Bankruptcy & Restructuring

Among the many financial innovations that came out of the COVID era, non-pro rata uptier transactions as a liability management exercise (“LMEs”) are among the more controversial. While lawsuits challenging non-pro rata uptier transactions are making their way through the courts, two important decisions were recently issued by the Court of Appeals for the Fifth Circuit and the New York Appellate Division. 

Read about a Third Circuit ruling, which held that a creditor’s right to future royalty payments in a non-executory contract — an agreement in which one party has performed all material obligations and the other has not — could be discharged in the bankruptcy of a counterparty-debtor. The decision highlights the importance of properly structuring M&A, earn-out, and royalty-based transactions.

Most high-growth companies find themselves in a race against the clock, trying to use whatever capital they may have to achieve milestones prior to hitting their cash-out date. When markets are tight, as they have been over the past several months, founders and boards confront the reality of a liquidity crisis on a nearly daily basis in their scenario planning. It can come in the form of a potential buyer or investor deciding to walk away from a deal, a current investor experiencing its own liquidity crunch, or unfavorable data coming at an unfavorable time. Whatever the cause, when a company approaches insolvency, it is often an existential event, forcing the board of directors to think carefully about how to help the company make decisions in view of the board’s changing fiduciary duties, as well as how those duties may be impacted by a company’s declining cash position. 

A main goal in bankruptcy is to get in and out as quickly as possible to minimize costs.  It is often the case that even though a substantial portion of a debtor’s assets have been liquidated in bankruptcy, some valuable assets will remain that can provide additional sources of recovery to creditors. These assets may include smaller pieces of real estate, accounts receivable, joint venture ownership interests, and claims and causes of action, among others.

The FDIC has updated its Frequently Asked Questions related to the failure of Silicon Valley Bank following the government’s decision to invoke the systemic risk exception to protect all depositors by making them whole.

Resources and insights to help clients and companies navigate the evolving situation.

In this alert, we discuss a joint press release issued by the FDIC, the Federal Reserve, and the Department of the Treasury, on March 12, 2023, announcing that the Federal Reserve has invoked the systemic risk exception, thereby protecting all depositors of Silicon Valley Bank.

The latest amendments to the Federal Rules of Bankruptcy Procedure took effect on December 1, 2022. This collection of modifications may be broadly divided into two categories: amendments and a new rule promulgated to account for the Small Business Reorganization Act of 2019 and  amendments clarifying or consolidating non-SBRA specific Bankruptcy Rules.

Could bankruptcy protection be on the horizon for individuals and companies actively involved in the cannabis industry?  Potentially yes, following President Biden’s October 6, 2022 request for the Secretary of Health and Human Services to begin the administrative process to review marijuana’s classification as a Schedule I substance under the Controlled Substance Act (“CSA”).

Voyager Digital Assets Inc., along with two of its affiliates, filed bankruptcy petitions in the Southern District of New York on July 5, 2022. While “crypto” is a newcomer to the United States bankruptcy system, the familiar contours of insolvency law will be at play in the Voyager bankruptcy with many new questions yet to be answered.