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Issues Faced in Insolvencies. Moderator: J Ross McDonough. 17 Jan 2014. Issues Faced in Insolvencies. Liquidation Funding. General trends since 2008 What we don't have in Cayman: DIP financing (at least of the type available in the US and absent parallel Ch. 11 proceedings) - PowerPoint PPT Presentation
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Issues Faced in Insolvencies
Issues Faced inInsolvencies
Moderator:J Ross McDonough
17 Jan 2014
Liquidation Funding
• General trends since 2008
• What we don't have in Cayman:⁻ DIP financing (at least of the type available in the US and
absent parallel Ch. 11 proceedings)
⁻ Contingency (i.e. no win-no fee) fee arrangements for lawyers (at least for proceedings pursued in Cayman)
⁻ The ability to bring recovery actions without the risk of adverse costs orders
Liquidation Funding
• What we do have in Cayman:
Restructuring provisional liquidations:⁻ DIP financing can be provided where there are parallel Ch. 11
proceedings and with a Cayman validation order (eg Arcapita)
⁻ Absent parallel Ch. 11 proceedings working capital can still be provided on a secured basis with a Cayman validation order, but the market and process is much less developed
Liquidation Funding
Official liquidations:⁻Sale of the company’s litigation claims, often in consideration for the estate receiving a percentage of any recoveries made by the purchaser
⁻General liquidation or specific litigation funding, typically on terms where the lender receives principal, interest and a percentage of any recoveries made by the estate (but beware of champerty)
⁻Liquidators being remunerated based on a percentage of realisations and/or distributions
⁻Contingency fee arrangements where the litigation is to be brought in the US (eg SPhinX; AJW)
⁻Conditional fee arrangements where the litigation is to be brought in Cayman (eg DD Growth Premium 2X Fund)
• Overview Indemnification commonly given to: Auditors,
Advisors, Directors, Administrators, Brokers
• Dynamics introduced to a liquidation Ranking, Quantification, Timing, Litigation
• Principles of reserving for indemnities “Just Estimate” – §139 High Degree of Assurance - (SPhinX)
• Practicalities in estimating a reserve Legal Costs, Damages Rogue Claims, Contribution
• Resolving indemnities Insurance, Distribution Plans, Settlements
• Other considerations CFA arrangements Jurisdictional Differences
© 2013 Grant Thornton Specialist Services (Cayman) Limited. All rights reserved.
Information gathering by liquidators
• Liquidators' powers under Cayman law limited to:– "relevant persons" (definition) – deliver up company's property &
documents, examination and interrogatories
• Enforcement against non resident parties?• Cross border options – using foreign law
– statutory provisions/ regulatory
– discovery
– ancillary insolvency proceedings
– common law
• The Saad "Bermuda" cases– background
– respective outcomes (pending appeal to Privy Council) and rationale – ancillary proceedings, common law relief
Chapter 15:COMI and Recognition
• The “Black Box” and the “Eclipse of Comity”. • The Fairfield Sentry “workaround” Bear Stearns relies on first
gaining “traction” over time in the foreign main proceeding. In re Bear Stearns High-Grade Structured Credit Strategies Master Fund Ltd., 374 B.R. 122 (Bankr. S.D.N.Y. 2007), aff’d 389 B.R. 325 (2008); In re Fairfield Sentry Ltd., 440 B.R. 60 (Bankr. S.D.N.Y. 2010), aff’d 2013 WL 1593348 (2d Cir. Apr. 16, 2013).
• Fairfield Sentry no panacea: • No time to gain traction in some instances. • Fairfield Sentry still at risk / may not be followed more widely.• UNCITRAL ‘s new revision to Guide to Enactment to the Model Law is
that COMI fixed as of date foreign main proceeding filed.
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SATTERLEE STEPHENS BURKE & BURKE LLP • NEW YORK
CHAPTER 15:
The (Continued) Eclipse of Comity
• Recognition being interpreted as a question of authority. • Where recognition lacking / impossible / pending,
foreign representatives can be denied all assistance in the US.Reserve Int’l Liquidity Fund v. Caxton, 2010 WL 1779282 (S.D.N.Y. Apr. 29, 2010).
• More cross-border chaos and competing fiduciaries:• “Blocking” plenary cases filed in the United States.• Fletcher is one such case as are its “cousin” Soundview cases. • Automatic Stay held to stymie offshore office-holders.
9SATTERLEE STEPHENS BURKE & BURKE LLP • NEW YORK
Chapter 15Drawbridge / Barnet
• Drawbridge problem arises outside the Model Law context.• Second Circuit held chapter 11 “debtor” requirements = chapter 15
“debtor” requirements• Chapter 15 “debtor” must have a domicile or property in the US. Drawbridge Special Opportunities Fund LP v. Barnet (In re Barnet), 2013 WL 6482499 (2d Cir. Dec. 11, 2013).
• US domestic bankruptcy law undermines Chapter 15:• Some entities could not possibly meet section 109(a).• Some JOLs only wish to conduct discovery in the US.• Could mean rise in “orphaned” non-recognized foreign proceedings.
• Problematic as New York a favored venue for Chapter 15 practice• Drawbridge mandatory precedent for New York’s bankruptcy court. • Second Circuit also influential beyond its borders.
• Rationale: 28 U.S.C. 1728(a) discovery in aid of foreign proceedings remains available for office holders.
10
SATTERLEE STEPHENS BURKE & BURKE LLP • NEW YORK
Thank You
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