by Santosh Shrestha
25. March 2010 20:19
Federal Judicial Center. Chapter 11 Reorganization: The Basics and the Judicial Role. In this program, the Honorable Nancy C. Dreher (Bankr. Dist. Minn.) and George M. Treister, Esq., discuss the basics of a typical Chapter 11 reorganization case, and specific challenges that Chapter 11 cases present for judges. They address some of the special problems in the small and large Chapter 11s alike, recognizing that in most bankruptcy courts the large, or mega, case is the exception. Specific topics they cover are how a Chapter 11 case begins; the players; financing the debtor; operating the debtor as the case moves to formulation and confirmation of a plan; the plan and the disclosure statement; and consensual confirmation.
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Bankruptcy
by Santosh Shrestha
24. March 2010 07:48
From Pg. 2
"Solvency is the most-used applicable legal standard when deciding whether or not to appoint an equity committee. In many cases, it is imperative for the share¬holders to prove to the courts that the debtor was not or is not ‘hopelessly insolvent’, as opposed to simply proving solvency. It is a very common technique for shareholders to analyse (and use to their advantage) the pre- and post-petition trading data of the common equity along with positive press releases from company management to prove the point of not being hopelessly insolvent."
(So that was the standard that Judge W had to ensure was met.)
From Pg. 1
"It is well established that the board of directors of a solvent corporation has a fiduciary duty to its shareholders. However, when a company enters the ‘zone of insolvency’, it is primarily due to the fact that a company may not be able to pay its debts as they become due and accordingly, the fiduciary duty now extends to its creditors. Pursuant to the absolute priority rule in the Code, shareholders are forced to the bottom of the hierarchy and in most cases are forgotten in the process. Since the end game is for all stakeholders to obtain some value of the reorganised entity, the introduction of an equity committee has the potential to promote conflicts regarding the valuation of an enterprise and its future ownership structure. Many shareholders use this conflicting fiduciary duty of when a solvent corporation enters the zone of insolvency and the resulting change of fiduciary duty, as its first and foremost basis for the immediate appointment of an equity committee. Equity participants believe that their interests are not adequately protected upon insolvency and therefore feel it necessary to have a formal seat at the negotiating table."
(It appears that there is a normal shift in fiduciary duty after insolvency is claimed during initial BK filing and the absolute priority rule comes into play. Perhaps this is why and how all this is playing out. The ball is now in the hands of the EC to negotiate and prove that equity is in the money. All part of the long and “normal” process.) BHarrison_EquityCommittee_1006.pdf (250.56 kb)
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Bankruptcy