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They're finally here. Sort of. On January 29, 2003, the SEC issued its long-awaited, much-debated rules implementing 'Standards of Professional Conduct for Attorneys' pursuant to Section 307 of the Sarbanes-Oxley Act. But the rule-making process is far from over.
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Imagine the following scenario: The CEO of a large public company (with approximately 1 billion shares outstanding, considerably fewer than General Electric, Microsoft or General Motors) pleads guilty to a material misrepresentation in the company's financial reports, which, according to the government, when disclosed caused the company's stock to drop 50 cents per share.
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Recent cases of importance to your practice.
In the past few years, foreign debtors such as the Singer Company N.V. (a Netherlands Antilles corporation), Global Telesystems Europe B.V. (a Dutch corporation), Cenargo Inter- national Plc. (a British corporation), Versatel Telecom International N.V., and United Pan-Europe Communications N.V. (both Dutch corporations) have filed voluntary Chapter 11 petitions in the United States. Some of these debtors were large multinationals with assets in many jurisdictions, including the U.S., but other foreign debtors in Chapter 11 have had only minimal assets in the U.S. What special considerations arise when a non-U.S. debtor with only limited assets in the U.S. files a Chapter 11 petition?
Last month's article reviewed cross-border parallel bankruptcy proceedings, and outlined various attempts to cope with the problem. This month, we discuss situations in which the U.S. court finds a real conflict between the laws of two or more countries in the treatment of creditors' claims.
Chapter 11 debtors often file motions, usually at the outset of a case, that seek to pay prepetition unsecured amounts owed to 'critical' vendors that supply debtors with essential goods and services. Debtors argue that, unless such motions are granted, vendors will cease supplying them, and thus jeopardize their ability to reorganize. Court orders that grant critical vendor motions require vendors to continue supplying debtors on specified business terms in return for payment of the prepetition amounts owed.
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The ability of a trustee to sell bankruptcy estate assets free and clear of competing interests in the property has long been recognized as one of the most important advantages of a bankruptcy filing as a vehicle for restructuring a debtor's balance sheet and generating value. Still, section 363(f) of the Bankruptcy Code, which delineates the circumstances under which an asset can be sold free and clear of 'any interest in such property,' has generated a fair amount of controversy. This is so because the statute itself does not define 'interest.'
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Recent cases of importance to your practice.
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Cross-border bankruptcies, a by-product of the globalization of businesses, are increasing in number, size and complexity. Coordination of reorganization or liquidation of transnational businesses is difficult because the applicable laws, social policies and concerns of the various nations are not uniform or sufficiently similar so as to be interchangeable or harmonized. In partial recognition of the globalization of businesses, Congress enacted Bankruptcy Code ' 304 in 1978, which gives foreign representatives in foreign insolvency proceedings access to U.S. bankruptcy courts.
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What was Enron's Board thinking? Where were the Tyco directors while Dennis went shopping? Had MCI's directors been invited to Scott's new Florida mansion? This stuff makes the headlines, but all across the country, decisions are made by boards of directors that don't come close to this scale and will never see the light of day, much less a courtroom. However, these decisions are no less questionable and susceptible to attack, leaving a director in litigation for years. This is particularly true should the company end up in bankruptcy with creditors having been harmed.