Contributors xv
Table of Cases xxiii
Table of Legislation xxxvii
1. Introduction 1
Christopher Mallon, Skadden, Arps, Slate, Meagher & Flom LLP and
Shai Y. Waisman, Weil, Gotshal and Manges LLP
2. Emergency Sales in the US and the UK 7
Scott Simpson and Jay M. Goffman, Skadden, Arps,
Slate, Meagher & Flom LLP
2.1 Introduction 2.01
2.2 Emergency sales in the US 2.05
2.2.1 Distressed sales in the US 2.05
2.2.2 Distressed sales in the US outside bankruptcy 2.06
2.2.3 Distressed sales in the US in bankruptcy 2.12
2.3 Emergency sales in the UK 2.29
2.3.1 Introduction 2.29
2.3.2 Key features 2.33
2.3.3 Sale process 2.35
2.3.4 Importance of valuation 2.39
2.3.5 Consideration 2.42
2.3.6 Due diligence 2.43
2.3.7 Limited contractual protection 2.44
2.3.8 Transitional services 2.49
2.3.9 Sale structure 2.50
2.3.10 Purchaser perspective 2.51
2.3.11 Seller perspective 2.53
2.3.12 Hive-downs 2.54
2.3.13 Directors’ duties 2.55
2.3.14 Wrongful trading 2.65
2.3.15 Vulnerable transactions 2.69
2.3.16 Preferences 2.73
2.3.17 Protective measures 2.74
2.3.18 Role of stakeholders 2.77
2.3.19 Shadow directorship issue 2.84
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Contents
2.3.20 Bondholders 2.85
2.3.21 Shareholders 2.86
2.3.22 Listed company shareholders 2.88
2.3.23 Employees 2.90
2.3.24 Pensions 2.91
2.3.25 Regulators and competition authorities 2.95
2.3.26 Sales within insolvency proceedings 2.98
3. US and UK Tender Offers, Exchange Offers and Other
Out-of-Court Restructurings 43
Nick P. Saggese, Casey T. Fleck, Glenn Walter, Nikolas K. Colbridge and
Ryan Chen, Skadden, Arps, Slate, Meagher & Flom LLP
3.1 Introduction 3.01
3.2 US restructurings 3.02
3.2.1 General issues and considerations 3.02
3.2.2 Cash repurchases of outstanding securities and tender offers 3.11
3.2.3 Registered, section 3(a)(9), and section 4(2) exchange offers 3.22
3.2.4 Amendments of outstanding debt securities 3.43
3.2.5 Prepackaged plans of reorganization 3.45
3.2.6 Bankruptcy Code provisions and rules relating to
prepackaged chapter 11 plans 3.47
3.3 UK bond repurchases and amendments 3.70
3.3.1 General issues and considerations 3.70
3.3.2 Repurchase of publicly listed debt 3.75
3.3.3 Cramming down using debt tender offers and covenant strips 3.97
3.4 Conclusion 3.113
4. Loan Buybacks 87
Peter J. Coulton, Skadden, Arps, Slate, Meagher & Flom LLP, Douglas R.
Urquhart, and Hoyoon Nam, Weil, Gotshal and Manges LLP
4.1 Introduction 4.01
4.2 UK and US perspectives on buyback 4.04
4.2.1 Common buyback structures 4.04
4.2.2 Documentation issues 4.06
4.2.3 Other legal and practical considerations 4.30
4.2.4 Buyback methods 4.42
4.2.5 Alternatives to buybacks 4.47
4.2.6 Market trends 4.50
4.2.7 Industry group developments 4.51
4.2.8 Recent cases 4.58
viii
Contents
5. Duties of Directors and Management of Distressed Companies 109
Harvey R. Miller, Weil, Gotshal and Manges LLP, and Christopher
Mallon, Skadden, Arps, Slate, Meagher & Flom LLP
5.1 Introduction 5.01
5.2 Fiduciary duties of corporate directors within the
context of insolvency in the UK 5.07
5.2.1 Who owes the general duties? 5.11
5.2.2 Determining when duties may be owed to creditors 5.13
5.2.3 Directors’ duties at common law 5.18
5.2.4 Directors’ statutory duties under the Companies Act 2006 5.29
5.2.5 Directors’ statutory duties under the Insolvency Act 1986 5.38
5.2.6 Antecedent transactions 5.51
5.2.7 Disqualifi cation of directors 5.62
5.3 Fiduciary duties of directors in management of distressed
corporations in the US 5.67
5.3.1 Duty of loyalty 5.70
5.3.2 Duty of care 5.72
5.3.3 Duty of disclosure 5.74
5.3.4 Alternate entities 5.76
5.3.5 The business judgment rule 5.77
5.3.6 Fiduciary duties in the zone of insolvency 5.81
5.4 Conclusion 5.111
6. Waivers, Amendments, and Standstills 149
Andrew Shutter and Duane McLaughlin, Cleary Gottlieb Steen
& Hamilton LLP
6.1 Introduction 6.01
6.1.1 Waivers—temporary fi xes 6.02
6.1.2 Amendments—short- or long-term fi xes 6.05
6.1.3 Standstills—contractual or mandatory eg
chapter 11/administration 6.09
6.1.4 Legal considerations 6.10
6.2 Voting requirements 6.14
6.2.1 Unanimous/super majority matters 6.14
6.2.2 Majority lender/holder matters 6.20
6.2.3 Negative control 6.25
6.2.4 Disenfranchisement of certain debt holders 6.27
6.3 Dealing with hold outs 6.33
6.3.1 Snooze and lose 6.33
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