The Shifting Of Risk From Buyer To Seller In The Trading Of Bankruptcy Claims
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The recent decision of the Honorable Shira Scheindlin the United States District Court for the Southern District of New York in In re Enron Corp. (Enron Corp. v. Springfield Assoc.), 2007 WL 2446498 (SDNY Aug. 27, 2007), was to the one Welcomed the creation of several security in the trade in the bankruptcy claims that, if such a negotiation anonymous (for example, advertise electronically, without the seller or buyer), and secondly , criticized, creating some uncertainty, the seller, if the buyer is known. Much has been written about the outstanding issues comment to the left of the ruling, Judge Scheindlin, but there was little discussion about the practical effects. There is a demand for bankruptcy proceedings in December 2001, Enron, in the short term, a loan agreement with a consortium of banks. With the declaration of bankruptcy, the banks of origin to transfer part of their rights in the credit agreement to an independent third party. Then Enron, the transfer of certain banks (1) asserts that banks are unfair behavior give rise to the submission of their just demands against Enron, and (2) the assertion of preferential rights against banks. Enron also cites the buyer of the bank’s subordinated debt and just want to hold these rights is based on the assignor and the unjust behavior, because banks have not yet returned avoidable transfers of certain debtors - despite the that the buyer claimed not to have participated Known in the assignor or the alleged infringement. These costumes considerable controversy and led to what many years (continued) litigation. In practice, the reality of trade receivables is that as a consequence of a global environment increasingly computerized, insolvency transactions with claims are often anonymous and quickly electronically. Therefore, buyers are usually not (and certainly not) engage all major Due diligence in the context of the purchase of receivables. Indeed, as is often seen as diligence, as appropriate, at least part of risk analysis related to the acquisition of a receivable. Instead, buyers often focus on the analysis of potential recoveries under a reorganization plan in place and that the plan would probably be confirmed before shipping the buyer (including the time value money) on profits. (See 6 Collier Bankruptcy Practice Guide, 94.02 ¶ ¶ [2] 94.02 [3] (2007)). This approach has been used for the purchase of receivables is questioned by the two rulings by the Honorable Arthur Gonzalez of the United States Bankruptcy Court for the Southern District of New York v. Enron Corp. Springfield Assocs. 2005 WL 3873893, No. 01-16034, 05-01025, op hatch. (SDNY Bankr. November 28, 2005), and v. Enron Corp. Avenue Special Situations Fund II LP, BR 340180 (Bankr. SDNY 2006). Although, as Judge Gonzalez recalls, in one of its rulings, the risk of bankruptcy, debts purchase “was, in the industry of outstanding debt at least a decade,” Judge Gonzalez decisions Posted at tingling spine numerous requests for traders. In its decisions, Judge Gonzalez noted that the purchase of a law can be fair subordinates of inequality based on the behaviour of the seller and the claim may be subject to failure, if the seller does not have the return d a preventable. The Bankruptcy Court noted that the buyer should not have more rights than the transferor, and therefore, if a solicitation in the hands of the transferor, it is also ranking resignation in the hands of a buyer. In support of such conclusion, the Court found that “the righteous available to offer relief from the doctrine of submission remains fair to demand.” Bankruptcy Court decisions were praised by some as necessary to protect the integrity of the market and exchange to prevent “washing debts” (ie the transfer of rights of a creditor d avoid the consequences of their bad faith), and critical Other than the decisions that “bombent chaos on the market for bad debts,” which, among other things, trade disheartening that the price of claims to reduce drastically, and the increased costs associated with the need for the implementation of due diligence with respect to the transferor That behaviour in relation to the debtor. Levitin, Adam J., Finding Nemo: the rediscovery of the virtues of Wake Negotiability of Enron, COLUM 2007. BUS. L. REV. 83 (2007). On appeal from the District Court, Judge Scheindlin contrast, the decisions of the lower court and found that the principles of equity and submission, as requests that he personally and are not characteristics of the application and therefore demand in the hand is the assignee Not fair bid or non-recognition on the basis of the fault of the donor. However, the District Court