used to offset/decrease insiders’ liability (insiders become allies of trustee) from everything… LBO … is incurred by D-corp. w/ NO Note avoided obligation REV is w/ NO SI avoided transfer/lien REV Payments on are AND recovered w/ NO note avoided transfers REV essentially an unsecured C… LBO lender BUT, likely worse, b/c previously-encumbered assets will … likely be made available first to other unsecured Cs (who were victimized by LBO) from old SHs likely nothing … may NOT a (§ AND, so Trustee avoid settlement payment 546(e))… long as $$ from is funneled through a brokerage/financial LBO institution, then it IS a (AND, thus, insulated settlement payment from attack)… BUT, old SHs NOT insulated from potential claim actual fraud … (if C-lender lied to re: nature of loan) LBO LBO lenders… When corp. markets its availability (old SHs want out), bidding war ensures corp.’s insiders often win bidding war (have inside info re: corp.’s prospects)… BUT, final price MAY be more than (conservative) lender LBO … willing to put forth… SO, MAY make up difference by issuing corporate LBO lender … (“junk”) bonds to deeply subordinated, BUT pay “sub-debtors” high interest If corp. fails, then bonds are worthless has 2 options… trustee “junk” View as allies/co-plaintiffs testify as to being misled “sub-debtors” by (though, often contractually agreed to have done due LBO lender diligence) View as defendants sue as participants “sub-debtors” “sub-debtors” in (“mezzanine potentially facilitate LBO financing”), sliding (if won’t voluntarily scale/Mary Carter agreement “sub-debtors” testify against LBO lender) Defenses for LBO lenders… is a complete defense, but ONLY applies to (good § 550(b) faith) subsequent transferee…
used to offset/decrease insiders’ liability (insiders become allies of trustee) … from LBO everything… Note is avoided obligation incurred by D-corp. w/ NO REV SI is avoided transfer/lien w/ NO REV Payments on note are avoided AND recovered transfers w/ NO REV LBO lender essentially an unsecured C… … BUT, likely worse, b/c previously-encumbered assets will likely be made available first to other unsecured Cs (who were victimized by LBO) … from old SHs likely nothing Trustee may NOT avoid a settlement payment (§ 546(e))… AND, so long as $$ from LBO is funneled through a brokerage/financial institution, then it IS a settlement payment (AND, thus, insulated from attack)… … BUT, old SHs NOT insulated from potential actual fraud claim (if C-lender lied to re: LBO nature of loan) LBO lenders… When corp. markets its availability (old SHs want out), bidding war ensures corp.’s insiders often win bidding war (have inside info re: corp.’s prospects)… … BUT, final LBO price MAY be more than (conservative) lender willing to put forth… … SO, LBO lender MAY make up difference by issuing corporate (“junk”) bonds to “sub-debtors” deeply subordinated, BUT pay high interest If corp. fails, then “junk” bonds are worthless trustee has 2 options… View “sub-debtors” as allies/co-plaintiffs testify as to being misled by LBO lender (though, often contractually agreed to have done due diligence) View “sub-debtors” as defendants sue “sub-debtors” as participants in LBO (“mezzanine financing”), potentially facilitate sliding scale/Mary Carter agreement (if “sub-debtors” won’t voluntarily testify against LBO lender) Defenses for LBO lenders… § 550(b) is a complete defense, but ONLY applies to (good faith) subsequent transferee…
Bankruptcy_Schechter-Fall-2009.docx