SEC rules re: disclosure do NOT apply to Ch. 11 disclosure (§ statements/plans 1125(d))… thus, some use to make public offerings which, if on open Ch. 11 … market (governed by SEC), would constitute securities fraud (usually, NO interested parties to tip off judge) buy dormant file buy up formulate to attract investors, Ch. 11, notes, plan sell bonds Claims trading… Different Cs holding multiple claims against (claim1, claim2, claim3…) DIP investors purchase claims for cheap (b/c Cs do NOT expect to recover much $$ individually)… AND, if investor purchases all claims of (“vulture then class funds”), … MAY control vote (AND, subsequently, control approval of class plan)… Voting power NOT written down to purchase price (unless bad faith) if $1K claim is bought for $100, then still worth $1K (some courts MAY require disclosure of purchase price) Aggregation of claims if investor purchases 10 claims from 10 different Cs, then most courts will still consider as 10 claims (even though all owned by single investor) AND, at culmination of investors MAY propound own exclusivity, plan, … potentially take over DIP C MAY assign/sell voting right (which creates power to take over DIP)… BUT, keep itself (economic interest/recovery) … Attitudes toward vary by BUT, several benefits claims trading investors (who are knowledgeable) aggregating claims by consensually cashing out trade Cs (who are NOT knowledgeable)… AND, those Cs who do NOT cash out get to ride along Insiders buying up (via courts are mixed (some Ch. 11 claims trading) view as breach of fiduciary duty… in others, goes”) “anything competitor buying up YES bad faith (blocking to DIP’s Ch. 11 Ch. 11 drive out of business) DIP C-lender buying up probably NOT bad faith (granted, also blocking Ch. 11 BUT, acting rationally in economic self-interest, NOT w/ alterior Ch. 11… motive) Acceptance/confirmation of plan…
SEC rules re: disclosure do NOT apply to Ch. 11 disclosure statements/plans (§ 1125(d))… … thus, some use Ch. 11 to make public offerings which, if on open market (governed by SEC), would constitute securities fraud (usually, NO interested parties to tip off judge) buy dormant file Ch. 11, buy up notes, formulate plan to attract investors, sell bonds Claims trading… Different Cs holding multiple claims against DIP (claim1, claim2, claim3…) investors purchase claims for cheap (b/c Cs do NOT expect to recover much $$ individually)… … AND, if investor purchases all claims of class (“vulture funds”), then MAY control class vote (AND, subsequently, control approval of plan)… Voting power NOT written down to purchase price (unless bad faith) if $1K claim is bought for $100, then still worth $1K (some courts MAY require disclosure of purchase price) Aggregation of claims if investor purchases 10 claims from 10 different Cs, then most courts will still consider as 10 claims (even though all owned by single investor) … AND, at culmination of exclusivity, investors MAY propound own plan, potentially take over DIP C MAY assign/sell voting right (which creates power to take over DIP)… … BUT, keep itself (economic interest/recovery) Attitudes toward claims trading vary by BUT, several benefits investors (who are knowledgeable) aggregating claims by consensually cashing out trade Cs (who are NOT knowledgeable)… AND, those Cs who do NOT cash out get to ride along Insiders buying up Ch. 11 (via claims trading) courts are mixed (some view as breach of fiduciary duty… in others, “anything goes”) DIP’s competitor buying up Ch. 11 YES bad faith (blocking Ch. 11 to drive DIP out of business) C-lender buying up Ch. 11 probably NOT bad faith (granted, also blocking Ch. 11… BUT, acting rationally in economic self-interest, NOT w/ alterior motive) Acceptance/confirmation of plan…