No Safe Harbor
Total Page：16
File Type：pdf, Size：1020Kb
turnarounds Inside workouts News for People tracking Distressed businesses OctOber 2016 VOlume 30, Number 10 Latest Reports: The Ship Has Sailed • Many Parties Stranded Hanjin Enters Chapter 15, But Confusion Remains After Hanjin Shipping by Julie Schaffer Company Runs Aground Hanjin Shipping Company has won a ruling protecting its U.S. assets against creditors • Court Ruling May Have while the shipping line proceeds with its reorganization in South Korea, but there are Broad Implications for Cana- still many unknowns as the insolvency proceedings around the world’s seventh-largest dian Oil and Gas Companies shipper unfold. “We just have not been a situation in which a shipping entity has thrown up its hands • No Safe Harbor for in the middle of operations without any sort of process to it,” says Jason DeJonker, a Transfers Conducted Through partner in Bryan Cave’s Bankruptcy, Restructuring & Creditor’s Rights and Financial Financial Institutions Services Client Service groups. “You basically have the worst-case scenario for Hanjin, its creditors, and its vendors: multiple jurisdictions, different laws, and admiralty legal Research Report: continued on page 2 Who’s Who in CHC Group Limited Energy Assets for Sale? Canadian Court Addresses BIA/Provincial Conflict Special Report: by Randall Reese Major Chapter 11 Cases by The Alberta Court of Queen’s Bench recently decided a case concerning Redwater Energy Corporation holding that there was an operational conflict between the applicable Industry Sector provisions in the Bankruptcy and Insolvency Act (BIA) and provincial legislation. Dual compliance was not possible, the court said. Barring a reversal on appeal or amended Worth Reading: legislation, this decision will most certainly mean a significant change in the process for receiverships and bankruptcies of oil and gas companies in the province. Risk, Uncertainty and Profit Chief Justice Wittman’s May 19 opinion specifically explained that, although the Bankruptcy and Insolvency Act permitted the trustee to renounce some assets and Special Report: continued on page 2 Major European Law Firms With Restructuring Practices No Safe Harbor Special Report: Seventh Circuit Holds § 546(e) May Not Offer Shield by Julie Schaeffer Claims Trading Activity The United States Court of Appeals for the Seventh Circuit has held that section 546(e) of the U.S. Bankruptcy Code does not protect transfers that are simply conducted through Gnome de Plume: financial institutions. The decision, which revives a long-standing circuit split on the The Tribal Village issue, has important implications for various counterparties in securities transactions, most notably selling stockholders in leveraged buyouts (LBOs) where a bankruptcy trustee later claims the buyout rendered the company insolvent and thus the transaction amounted to a fraudulent transfer. As background, in 2003, Valley View Downs, the owner of a Pennsylvania racetrack, continued on page 2 2 turnarounds & Workouts October 2016 Hanjin, from page 1 Energy, from page 1 No Safe Harbor, from page 1 issues, which can be difficult for the not be responsible for abandonment purchased 100 percent of the stock of average attorney – let alone business and remediation work, provincial laws another racetrack, Bedford Downs, in entity – to navigate.” would not allow renunciation of assets exchange for $55 million in cash. The For the past five years, global shipping by a licensee – including receivers and plan was to operate a so-called “racino,” companies have made significant trustees. a combination of a horse track and casino. investments in vessels, seeking to shore Redwater, a publicly-listed oil and gas To finance the acquisition, Valley up profits by doing business on a larger company with assets in Alberta, felt the View borrowed money from Credit scale as global trade bounced back after sting of low oil prices, like many in the Suisse and other lenders. Another the recession. But the new business industry. Just a year ago, a receiver was financial institution, Citizens Bank of never came, causing freight rates and appointed over all of its assets. Of interest Pennsylvania, served as escrow agent, shippers’ revenues to decline. Today, in this case is that fact that the Redwater receiving the funds before passing it along the supply of ships far exceeds demand, receiver (who is now also the trustee in to the selling stockholders. which became clear with the August 31 bankruptcy) challenged the application Unfortunately, after the transfer took court receivership filing of South Korea’s of the regulatory regime by the Alberta place, Valley View was unable to obtain Hanjin Shipping Co. Energy Regulator (AER) on constitutional a gambling license, and ultimately filed The South Korean court receivership grounds. The receiver argued against for Chapter 11 bankruptcy. filing, which is similar to bankruptcy in AER’s position that the receiver was FTI Consulting, the trustee of the the United States, temporarily marooned required as a “licensee” to comply with litigation trust created in that bankruptcy, $14 billion of goods when seaborne ships provisions of the regulatory regime and subsequently sued Merit Management were denied access to ports across the also was prohibited from transferring Group, which had been a 30 percent world. Some estimates had more than 90 operating licenses of economic wells stockholder of Bedford Downs. According vessels being stranded at numerous ports without the posting security for the to FTI, Valley View’s transfer of $16.5 at the time of the filing. abandonment liabilities for all of the other million (30 percent of the $55 million Hanjin subsequently filed for relief Redwater wells. purchase price) to Bedford Downs was under Chapter 15 of the Bankruptcy “While the case has important impacts avoidable as a constructive fraudulent Code in the United States Bankruptcy on industry, it is at its heart an analysis transfer under sections 544, 548, and 550 Court for the District of New Jersey, of the constitutional interplay between of the Bankruptcy Code. and the case – considered an ancillary federal and provincial legislation,” Merit, meanwhile, asserted a defense to a pending insolvency proceeding in a according to a client alert authored by under section 546(e) of the Bankruptcy foreign country – was commenced. several partners in the Calgary office of Code (referred to as a safe-harbor After a hearing, the bankruptcy court Dentons. “The doctrine of paramountcy provision). That section prohibits a trustee entered an order recognizing Hanjin’s provides that in cases of genuine conflict (or debtor-in-possession) from avoiding Korean insolvency proceeding, allowing between otherwise valid federal and transfers that are “margin” or “settlement” various provisions of the U.S. Bankruptcy provincial legislation, the provincial payments made by or to certain entities Code, including the automatic stay, to legislation is deemed inoperative to the defined in the statute, including “financial apply with regard to Hanjin’s U.S. assets. extent of the conflict.” institutions.” It also protects transfers Specifically, the bankruptcy To determine if the doctrine is engaged, made by or to these entities “in connection court stayed “the commencement or the chief judge explained that the court with a securities contract.” According continuation of any actions against must first consider whether there is an to Merit, that was the case in Valley Hanjin or its assets located within the operational conflict between the two View’s purchase of Bedford Downs: The territorial jurisdiction of the United pieces of legislation. This, he said, occurs transfers were made by or to a financial States,” and it specified that assets within “when it is not possible to comply with institution when the funds passed through the territorial jurisdiction of the United both the federal and provincial law,” and Citizens Bank and Credit Suisse. States “including owned, operated or then whether – notwithstanding the ability The district court agreed with Merit, chartered (leased) vessels or property to comply with both pieces of legislation and FTI appealed to the Seventh Circuit, thereon (including bunkers) and any other – the provincial law frustrates the purpose which reversed the judgment of the transportation equipment (containers and of the federal legislation. Nonetheless, if district court. chassis).” either component of the test is satisfied, According to the Seventh Circuit, The immediate effect of the stay was the court said that the doctrine is engaged, the section 546(e) safe harbor does that ships could enter U.S. ports without and the provincial legislation is rendered not protect “transfers that are simply fear that the ports would seize them and inoperative to the extent of the conflict. conducted through a financial institution prevent them from leaving. “In the United The chief justice noted his agreement … where the entity is neither the debtor States, at least, ships are now unloading,” with Redwater’s trustee that “a plain nor the transferee but only the conduit.” says DeJonker. “But almost every other reading of section 14.06 of the BIA In its analysis, the Seventh Circuit place else they are still in a holding leads to the conclusion that another noted that section 546(e) is ambiguous, pattern.” purpose of section 14.06 is to permit forcing the court to “search beyond the The Chapter 15 filing didn’t totally receivers and trustees to make rational statute’s plain language” and “consider its solve Hanjin’s problems in the United economic assessments of the costs of purpose and context for further guidance.” continued on page 4 continued on page 4 continued on page 8 October 2016 turnarounds & Workouts 3 Research Report Who’s Who in CHC Group Ltd. by Dave Buzzell CHC Group, Ltd. (CHC) is one of the prices declined sharply, falling by nearly CHC is represented by Weil, Gotshal largest commercial helicopter services 50 percent during the last six months of & Manges LLP. Stephen A. Youngman, companies in the world. Headquartered that year.