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JARGON ® Restructuring & Special Situations The BOOK of JARGON ® Restructuring & Special Situations The Latham & Watkins Glossary of Restructuring & Special Situations Acronyms, Slang, and Terminology 1 The Book of Jargon® — Restructuring & Special Situations is one in a series of practice area-specific glossaries published by Latham & Watkins. The definitions contained herein are designed to provide an introduction to the applicable terms often encountered in restructuring and special situations transactions. These terms raise complex legal issues on which specific legal advice may be required. The terms are also subject to change as applicable laws and customary practice evolve. As a general matter, The Book of Jargon® — Restructuring & Special Situations is drafted from a global perspective. The information contained herein should not be construed as legal advice. Acknowledgements Latham & Watkins would like to thank the following law firms for their kind assistance with the explanations of restructuring jargon in connection to the jurisdictions listed next to their names: Advokatfirmaet Thommessen AS (Norway) Arthur Cox (Ireland) BBA Legal (Iceland) Creel Garcia-Cuellar, Aiza y Enrequez S.C. (Mexico) Goodmans LLP (Canada) Kromann Reumert (Denmark) NautaDutilh (The Netherlands, Belgium and Luxembourg) Wistrand Advokatbyra (Sweden) Latham & Watkins operates worldwide as a limited liability partnership organized under the laws of the State of Delaware (USA) with affiliated limited liability partnerships conducting the practice in France, Hong Kong, Italy, Singapore, and the United Kingdom and as an affiliated partnership conducting the practice in Japan. Latham & Watkins operates in South Korea as a Foreign Legal Consultant Office. Latham & Watkins works in cooperation with the Law Office of Salman M. Al-Sudairi in the Kingdom of Saudi Arabia. © Copyright 2019 Latham & Watkins. All Rights Reserved. 2 The BOOK of JARGON ® Restructuring & Special Situations The Latham & Watkins Glossary of Restructuring & Special Situations Acronyms, Slang, and Terminology 105 Injunction: an injunction — meaning an Order directing an entity to take a particular action or to refrain from taking a particular action — issued by a US Bankruptcy Court pursuant to Bankruptcy Code Section 105(a). Section 105(a) is a multi-purpose provision that allows a US Bankruptcy Court to “issue any order, process or judgment that is necessary or appropriate to carry out the provisions of” the Bankruptcy Code. Generally, a 105 Injunction extends the protection of the Automatic Stay to entities other than the Debtor in order to protect the Debtor. For example, a Debtor might seek a 105 Injunction to protect members of management from litigation that would consume their time and resources and prevent them from focusing on the restructuring of the Debtor. 1111(b) Election: an election made by a Class of Creditors under Bankruptcy Code Section 1111(b) that would allow a non-recourse Secured Creditor in the Class to be treated as a recourse Creditor with a Deficiency Claim. As stated in Bankruptcy Code Section 1111(b)(2), if the 1111(b) Election is made, “then notwithstanding section 506(a) of this title, such claim is a secured claim to the extent that such claim is allowed.” 1145: reference to Bankruptcy Code Section 1145, which exempts the offer or sale of securities under a Plan of Reorganisation from registration under Section 5 of the Securities Act and state laws if three principal requirements are satisfied: (i) the securities must be issued “under a plan” by the Debtor, by the Debtor’s successor under a plan or by an affiliate participating in a joint plan with the Debtor; (ii) the recipients of the securities must hold a Pre-petition Claim or Administrative Expense Claim against the Debtor or an Interest in the Debtor and (iii) the securities must be issued entirely in exchange for the recipient’s Claim against or Interest in the Debtor, or “principally” in such exchange and “partly” for cash or property. 2004 Exam: an examination of and production of documents by any entity pursuant to Bankruptcy Rule 2004, relating to the acts, conduct, property or liabilities and financial condition of the Debtor, or to any matter that might affect the administration of the Estate, or to the Debtor’s right to a Discharge. The right to take a 2004 Exam is generally obtained by Order pursuant to a Motion filed by any Party in Interest, but applicable Local Rules may dictate particular requirements or procedures. 2019 Statement: a reference to Bankruptcy Rule 2019, which requires that in a case under Chapter 9 or Chapter 11, “any entity or committee representing more than one creditor or equity security holder…” file a statement providing, inter alia, who that entity or Committee represents, the Claims or Interests held by the Creditors or Equity Security Holders, and certain other information. Failure to file a 2019 Statement can result in serious sanctions as detailed in Bankruptcy Rule 2019. 