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Preferred equity is a varied and flexible instrument, but, in practice, it typically has a limited number of common features. One feature is that it is entitled to a “liquidation preference” ahead of common stock. Whether the liquidation preference of preferred equity entitles preferred shareholders to priority over common shareholders in a Chapter 11 reorganization is a question that figured prominently in two recent high profile cases.
Preferred equity instruments have become increasingly popular as a source of financing for private equity sponsors executing large leveraged acquisitions. Investors seeking the risk profile of debt but also the return potential of equity are attracted to the hybrid nature of preferred equity, which generally ranks senior to common equity interests (like debt) and may entitle the holder to common equity-like upside. By law, preferred equity is a varied and flexible instrument, but, in practice, it typically has a limited number of common features. One feature is that the preferred equity is entitled to a “liquidation preference” ahead of common stock. The liquidation preference is typically triggered upon a “liquidation, dissolution or winding up” whether “voluntary or involuntary” and most often equal to a fixed dollar amount per share plus accrued and unpaid dividends to the date of the liquidation, dissolution or winding up.
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By Michael L. Cook
“Good-faith purchasers enjoy strong protection under [Bankruptcy Code] §363(m),” but the silent asset buyer (“B”) with “actual and constructive knowledge of a competing interest” lacks “good faith,” held the U.S. Court of Appeals for the Seventh Circuit.
By David E. Sklar and Cheryl A. Santaniello
Federal bankruptcy courts have been unavailable to marijuana businesses due to the Schedule I status of marijuana. The United States Trustee’s policy is to move to dismiss or object in each case involving marijuana assets, because they cannot be administered under the Bankruptcy Code.
By By Stuart B. Newman and Steven H. Newman
The Small Business Reorganization Act created a new pathway for small businesses to remain in control of running their businesses, which is the usual reason for choosing to seek relief under Chapter 11, while eliminating many of the reasons that typical Chapter 11 proceedings exhausted the patience, and wallets, of both debtors and creditors.
By Gerard S. Catalanello and Kimberly (Kodis) Schiffman
A summary of the factors that courts have considered and will likely continue to consider when addressing dischargeability of private student loans under subsection 523(a)(8)(A)(ii) of the Bankruptcy Code, and a cautionary word for practitioners considering whether to put forth an argument to the contrary.