Global—On August 29, 2014, the International Capital Market Association (“ICMA”), a group of banks and investors, announced a proposal designed to reduce the ability of holdout bondholders to undermine sovereign debt restructurings. The plan was created after meetings convened by the U.S. Treasury Department in the aftermath of Greece’s debt restructuring and came on the heels of Argentina’s second default on its sovereign debt in 13 years. Under ICMA’s proposal, “pari passu,” or equal treatment, clauses would be interpreted to bind all bondholders to the terms of any debt restructuring agreement approved by at least 75 percent of the bondholders.
Global—On September 9, 2014, the United Nations General Assembly passed a resolution to begin an “intergovernmental negotiation process aimed at increasing the efficiency, stability and predictability of the international financial system.” That process would include negotiations toward the implementation of a global bankruptcy process for sovereign debtors. The resolution passed by a super-majority vote of 124-11 with 41 abstentions. The U.S. voted no, along with 10 other countries. Such a bankruptcy process could make it more difficult for holdout bondholders to prevent countries from successfully restructuring their debts and could limit future defaults.
Global—On September 26, 2014, the United Nations Human Rights Council passed a resolution (A/HRC/27/L.26) condemning “vulture funds,” like holdout bondholders from Argentina’s 2005 and 2010 debt restructurings, “for the direct negative effect that the debt repayment to those funds, under predatory conditions, has on the capacity of Governments to fulfill their human rights obligations, particularly economic, social and cultural rights and the right to development.” The resolution, which was proposed by Argentina, Brazil, Russia, Venezuela, and Algeria, passed in the 47-member council with 33 votes in favor. Nine member states abstained, and five—the Czech Republic, Great Britain, Germany, Japan, and the U.S.—opposed the text.
Global—On October 6, 2014, the International Monetary Fund (“IMF”) released a series of new proposals entitled “Strengthening the Contractual Framework to Address Collective Action Problems in Sovereign Debt Restructuring.” The proposals include reforms to sovereign debt agreements, including strengthened collective action clauses and modification of pari passu clauses akin to the provision relied on by holdout bondholders in Argentina’s long-running sovereign debt dispute. Such reforms would not apply to existing sovereign bonds. The IMF proposals state that there may be a need for action on existing bonds as well if the precedent set in the Argentina litigation begins to impact other countries.
United States—The ABI Commission to Study the Reform of Chapter 11 issued its report on December 8, 2014. A brief summary of the long-awaited Final Report and Recommendations of the Commission, established in 2012 by the American Bankruptcy Institute to study the reform of chapter 1 1 of the Bankruptcy Code, can be found elsewhere in this issue of the Business Restructuring Review.
United States—Puerto Rico—On June 28, 2014, Puerto Rican governor Alejandro García Padilla gave his imprimatur to legislation that creates a judicial debt relief process for certain public corporations that have substantial and widely held bond debt. The new law, which has been challenged by Puerto Rico’s creditors as being unconstitutional, is modeled on chapters 9 and 11 of the U.S. Bankruptcy Code (with certain important distinctions) and is in all practical respects a nonfederal bankruptcy law.
United States—The U.S. Judicial Conference proposed Bankruptcy Rule and Official Form changes during 2014. The Judicial Conference Advisory Committees on Appellate, Bankruptcy, Civil, and Criminal Rules proposed amendments to their respective rules and forms and requested that the proposals be circulated to the bench, bar, and public for comment. The public comment period closes on Tuesday, February 17, 2015, at 11:59 p.m.
United States—On July 16, 2014, the Uniform Law Commission approved the Uniform Voidable Transactions Act (“UVTA”) to replace the Uniform Fraudulent Transfer Act (“UFTA”). The Commission approved a series of amendments to the UFTA, which is currently in force in 43 states (all states except Alaska, Kentucky, Louisiana, Maryland, New York, South Carolina, and Virginia). The UVTA is intended to: (i) address judicial inconsistency in applying the law, especially in litigation to avoid “constructively” fraudulent transfers; (ii) better harmonize with the Bankruptcy Code and the Uniform Commercial Code; and (iii) provide litigants with greater certainty in its application.