1 If the country of origin of a given term is not identified, the country of origin is the US. 2 21 Day Rule: a German Insolvency rule that also translates into English as “everybody panic”. Management of a German company must file for Insolvency no later than three weeks after the company becomes Insolvent and face criminal sanctions and personal liability if they fail to do so. In a restructuring there are often ways found to address the state of Insolvency and thus avoid the need to file. Not to be confused with Day 21, which has its own separate meaning under the City Code on Takeovers and Mergers. 3(a)(10): a provision of the US securities laws that allows for a quiet, flexible and relatively inexpensive exchange offer without registration with the Securities and Exchange Commission and is often tax free. 341 Meeting: a meeting of Creditors convened by the United States Trustee as required by Bankruptcy Code Section 341(a) or a meeting of Equity Security Holders if optionally convened by the United States Trustee under Bankruptcy Code Section 341(b). Under Bankruptcy Code Section 343, a Debtor is required to appear at a meeting of Creditors and submit to examination by Creditors, any Indenture Trustee, any Trustee or Examiner or the United States Trustee. 363 Sale: a sale of the Debtors’ assets Outside the Ordinary Course of Business pursuant to Bankruptcy Code Section 363(b), subject to notice and a hearing. 365(n): provision of the Bankruptcy Code that allows the non-Debtor licensor to avoid the effect of a Rejection of a license of intellectual property (as defined in the Bankruptcy Code) by paying the applicable royalties and continuing to use the intellectual property notwithstanding a Rejection of the license by the Debtor. 382: section of the Internal Revenue Code (26 U.S.C. § 382(a)) that imposes “limitations on using the purchase of a company as the basis for deducting the company’s net operating losses from the purchaser’s taxable income.” In re South Beach Securities, Inc., 606 F.3d 366, 374 (7th Cir. 2010). 502(b)(6) Cap: a Cap imposed by a provision of the Bankruptcy Code on Claims by Creditors for damages resulting from termination of a lease of real property; the cap is equal to the greater of the rent under the lease without acceleration or 15 per cent, not to exceed three years, of the remaining term of the lease following the earlier of the Petition Date or the date the lease was repossessed or surrendered. 503(b)(9) Claim: an Administrative Claim for the value of goods received by the Debtor within 20 days before the Petition Date and sold to the Debtor in the Ordinary Course of Business. Also referred to as a Twenty- day Goods Claim. 506(c) Surcharge: situation in which Administrative Claims incurred in preserving or disposing of a Secured Creditor’s Collateral are paid from the value of that Collateral to the extent they benefit the Secured 3 Creditor. This is an exception to the usual rule that Administrative Claims are paid only from Unencumbered Assets. In the DIP loan context, the DIP Lender may demand a waiver of all rights of the Debtor to surcharge its Collateral. 510(b) Claim: a Claim that is subject to and Subordinated under Bankruptcy Code Section 510(b), that arises from rescission of a purchase or sale of a security, that is for damages arising from the purchase or sale of such a security, or that is for reimbursement or contribution on account of such a Claim. For example, if the Debtor is a defendant in securities fraud litigation relating to its common stock, and the common stock will have no value and will be wiped out in Bankruptcy, the Claim for securities fraud will be similarly wiped out. Abandonment: the relinquishment of Property of the Estate, placing it outside of the scope of the Bankruptcy. Bankruptcy Code Section 554 allows for Abandonment of property that is “burdensome to the estate or that is of inconsequential value and benefit to the estate.” Abandonment revests property in the Pre-petition Debtor. There are certain limitations on the ability to abandon property, particularly when it contains toxic waste or other environmentally hazardous material. ABC: acronym for Assignment for the Benefit of Creditors. Absolute Priority Rule: the mandated pecking order of Claims and Interests in Chapter 11. The rule derives from Bankruptcy Code Section 1129(b). It states that when a company is reorganised or liquidated under a Plan, senior Classes of Claims must receive full distributions on account of their Claims before junior Classes of Claims, first, and Interests, last, may receive any distributions, unless senior Classes consent by acceptance of the Plan. Abstention: a US Bankruptcy Court’s decision not to entertain or hear a particular case or proceeding. Bankruptcy Code Section 305 deals with abstention, and provides that, After Notice and a Hearing, a court may dismiss a Bankruptcy case or “suspend all proceedings in a case…” under certain circumstances.
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