DOCSLIB.ORG

Debtor-In-Possession Financing

Total Page：16

File Type：pdf, Size：1020Kb

Download full-text PDF Read full-text
Debtor-In-Possession Financing BANKRUPTCY Debtor-in-Possession Financing by Marshall S. Huebner an you imagine the reaction the first time a lender said, “Hey, let’s lend large sums of money to a bankrupt Ccompany!”? As it turns out, lending to a debtor in posses- sion can be a smart move. This article explains, in general terms, the hows and whys of DIP lending. t may seem counterintuitive In Chapter 11, pre-bankruptcy Chapter 11 debtors on C.O.D. or that banks and other institu- creditors are, for the most part, C.B.D. until the company stabi- I tions would compete fiercely stayed from enforcement reme- lizes and working capital financ- to provide loans to companies that dies and do not receive payment ing for the company’s ongoing have recently filed for protection of principal or interest while the operations is available. under Chapter 11 of the U.S. company seeks to rationalize its DIP loans are typically asset- Bankruptcy Code. But they do— business and formulate a plan of based, revolving working-capital and often. Indeed, “DIP loans,” reorganization to restructure its facilities put into place at the out- as they often are called, are big balance sheet. set of Chapter 11 to provide both business and can range from tens The DIP typically finds itself immediate cash as well as ongoing of thousands to billions of dollars. in need of credit immediately working capital during the reorga- Moreover, lending institutions of after initiating a Chapter 11 case. nization process. Perhaps most all sizes may be called on to While most of its pre-bankruptcy important, DIP financing helps extend further credit to a bank- liabilities are frozen, the company the company restore vendor and ruptcy debtor to “protect” an is likely to need cash immediately customer confidence in the com- existing loan position. to cover payroll and the up-front pany’s ability to maintain its liq- Companies that enter into costs of stabilizing the business. uidity. Chapter 11 reorganization contin- Although post-bankruptcy credit ue to be run by their existing extended by vendors is granted Protections for DIP Lenders management in virtually all cases. administrative expense priority Congress understood that The ongoing entity is known as over all pre-bankruptcy unsecured lenders might well be skittish the debtor in possession, or DIP. claims, vendors typically place about extending credit to a com- © 2005 by RMA. Marshall Huebner is a partner with Davis Polk & Wardwell, New York, New York, and specializes in insolvency and restructuring. He has participated in two RMA round tables on bankruptcy issues. 30 The RMA Journal April 2005 Debtor-in-Possession Financing pany that has filed for bankruptcy, their collateral interest (and thus must be applied to reduce the so the bankruptcy court extends their recovery) will plummet DIP loans and commitments. to DIP lenders a number of pow- unless new money is lent to the 3. That the primed pre-bank- erful protections. If the debtor can debtor to maintain operations and ruptcy lenders cannot exer- demonstrate that financing could inspire vendor and customer confi- cise remedies until the DIP not be procured on any other dence. has been repaid. basis, the court can, subject to cer- In common bankruptcy parl- 4. That certain events, like con- tain limitations, authorize the ance, a DIP loan provided by the version of the case to Chapter debtor to grant the DIP lender a existing secured lenders is referred 7 or appointment of a trustee lien that has priority over pre- to as a defensive DIP while a loan in bankruptcy, permit the bankruptcy secured creditors from a new third party lender is DIP lender to call the loan. (priming lien) and a claim with called an offensive or new money DIP. super-priority over administrative Creditors secured by isolated DIP Loan Negotiation and expenses (including vendor and assets often do not consent to Pricing employee claims) incurred during being primed, and, assuming the In larger cases, DIP loans typ- Chapter 11 and over all other DIP lender is satisfied with its ically are negotiated over a one- or claims. other collateral, the DIP lender two-week period just prior to the The DIP lender typically will often does not seek to prime commencement of Chapter 11 insist on a first-priority priming existing lenders with respect to proceedings. The lender arranging lien on the debtor’s inventory, these assets. the DIP loan typically first enters receivables, and cash In addition to collateral and a into an engagement letter provid- (whether or not previous- super-priority claim, DIP loans are ing for an advance against expens- ly encumbered), a