Energy Bootcamp Series: Bankruptcy and Buying Distressed Assets

23 July 2013 Renewable Energy Outlook Blog

Foley & Larder LLP has been hosting a series of energy bootcamp Webinars. The most recent installment in this series was presented on July 18, 2013, entitled "Bankruptcy and Buying Distressed Assets." The session was presented by Richard Bernard and Matt Riopelle and moderated by Jeff Atkin. Among other topics, the panelists discussed the following particularly relevant topics:

  • Automatic Stay; Executory Contracts and Chapter 15. The automatic stay is immediately in effect upon the filing of the bankruptcy case and applies to all property of the debtor wherever located. Executory contracts can be assumed and often times assigned by the debtor – even if the contract contains anti-assignment language – or can be rejected – which is simply a court authorized breach with damages being treated as a prepetition claim. In addition, the panelists discussed the use of Chapter 15 by foreign debtors to protect and administer property located in the United States. For example, where a foreign panel manufacturer is subject to an insolvency proceeding in its home country but has significant assets in the U.S., it may utilize Chapter 15 to liquidate or protect the U.S. assets.
  • Involuntary Bankruptcy. Another important issue discussed was what happens when an involuntary bankruptcy case is filed against an entity. If an involuntary bankruptcy is filed, the putative debtor has the ability to contest the involuntary filing. The process to contest an involuntary can be lengthy and easily take 60 or more days. Due to event of default clauses in many energy industry contracts, the period of time during which the party must have an involuntary petition dismissed is an important consideration in negotiations. Particularly considering that the timing for dismissal is often dependent on the schedule of the court and the potential defenses of the putative debtor, it is prudent to inform counter parties that the involuntary is being opposed and seek to continue business as usual while the involuntary is contested.
  • Safe Harbor. The panelists discussed a recent development in the case law regarding the safe harbor to preference and constructive fraudulent transfer actions. The Fifth Circuit Court of Appeals recently found that the forward commodities contract safe harbor in section 546(e) of the Bankruptcy Code applied to an electricity requirements contract. The full impact of this decision is not yet known, but could be used by preference and constructive fraudulent transfer targets to defend against actions brought by trustees in solar and other energy bankruptcy cases. 
  • Acquiring Distressed Assets; Assignment for the Benefit of Creditors (ABCs). Distressed assets are acquired through various mechanisms, including through bankruptcy, assignments for the benefit of creditors and foreclosure. Each mechanism for acquiring distressed assets has its advantages and disadvantages. For example, in a bankruptcy sale, a purchaser can obtain a “free and clear” order from the court and a good faith finding. Bankruptcy, however, can be a costly and time consuming endeavor, often requiring a public auction for the assets. In contrast, an assignment for the benefit of creditors is far less public and less expensive, but buyers cannot wipe out liens without consent. Depending on the nature of the assets being required, the creditor body and other considerations, the means for acquiring assets can be critical to acquiring distressed assets.

Feel free to email our panelists (jatkin@foley.com; rbernard@foley.com; mriopelle@foley.com) with any questions on the topics described above. 

Please let me know if you are interested in joining us for future sessions in the Energy Bootcamp Series. I can be reached at jeliason@foley.com.

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