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Sidney Levinson
Payment of backstop fees, like many of the other non-statutory creatures of restructuring that the Creditor Rights Coalition has explored (third party releases, independent directors, etc.), is a valuable tool for debtors that is also subject to abuse. On the one hand, obtaining a backstop commitment (whether from an existing creditor or a third-party) to fully subscribe a rights offering better ensures full subscription, and thus provides debtors with a more certain path to confirmation. That backstop commitment has independent value to the debtor, and cannot be obtained without compensating the backstop party for the financial risk associated with making…
We tackle transparency in the bankruptcy process this week. Both creditors and debtors bemoan the increased transparency that comes from participating in the Chapter 11 process. Debtors often fear disclosure of financial information, business plans or cost cutting details that could put them at a competitive disadvantage and/or impact internal morale. Creditors, on the other hand, often fear disclosing their trading details could alert competitors to their strategy in the case. The ABI Commission noted in its Final Report that “none of [Chapter 11’s] required disclosures provide . . . parties in interest with financial data that could assist the…
During the four-plus decades since enactment of the Bankruptcy Code in 1978, the rules and practices governing disclosure of information have evolved over time to address the competing needs of debtors and other parties in interest, as well as the bankruptcy courts. When chapter 11 was originally enacted, the primary source of transparency was the disclosure statement, required to accompany every plan of reorganization, and designed to provide creditors and shareholders with “adequate information†to evaluate whether or not to vote in favor of such plan. It soon became apparent that the rights of various parties in interest can be…
The second topic our Contributors take on is the practice of appointing “independent directors” for troubled companies, often on the eve of bankruptcy. We received a wide range of responses from our Contributors with many feeling the process is “at least superficially, if not substantively, flawed” (Albanese). That was not a uniform reaction though and the diversity of our Contributors showed the differing views of the market. Many did not want the actions of a few bad apples to overshadow the essential role independent directors can play in “stabilizing” an uncertain situation (Heimowitz) and for calling out “bullsh*t” if necessary (Lederman).…
On balance, I support the appointment, by financially distressed companies, of independent directors with restructuring experience. This is especially true in more traditional restructuring matters, where directors with such experience can be invaluable to both the company and other board members, in navigating what can be a quick, dynamic and fluid process that is often unfamiliar terrain to the existing board and management. Independent directors can be particularly helpful in making decisions with an eye firmly on preserving and maximizing overall value, a concept that is often not as intuitive to other directors who, for healthy companies, may be more focused on growth, stock price, or other considerations.
Tell us what you think of recent decisions by the District Courts in the SDNY and EDVA reversing plan confirmation based on presence of non-consensual third-party releases? Did these Judges get it right? How do non-consensual third-party releases affect creditor rights (both positively and negatively)? What are the implications of these decisions more broadly for the efficacy and integrity of the Chapter 11 process?