second typically designed with covenants es and then sends internal or lien on any other encum- external experts to conduct an bered property, and a first-priority expedited review of the working- lien on all of the debtor’s unen- capital collateral and the debtor’s cumbered property. post-Chapter-11 cash flow projec- A priming lien can be granted tions. Once the lender satisfies only with the consent of the itself regarding the collateral and secured creditors who are being the DIP financing has been primed or if the court finds that “sized” based on the debtor’s the creditors are adequately pro- expected needs, the parties pro- tected despite the granting of the ceed to a commitment letter priming DIP lien. In many cases, and final documentation. pre-bankruptcy inventory and In some cases, where receivables lenders consent to there is time pres- being primed and to the use of sure, the commit- their cash collateral in exchange for ment-letter stage a package of protections specified is bypassed. in the court order approving the DIP loans are financing (DIP Order). These pro- and other protections to often sized to be tections typically include a second permit the DIP lender a full somewhat—or far— lien on unencumbered assets recovery even if the debtor larger than the (behind the DIP loan) and, quite liquidates. The loan documents expected needs of the often, current cash payment of and/or the DIP Order, for exam- debtor because interest. One reason secured ple, will typically provide: announcing a large facility may lenders often consent to being 1. For a borrowing base. inspire vendor and customer con- primed is because the value of 2. That all asset-sale proceeds fidence and actually reduce the 31 Debtor-in-Possession Financing need for use of the facility. become part of the underwriting creditors (the Creditors Sometimes the DIP lender, group. Committee) is appointed. through various mechanisms, will If objections are made at the limit use of some part of the facili- DIP Loan Approval Process interim DIP hearing, they usually ty so the lender is comfortable it Approval of priming liens and come from the U.S. Trustee. will be protected if the debtor super-priority claims in connec- While the timing and amount of seeks to exceed the forecasted tion with a DIP loan requires fees paid to the DIP lender are usage. Besides the important bor- “notice and hearing” under the sometimes an issue, more typical- rower benefits, a larger facility Bankruptcy Code, and it is the ly the U.S. Trustee raises issues benefits the DIP lender because debtor’s burden to demonstrate relating to the adequate protec- commitment and facility fees that lenders who are being primed tion package being offered to the apply to the full facility, whether are being “adequately protected.” pre-bankruptcy lenders being or not the debtor ever uses it all. However, because the debtor typ- primed by the DIP. Occasionally, Pricing on DIP loans has his- ically needs to draw on the facility there will be a dispute over torically been relatively high for at the outset of the Chapter 11 whether the terms of the pro- first-lien working-capital financ- proceeding and because it is posed DIP are the best available. ing, but the DIP lending business desirable to obtain early approval Assuming the judge is satisfied, has become more competitive of the DIP financing to restore an interim DIP Order is entered, during the past 10 years and pres- vendor confidence, DIP loans are and the loan documents are sure on pricing has increased. typically approved in a two-step signed promptly to make a por- Lately, hedge funds and other process during the first month of tion of the DIP facility available new entrants in the DIP lending the Chapter 11 case. to the debtor. The interim DIP market have further increased 1. In the first step, an interim Order will specify the date of the competition. Pricing will often DIP hearing is held within a final DIP hearing. include a fee paid at the time of couple of days after the The balance of the commit- the initial commitment letter, fur- Chapter 11 petition is filed, ments under the DIP facility will ther fees paid at the time the loan on notice to 1) the lenders be approved at the final DIP hear- is closed, ongoing commitment who are being primed, 2) the ing, after the Creditors fees, and, of course, interest on 20-50 largest unsecured credi- Committee has had time to the loans themselves. The pricing tors of the debtor (depending review the deal. Syndication of can be affected by a number of on the size of the case), and the DIP loan, if the arranger factors, such as whether the facili- 3) the office of the U.S. decides to do so, typically is com- ty is a defensive DIP (where pric- Trustee (a division of the U.S.