United States—Several bills were introduced in Congress during 2014 that would amend various provisions of the Bankruptcy Code and related statutes:
The “Medical Bankruptcy Fairness Act of 2014” (S. 2471) would amend the Bankruptcy Code to permit a “medically distressed debtor” to discharge student loan debt without the current requirement of filing an adversary proceeding to prove “undue hardship.” It would also amend the Bankruptcy Code to, among other things, permit a medically distressed debtor to exempt certain real and personal property valued at up to $250,000 from the bankruptcy estate, to exempt a medically distressed debtor from certain eligibility and plan rejection requirements in chapter 7 and chapter 13 cases, and to waive the credit-counseling filing prerequisite for medically distressed debtors.
The ‘‘Stopping Abusive Student Loan Collection Practices in Bankruptcy Act of 2014’’ (H.R. 4835) would amend section 523(d) of the Bankruptcy Code to permit an award of costs incurred by a debtor in connection with a proceeding commenced by a creditor or the debtor to determine the dischargeability of a student loan debt based on undue hardship, if the court ultimately determines that the debt is dischargeable.
The “Student Loan Borrower Bill of Rights” (H.R. 3892) would provide “six basic rights” for all federal and private student loan borrowers, including the right to: (i) have options such as alternative payment plans to avoid default; (ii) be informed about key terms and conditions of the loan and any repayment options; (iii) know the identity of the loan servicer; (iv) consistency when it comes to how monthly payments are applied; (v) fairness, such as grace periods when loans are transferred or debt cancellation when the borrower dies or becomes disabled; and (vi) accountability, including timely resolution of errors and certification of private loans. The bill also proposes new regulations for servicing private student loans.
The “Bankruptcy Fairness and Employee Benefits Protection Act of 2014” (S. 2418) would amend the Bankruptcy Code and the Employee Retirement Income Security Act of 1974 to, among other things: (i) limit any reduction in bankruptcy of the compensation and benefits of employees and retirees; (ii) increase the amount of unpaid wages that receive priority treatment; (iii) limit payments and bonuses to insiders; (iv) force employers to continue funding pension plans after filing for bankruptcy; (v) require employers to provide employees with more extensive guidance as to the vesting rights of their health-care benefits; and (vi) create a presumption that employee health benefits fully vest at the earlier of retirement or the completion of 20 years with an employer.
The “Furthering Asbestos Claim Transparency Act of 2014” (S. 2319) would require asbestos trusts to publicly disclose information about the settlement terms between trusts and claimants. Under current state and federal rules, the terms of and negotiations surrounding settlements of cases are treated as private and strictly confidential information that is not subject to discovery or admissible in court cases.
The “Financial Institution Bankruptcy Act of 2014” (“FIBA”) (H.R. 5421) would amend the Bankruptcy Code to establish procedures to resolve (wind up or liquidate) systemically important financial institutions (“SIFIs”). FIBA is similar in many respects to the bankruptcy amendments proposed in the “Taxpayer Protection and Responsible Resolution Act of 2014” (S. 1861), which would repeal portions of the DoddFrank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”) and replace that res olution framework with a new chapter 14 of the Bankruptcy Code to govern SIFI resolutions. The Senate proposal would entirely repeal the Orderly Liquidation Authority (the “OLA”), the current regulatory receivership alternative to traditional bankruptcy for resolving failed SIFIs. FIBA would keep the OLA in place as an alternative. Separately, the Federal Deposit Insurance Corporation (the “FDIC”), which was given broad authority under Dodd-Frank to develop rules regarding its authority under the OLA, has proposed a “single point of entry” process whereby the FDIC would become the receiver of a SIFI’s top-level U.S. holding company, leaving the operating subsidiaries to continue operations without interruption. The FDIC would then work to ensure that the holding company can absorb the organization’s losses, including those incurred by subsidiaries, and thereby recapitalize the subsidiaries. The FDIC would also be able to take control of the holding company and transfer its assets to a newly created, solvent “bridge bank.”