distinguish between calls for a “sale” and claims of ‘transfer’, the fact that a trial in the transferee of a claim are subject to the requirement of equitable sharing of risks and goes the submission, while the buyer is not a right. The Court emphasized that the claims, where trade is anonymous, the bid would not be appropriate, given the fact that the buyer has “no possibility to check if the seller (or a buyer, the line) acted unfairly. ” In such a case, the Court, moreover, “[s] on the level of due diligence to [the buyer] Part demonstrate that the information and it is difficult to know what will be the market price, as ignoring the risks. “District Court case to the Court of Justice for a declaration of bankruptcy, if the claims have been challenged by a sale or divestiture. (The District Court rejected a request because of his vocation leave for the Second Circuit). In part, the District Court in its decision seems to have recognized the current reality of the market trade of bankruptcy claims (ie that many of these requests will be negotiated anonymous so that there is no due diligence impractical, if not impossible). Indeed, says distributors with whom the author spoke emphasized that, with regard to requests anonymous, the decision of the District Court makes a lot of sense. But for some, the decision raises important questions and concerns. For example, from a practical point of view, the judges Scheindlin no explicit criteria for the lower courts, the distinction between the sale and transfer. Commentators and bankruptcies The judges also indicated that the decision would be difficult, due to a municipality, estimated that the sale is not a difference of a sale of trade receivables Arena (in fact, the words used are often interchangeable). Scheindlin Additionally, the judge pointed out that the analysis of the Court of Justice “was not in bad faith by the buyer.” However, it is difficult to know what this really means language and the charges, if ever, it requires the implementation of the buyer due diligence. Yet the impact of the ruling, Judge Scheindlin is that the man trade in the bankruptcy of certain requirements of comfort when they are anonymous (for example, via electronic means), they are step in the submission of potential claims based on the misconduct of Transferor. Such comfort was virtually eliminated by the decision of the Bankruptcy Court doubtful debts traders breathed a collective sigh of relief after reading the decision of the District Court. Moreover, even if the identity of the seller and buyer are open, claims traders noted that as a practical mater, the distinction between selling and transferring an academic emphasized by Judge Scheindlin is worrying, but it can be managed in the rights of trade. This is because, as in most situations, the buyer Typically, an agreement to indemnify Excerpts from the seller regarding the transmission, protection of the buyer, which, among other things, all requirements of the bid, which may be later on demand. Accordingly, in order to ensure protection against the risk of a provision of justice following the submission of an application was not as a combination of the sale, upon completion of rights as other guilds on the anonymous basis, the buyers of receivables is not doubt that (if it is otherwise Is not inclined to do so), who received compensation under the existing agreement seller. As a result, according to Judge Scheindlin decision, if the transaction is later than by the court to an assignment rather a sale, the submission is based on the faulty behavior, the seller and the buyer undoubtedly research exercising their rights to compensation Under the agreement with the seller. Faced with this relocation probable risk of buyers and sellers, it will be interesting to see how (if any) of this new landscape is changing of the pricing policy of the bankruptcy take account of the requirements as a higher risk, is provided by the seller. As a final point, it should be remembered that it remains uncertain if - if a creditor nor the benefits of trade process to avoid the consequences of justice or non-submission of an application for recognition - the effect on all other creditors of the estate can be done, minimizes. A free market for the assets, which means that the identity of the debtor, the creditor is often in motion. However, some have argued that the court sanction the process of “washing claims,” the risk of reducing, or at least delay distributions to creditors largest group. This could perhaps other consequences, including the complexity of the bankruptcy of the resolution of cases arising from the inability of the debtor to negotiate with creditors a solid body. On the other hand, trade receivables, often on the efficiency and liquidity of bankruptcy. |