Load more

Recommended publications
  • Brief for Petitioner
    No. 19-357 IN THE Supreme Court of the United States CITY OF CHICAGO, Petitioner, v. ROBBIN L. FULTON, JASON S. HOWARD, GEORGE PEAKE, AND TIMOTHY SHANNON, Respondents. ON WRIT OF CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE SEVENTH CIRCUIT BRIEF FOR PETITIONER MARK A. FLESSNER CRAIG GOLDBLATT BENNA RUTH SOLOMON Counsel of Record MYRIAM ZRECZNY KASPER DANIELLE SPINELLI ELLEN W. MCLAUGHLIN JOEL MILLAR CITY OF CHICAGO ISLEY GOSTIN OFFICE OF CORPORATION WILMER CUTLER PICKERING COUNSEL HALE AND DORR LLP 30 N. LaSalle Street 1875 Pennsylvania Ave., NW Suite 800 Washington, DC 20006 Chicago, Illinois 60602 (202) 663-6000 (312) 744-7764 [email protected] ALLYSON M. PIERCE WILMER CUTLER PICKERING HALE AND DORR LLP 250 Greenwich Street New York, NY 10007 (212) 230-8800 QUESTION PRESENTED Whether an entity that is passively retaining pos- session of property in which a bankruptcy estate has an interest has an affirmative obligation under the Bank- ruptcy Code’s automatic stay, 11 U.S.C. § 362, to return that property to the debtor or trustee immediately up- on the filing of the bankruptcy petition. (i) PARTIES TO THE PROCEEDING Petitioner is the City of Chicago. Respondents are Robbin L. Fulton, Jason S. How- ard, George Peake and Timothy Shannon. (ii) TABLE OF CONTENTS Page QUESTION PRESENTED ............................................... i PARTIES TO THE PROCEEDING .............................. ii TABLE OF AUTHORITIES .......................................... vi INTRODUCTION .............................................................
    [Show full text]
  • Sovereign Defaults and Debt Restructurings: Historical Overview
    Sovereign Defaults and Debt Restructurings: 1 Historical Overview Debt crises and defaults by sovereigns—city-states, kingdoms, and empires—are as old as sovereign borrowing itself. The first recorded default goes back at least to the fourth century B.C., when ten out of thirteen Greek municipalities in the Attic Maritime Association de- faulted on loans from the Delos Temple (Winkler 1933). Most fiscal crises of European antiquity, however, seem to have been resolved through ‘‘currency debasement’’—namely, inflations or devaluations— rather than debt restructurings. Defaults cum debt restructurings picked up in the modern era, beginning with defaults in France, Spain, and Portugal in the mid-sixteenth centuries. Other European states fol- lowed in the seventeenth century, including Prussia in 1683, though France and Spain remained the leading defaulters, with a total of eight defaults and six defaults, respectively, between the sixteenth and the end of the eighteenth centuries (Reinhart, Rogoff, and Savastano 2003). Only in the nineteenth century, however, did debt crises, defaults, and debt restructurings—defined as changes in the originally envis- aged debt service payments, either after a default or under the threat of default—explode in terms of both numbers and geographical inci- dence. This was the by-product of increasing cross-border debt flows, newly independent governments, and the development of modern fi- nancial markets. In what follows, we begin with an overview of the main default and debt restructuring episodes of the last two hundred years.1 We next turn to the history of how debt crises were resolved. We end with a brief review of the creditor experience with sovereign debt since the 1850s.
