ICLG The International Comparative Legal Guide to: Corporate Recovery & Insolvency 2016 10th Edition A practical cross-border insight into corporate recovery and insolvency work Published by Global Legal Group, in association with CDR, with contributions from: Ali Budiardjo, Nugroho, Reksodiputro Lenz & Staehelin Bojović&Partners Macfarlanes LLP BonelliErede Nishimura & Asahi Bredin Prat Olswang LLP Brian Kahn Inc. Paul, Weiss, Rifkind, Wharton & Garrison LLP Campbells Pinheiro Neto Advogados Dhir & Dhir Associates Roschier, Attorneys Ltd. Ferraiuoli LLC Schindler Rechtsanwälte GmbH Gall Sedgwick Chudleigh Ltd. Gilbert + Tobin Slaughter and May Gorrissen Federspiel Soteris Flourentzos & Associates LLC GRATA Law Firm LLP Strelia Hengeler Mueller Partnerschaft Sullivan & Cromwell LLP von Rechtsanwälten mbB Thornton Grout Finnigan LLP INFRALEX Uría Menéndez Kim & Chang White & Case LLP Kubas Kos Gałkowski Yonev Valkov Nenov Kvale Advokatfirma DA The International Comparative Legal Guide to: Corporate Recovery & Insolvency 2016 General Chapters: 1 An Effective Insolvency Framework Within the EU? – Tom Vickers & Megan Sparber, Slaughter and May 1 2 Developments in Directors’ Duties under English Law – Alicia Videon & Louise Bell, Olswang LLP 4 3 Liability Management as a Restructuring Tool – Chris Beatty, Sullivan & Cromwell LLP 10 4 Fund Lenders: Potential New Challenges for the Next Wave of Loan Restructuring Transactions – Contributing Editor Jat Bains & Paul Keddie, Macfarlanes LLP 16 Tom Vickers, Partner, Slaughter and May Sales Director Country Question and Answer Chapters: Florjan Osmani 5 Australia Gilbert + Tobin: Dominic Emmett & Alexandra Whitby 21 Account Directors Oliver Smith, Rory Smith 6 Austria Schindler Rechtsanwälte GmbH: Martin Abram & Florian Cvak 28 Sales Support Manager 7 Belgium Strelia: Bart De Moor 33 Toni Hayward Editor 8 Bermuda Sedgwick Chudleigh Ltd.: Alex Potts & Nick Miles 39 Sam Friend 9 Brazil Pinheiro Neto Advogados: Luiz Fernando Valente de Paiva & Senior Editor André Moraes Marques 48 Rachel Williams 10 Bulgaria Yonev Valkov Nenov: Todor Nenov & Pavel Tsanov 53 Chief Operating Officer Dror Levy 11 Canada Thornton Grout Finnigan LLP: Leanne M. 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Global Legal Group Ltd. and the contributors accept no responsibility for losses that may arise from reliance upon information contained in this publication. This publication is intended to give an indication of legal issues upon which you may need advice. Full legal advice should be taken from a qualified professional when dealing with specific situations. WWW.ICLG.CO.UK Chapter 36 USA Alan W. Kornberg Paul, Weiss, Rifkind, Wharton & Garrison LLP Elizabeth R. McColm director to discharge duties with the care an ordinarily prudent person 1 Overview in a like position would exercise under similar circumstances. The duty of loyalty requires directors to act in the best interests of the 1.1 Where would you place your jurisdiction on the corporation; it prohibits self-dealing and the usurpation of corporate spectrum of debtor to creditor-friendly jurisdictions? opportunities by directors. Ordinarily, decision-making by directors is protected by the business judgment rule, even when a company is The United States likely sits near the middle of the spectrum. The insolvent. Civil liability may arise if the directors fail to adhere to United States could be considered debtor-friendly as compared to their duties of loyalty or care. some regimes in that management is typically permitted to retain When a company becomes insolvent the directors must exercise their operating control of the business, debtors have exclusive authority fiduciary duty in the best interests of the corporation, taking into to propose a plan of reorganisation at the outset of a case, and account the interests of, among others, creditors. Upon insolvency, debtors are given powers, such as the option to reject unprofitable creditors may under certain circumstances bring derivative claims contracts, that they are not afforded outside of a formal insolvency on behalf of the corporation against directors. Causes of action proceeding. However, the United States could also be considered for breach of fiduciary duty, fraud and fraudulent conveyance may creditor-friendly as compared to some jurisdictions in that the be appropriate to challenge the wrongful actions of directors of process is designed to be public and transparent, creditors are given insolvent corporations. a voice in the restructuring process, and creditors are afforded In addition, directors may be criminally or civilly liable under significant protections by the Bankruptcy Code. federal and state laws for failure to comply with certain disclosure obligations or for insider trading, or for the company’s failure to pay 1.2 Does the legislative framework in your jurisdiction certain taxes and wages, among other things. allow for informal work-outs, as well as formal restructuring and insolvency proceedings, and are each of these used in practice? 2.2 Which other stakeholders may influence the company’s situation? Are there any restrictions on the action that they can take against the company? While informal out-of-court restructurings are commonplace and are typically implemented by contract by and among the relevant parties, While in financial difficulty, but prior to a bankruptcy filing, a there is no specific legislative framework to sanction such work- company’s creditors, contract counterparties, employees, and out procedures. The official legislative framework, the Bankruptcy interested acquirers, among others, may all attempt to influence Code, provides for formal court-supervised proceedings, although the company’s situation within the bounds of whatever contractual the Bankruptcy Code has several provisions which encourage pre- agreements may exist and applicable law. For this reason, and to petition restructuring negotiations. make any potential insolvency process smoother, a company in financial distress will oftentimes seek to engage its stakeholders in 2 Key Issues to Consider When the restructuring discussions prior to beginning an insolvency process. Company is in Financial Difficulties 2.3 In what circumstances are transactions entered into by a company in financial difficulties at risk of 2.1 What duties and potential liabilities should the challenge? What remedies are available? directors/managers have regard to when managing a company in financial difficulties? Is there a specific Transactions entered into by an entity in financial distress may be point at which a company must enter a restructuring or insolvency process? attacked as an actual or constructive fraudulent transfer or as a preference under the Bankruptcy Code and/or state law. Directors are not personally liable for continuing to trade while the Under the Bankruptcy Code, a transfer may be avoided as fraudulent company