United States—Amendments to the Federal Rules of Bankruptcy Procedure that were approved by the U.S. Supreme Court in April 2014 became effective on December 1, 2014. The changes, particularly the comprehensive revision to the rules governing bankruptcy appeals, were the result of a “multi-year project to bring the bankruptcy appellate rules into closer alignment with the Federal Rules of Appellate Procedure; to incorporate a presumption favoring the electronic transmission, filing, and service of court documents; and to adopt a clearer style,” according to the Judicial Conference Advisory Committee on Bankruptcy Rules.
France—French insolvency proceedings will be significantly overhauled in the near term, as reforms are currently being implemented under the Enabling Law of January 2, 2014. The reforms are designed to strengthen the efficacy of preventive measures and procedures in order to avoid the need for formal public insolvency proceedings. Various new provisions are being contemplated, including: (i) procedures making it possible to implement a business plan providing for the sale of a company in a conciliation agreement; and (ii) amendments to the rules governing accelerated financial safeguard procedures to make such procedures more accessible. In addition, the reforms may include a provision authorizing a “cram-down” of equity interests in French reorganization proceedings akin to procedures governing the confirmation of nonconsensual chapter 11 plans in the U.S.
Spain—March 8, 2014, was the effective date of significant changes to the Spanish Insolvency Act that implement reforms to the rules and procedures governing there financing and restructuring of corporate debts. The primary objective of Spanish Royal Decree-Law 4/2014, dated March 7, 2014, is to improve the legal framework for refinancing agreements and to remove the legal obstacles that have previously impeded the successful execution of restructuring and refinancing transactions.
Spain—On September 5, 2014, Spain enacted measures (“RDL 11/2014”) to facilitate restructurings of companies that, under the previous legislative regime, might have been forced to file insolvency proceedings. RDL 11/2014 modifies several provisions of the Spanish Insolvency Act. The objective of the reform is to improve the legal framework that governs voluntary arrangements between creditors and the sale of distressed businesses outside insolvency by removing obstacles which have previously impeded the successful reorganization of insolvent companies. In addition, RDL 1 1/2014 establishes rules to deal with the ongoing insolvency proceedings of certain concession holders for Spain’s toll highways, with the aim of preventing such concession holders from being placed into liquidation.
Chile—A new insolvency law approved by the Chilean Congress at the end of 2013 became effective in October 2014. The legislation substantially overhauls Chile’s prior insolvency law, particularly with respect to business insolvency cases. It incorporates a number of provisions that permit the reorganization of financially troubled businesses, with a view toward preserving enterprise value and jobs, as well as expediting and enhancing creditor recoveries. The new law represents a marked departure from the previous regime, which was focused on the liquidation of debtors’ assets.
The Netherlands—In August 2014, the Dutch legislature circulated a proposed bill that would introduce to Dutch restructuring law U.K.-style “schemes of arrangement,” a radical departure from existing procedures. The proposed bill follows the introduction of a prepackaged insolvency mechanism in 2013. Under existing Dutch law, it is nearly impossible to alter the capital structure of a company without the unanimous approval of all debt and equity holders. The draft bill, which is expected to be implemented (as amended) on January 1, 2016, introduces rules that would, among other things, bind dissenting creditors to a restructuring proposal under certain circumstances.
Russia—On December 23, 2014, Russian President Vladimir V. Putin signed into law amendments to the country’s bankruptcy and banking legislation that would change the rules and procedures governing banking business insolvencies. Federal Law No. 432-FZ annulled legislation enacted in 1999 and incorporated certain provisions of a 2002 law on bankruptcy. The new legislation allows Russia’s Deposit Insurance Agency to implement measures designed to prevent bank insolvencies and to promote financial rehabilitation, temporary administration, and reorganization proceedings. It also limits legal actions contesting pre-insolvency payments made by banks and clients under loan agreements. In addition, the law permits legal action to contest decisions to increase compensation and pay bonuses to top executives of insolvent banks; it also contains provisions to govern the insolvency proceedings of banks that take part in interbank clearing systems.