    [Show full text]
  • FERC Vs. Bankruptcy Courts—The Battle Over Jurisdiction Continues
    FERC vs. Bankruptcy Courts—The Battle over Jurisdiction Continues By Hugh M. McDonald and Neil H. Butterklee* In energy industry bankruptcies, the issue of whether a U.S. bankruptcy court has sole and exclusive jurisdiction to determine a debtor’s motion to reject an executory contract has mostly involved a jurisdictional struggle involving the Federal Energy Regulatory Commission. The dearth of judicial (and legislative) guidance on this issue has led to shifting decisions and inconsistent outcomes leaving counterparties to contracts in still uncertain positions when a contract counterparty commences a bankruptcy case. The authors of this article discuss the jurisdiction conundrum. The COVID-19 pandemic has put pressure on all aspects of the United States economy, including the energy sector. Counterparties to energy-related contracts, such as power purchase agreements (“PPAs”) and transportation services agreements (“TSAs”), may need to commence bankruptcy cases to restructure their balance sheets and, as part of such restructuring, may seek to shed unprofitable or out-of-market contracts. However, this situation has created a new stage for the decades-old jurisdictional battle between bankruptcy courts and energy regulators. The U.S. Bankruptcy Code allows a debtor to assume or reject executory contracts with the approval of the bankruptcy judge presiding over the case.1 The standard employed by courts when assessing the debtor’s request to assume or reject is the business judgment standard. A debtor merely has to demonstrate that assumption or rejection is in the best interest of the estate and the debtor’s business. However, most energy-related contracts are subject to regulatory oversight by federal and/or state regulatory bodies, which, depending on the type of contract that is being terminated, apply different standards—most of which take into account public policy concerns.
    [Show full text]
  • UK (England and Wales)
    Restructuring and Insolvency 2006/07 Country Q&A UK (England and Wales) UK (England and Wales) Lyndon Norley, Partha Kar and Graham Lane, Kirkland and Ellis International LLP www.practicallaw.com/2-202-0910 SECURITY AND PRIORITIES ■ Floating charge. A floating charge can be taken over a variety of assets (both existing and future), which fluctuate from 1. What are the most common forms of security taken in rela- day to day. It is usually taken over a debtor's whole business tion to immovable and movable property? Are any specific and undertaking. formalities required for the creation of security by compa- nies? Unlike a fixed charge, a floating charge does not attach to a particular asset, but rather "floats" above one or more assets. During this time, the debtor is free to sell or dispose of the Immovable property assets without the creditor's consent. However, if a default specified in the charge document occurs, the floating charge The most common types of security for immovable property are: will "crystallise" into a fixed charge, which attaches to and encumbers specific assets. ■ Mortgage. A legal mortgage is the main form of security interest over real property. It historically involved legal title If a floating charge over all or substantially all of a com- to a debtor's property being transferred to the creditor as pany's assets has been created before 15 September 2003, security for a claim. The debtor retained possession of the it can be enforced by appointing an administrative receiver. property, but only recovered legal ownership when it repaid On default, the administrative receiver takes control of the the secured debt in full.
    [Show full text]
  • Individual Voluntary Arrangement Factsheet What Is an Individual Voluntary Arrangement (IVA)? an IVA Is a Legally Binding
    Individual Voluntary Arrangement Factsheet What is an An IVA is a legally binding arrangement supervised by a Licensed Unlike debt management products, an IVA is legally binding and Individual Insolvency Practitioner, the purpose of which is to enable an precludes all creditors from taking any enforcement action against Voluntary individual, sole trader or partner (the debtor) to reach a compromise the debtor post-agreement, assuming the debtor complies with the Arrangement with his creditors and avoid the consequences of bankruptcy. The his obligations in the IVA. (IVA)? compromise should offer a larger repayment towards the creditor’s debt than could otherwise be expected were the debtor to be made bankrupt. This is often facilitated by the debtor making contributions to the arrangement from his income over a designated period or from a third party contribution or other source that would not ordinarily be available to a trustee in bankruptcy. Who can An IVA is available to all individuals, sole traders and partners who It is also often used by sole traders and partners who have suffered benefit from are experiencing creditor pressure and it is used particularly by those problems with their business but wish to secure its survival as they it? who own their own property and wish to avoid the possibility of losing believe it will be profitable in the future. It enables them to make a it in the event they were made bankrupt. greater repayment to creditors than could otherwise be expected were they made bankrupt and the business consequently were to cease trading. The procedure In theory, it is envisaged that the debtor drafts proposals for In certain circumstances, when it is considered that the debtor in brief presentation to his creditors prior to instructing a nominee, (who requires protection from creditors taking enforcement action whilst must be a Licensed Insolvency Practitioner), to review them before the IVA proposal is being considered, the nominee can file the submission to creditors (or Court if seeking an Interim Order).
    [Show full text]
  • IN the UNITED STATES BANKRUPTCY COURT for the DISTRICT of DELAWARE in Re LITTLEFORD DAY, INC.1 Debtor. ) ) ) ) ) ) ) Chapter 11
    Case 15-10722 Doc 13 Filed 04/02/15 Page 1 of 16 IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE In re ) Chapter 11 ) LITTLEFORD DAY, INC.1 ) ) Case No. 15-10722 ) Debtor. ) ) FIRST DAY DECLARATION OF J. GARVIN WARDEN, CHIEF RESTRUCTURING OFFICER OF LITTLEFORD DAY, INC. Pursuant to 28 U.S.C. § 1746, I, J. Garvin Warden, hereby declare as follows under the penalty of perjury: 1. I am the chief restructuring officer of Littleford Day, Inc. (“Littleford,” “Debtor” or “Company”), a corporation organized under the laws of the state of Delaware. I have worked with the Debtor since December 2014. 2. I am authorized to submit this declaration in support of the Debtor's chapter 11 petition and the first day motions and proposed orders described herein (the "First Day Motions and Orders"). I am familiar with the Debtor’s day-to-day operations, business affairs, and books and records. I have also reviewed the Debtor’s First Day Motions and Orders and am familiar with the facts alleged and relief requested therein. I have personal knowledge of the facts, circumstances, and other matters set forth in the First Day Motions and Orders and in this declaration, or have gained knowledge of such matters from the Debtor's officers, employees, or retained advisers that report to me in the ordinary course of my responsibilities as Chief Restructuring Officer. I am over the age of 18 and authorized by the Debtor’s Board of Directors 1 The last four digits of Debtor’s taxpayer identification number are 7511.
    [Show full text]
  • Law Reform Commission of British Columbia Report on Floating Charges
    LAW REFORM COMMISSION OF BRITISH COLUMBIA REPORT ON FLOATING CHARGES ON LAND LRC 103 JANUARY 1989 The Law Reform Commission of British Columbia was established by the Law Reform Commission Act in 1969 and began functioning in 1970. The Commissioners are: ARTHUR L. CLOSE, Chairman HON. RONALD I. CHEFFINS, Q.C., Vice-Chairman MARY V. NEWBURY LYMAN R. ROBINSON, Q.C. PETER T. BURNS, Q.C. Thomas G. Anderson is Counsel to the Commission. J. Bruce McKinnon and Linda Reid are Legal Research Officers to the Commission. Sharon St. Michael is Secretary to the Commission. Text processing and technical copy preparation by Linda Grant. The Commission offices are located at Suite 601, Chancery Place, 865 Hornby St., Vancouver, B.C. V6Z 2H4. Canadian Cataloguing in Publication Data Law Reform Commission of British Columbia. Report on floating charges on land (LRC, ISSN 0843-6053; 103) ISBN 0-7718-8748-5 1. Floating charges. 2. Commercial loans - Law and legislation - British Columbia. 3. Security (Law) - British Columbia. 4. Real property - British Columbia. I. Title. II. Title: Floating charges on land. III. Series: LRC (Law Reform Commission of British Columbia); 103 KEB271.A72L38 1989 346.711'074 C89-092073-7 Table of Contents I. INTRODUCTION 1 A. General 1 B. Methodology 1 C. The Need for Flexible Security Over Land 2 D. The Future of the Floating Charge 3 E. The Scope of Reform 4 F. This Report 4 II. THE NEED FOR REFORM 5 A. Introduction 5 B. Overview of the Current Law 5 1. Common Law 5 2. Land Title Registration 5 3.
    [Show full text]
  • A Theory of the Regulation of Debtor-In-Possession Financing
    Vanderbilt Law Review Volume 46 Issue 4 Issue 4 - May 1993 Article 4 5-1993 A Theory of the Regulation of Debtor-in-Possession Financing George G. Triantis Follow this and additional works at: https://scholarship.law.vanderbilt.edu/vlr Part of the Banking and Finance Law Commons, and the Bankruptcy Law Commons Recommended Citation George G. Triantis, A Theory of the Regulation of Debtor-in-Possession Financing, 46 Vanderbilt Law Review 901 (1993) Available at: https://scholarship.law.vanderbilt.edu/vlr/vol46/iss4/4 This Article is brought to you for free and open access by Scholarship@Vanderbilt Law. It has been accepted for inclusion in Vanderbilt Law Review by an authorized editor of Scholarship@Vanderbilt Law. For more information, please contact [email protected]. A Theory of the Regulation of Debtor-in-Possession Financing George G. Triantis* I. INTRODUCTION .......................................... 901 II. THE REGULATION OF DIP FINANCING UNDER SECTION 364 ........................................ 904 III. FINANCIAL AGENCY PROBLEMS OF INSOLVENT FIRMS AND BANKRUPTCY LAW RESPONSES ............................. 910 IV. A MODEL OF JUDICIAL OVERSIGHT OF FINANCING DECISIONS UNDER SECTION 364 ................................. 918 V. CONCLUSION ............................................... 927 MATHEMATICAL APPENDIX ............................... 929 I. INTRODUCTION The profile of Chapter 11 of the Bankruptcy Code in public con- sciousness has surged recently. Other than the automatic stay on the enforcement of claims,1 the
    [Show full text]
  • 04/27/2020 Creditors' Motion for Relief from Automatic Stay
    Case 20-05012 Doc 29 Filed 04/27/20 Entered 04/27/20 16:00:50 Desc Main Document Page 1 of 5 IN THE UNITED STATES BANKRUPTCY COURT FOR THE NORTHERN DISTRICT OF ILLINOIS HITZ RESTURANT GROUP, LLC, ) Case No. 20-05012 ) Debtor ) Chapter 11 ) ) Honorable Donald R Cassling MOTION OF KASS MANAGEMENT SERVICES, INC. AND THE SOUTH LOOP SHOPS, LLC FOR RELIEF FROM THE AUTOMATIC STAY Creditors, KASS MANAGEMENT SERVICES, INC. AND THE SOUTH LOOP SHOPS, LLC (collectively “Landlord”), by and through their attorneys, Mario A. Sullivan, Johnson & Sullivan, Ltd., moves this Court to modify the automatic stay to permit it to take possession of the residential real estate commonly known as 825 South State Street, Chicago, Illinois 60605 (“Premises”). In support of its motion, Creditor states as follows: 1. On February 24, 2020, Debtor filed a voluntary petition for relief under Chapter 11 of the United States Code (“Code”). 2. Debtor continues to reside in the Premises as a Debtor and Debtor in Possession pursuant to the 11 USC §§1107 and 1008 of the Code. Background 3. The South Loop Shops, LLC is the owner of record for the Premises. 4. Kass Management Services, Inc. is the agent for the owner of the Premises and has full authority to proceed in all matters pertaining thereto. 5. Debtor is engaged in the operation and management of restaurant and bar at the Premises. 1 of 5 Case 20-05012 Doc 29 Filed 04/27/20 Entered 04/27/20 16:00:50 Desc Main Document Page 2 of 5 6.
    [Show full text]
  • Credit Counseling/Debtor Education System (CC/DE System)
    United States Trustee Program Privacy Impact Assessment for the Credit Counseling/Debtor Education System (CC/DE System) Issued by: Larry Wahlquist, Privacy Point of Contact Reviewed by: Vance E. Hitch, Chief Information Officer, Department of Justice Approved by: Nancy C. Libin, Chief Privacy and Civil Liberties Officer, Department of Justice Date approved: May 23, 2011 (February 2011 DOJ PIA Form) Introduction The Credit Counseling/Debtor Education (CC/DE) System was developed to support the United States Trustee Program’s (USTP) approval process for reviewing applications submitted for consideration as approved credit counseling agencies (agency) or approved providers of a personal financial management instructional course (provider), referred to as debtor education, under the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA). The CC/DE System facilitates the tracking of the receipt of the application, the review process and final determination, as well as notification to the courts and general public of the approved agencies and providers via the USTP’s website where the list of approved agencies and providers is published. For the approved agencies and providers, the CC/DE System allows for the tracking of the associated renewal process and any complaints received regarding any of the agencies or providers. Basic applicant information is captured in the system, such as applicant name, title, company name, address, email address, phone number, fax number, social security number (when the debtor education provider is an individual), or employer identification number (EIN), plus names and address of all owners, officers, directors, partners, or trustees. The CC/DE System also captures the name, title, company name, address, email address, and phone number of complainants, along with any names of individuals perceived to be harmed by an agency or provider’s actions other than the complainant.
    [Show full text]
  • FORMAL OPINION NO 2005-40 Conflicts of Interest, Current Clients: Representing Debtor and One Or More Creditors in Bankruptcy
    FORMAL OPINION NO 2005-40 Conflicts of Interest, Current Clients: Representing Debtor and One or More Creditors in Bankruptcy Facts: Lawyer is asked to represent Individual A in bankruptcy. Indi- vidual A owes money to Secured Creditor B and Unsecured Creditor C, both of whom are also clients of Lawyer. Questions: 1. May Lawyer simultaneously represent Individual A, Secured Creditor B, and Unsecured Creditor C in the bankruptcy proceedings? 2. May Lawyer represent only Individual A in the bankruptcy proceedings? 3. Assume that Lawyer had never represented and is not asked to represent Individual A. Could Lawyer represent both Secured Creditor B and Unsecured Creditor C in Individual A’s bankruptcy? Conclusions: 1. No. 2. Yes. 3. Yes, qualified. Discussion: The critical sections that must be considered are Oregon RPC 1.7(a) and (b). Oregon RPC 1.7(a) provides: Except as provided in paragraph (b), a lawyer shall not represent a client if the representation involves a current conflict of interest. A current conflict of interest exists if: (1) the representation of one client will be directly adverse to another client; 2016 Revision Formal Opinion No 2005-40 (2) there is a significant risk that the representation of one or more clients will be materially limited by the lawyer’s respon- sibilities to another client, a former client or a third person or by a personal interest of the lawyer; or (3) the lawyer is related to another lawyer, as parent, child, sibling, spouse or domestic partner, in a matter adverse to a person whom the lawyer knows is represented by the other lawyer in the same matter.
    [Show full text]
  • Sovereign Debt, Volatility, and Insurance
    FEDERAL RESERVE BANK OF SAN FRANCISCO WORKING PAPER SERIES Sovereign Debt, Volatility and Insurance Kenneth Kletzer University of California, Santa Cruz February 2005 Working Paper 2006-05 http://www.frbsf.org/publications/economics/papers/2006/wp06-05bk.pdf The views in this paper are solely the responsibility of the authors and should not be interpreted as reflecting the views of the Federal Reserve Bank of San Francisco or the Board of Governors of the Federal Reserve System. This paper was produced under the auspices for the Center for Pacific Basin Studies within the Economic Research Department of the Federal Reserve Bank of San Francisco Sovereign Debt, Volatility and Insurance Kenneth Kletzer Department of Economics University of California Santa Cruz, CA 95064 August 2004 (revised, February 2005) Abstract External debt increases the vulnerability of indebted emerging market economies to macroeconomic volatility and financial crises. Capital account reversals often lead sovereign debt repayment crises that are only resolved after prolonged and difficult debt restructuring. Foreign indebtedness exacerbates domestic financial distress in crisis, increasing both the incidence and severity of emerging market crises. These outcomes contrast with the presumption that access to international capital markets should help countries to smooth domestic consumption and investment against macroeconomic shocks. This paper uses models of sovereign to reconsider the role of sovereign debt renegotiation for international risk sharing and presents an approach for analyzing contractual innovations for implementing contingent debt repayments. The financial innovations that might allow risk-sharing rather than risk-inducing capital flows go beyond contractual changes that ease debt renegotiation by separating contingent payments from bonds.
    [Show full text]