Insolvency and directors' duties in the United States: overview

Q&A guide to insolvency and directors' duties in the United States.

The Q&A global guide provides an overview of insolvency from the perspective of companies that are operating within a domestic and/or international group of companies, and considers the various complexities that this can introduce into insolvency procedures. It also has a significant concentration on duties, liabilities, insurance, litigation, and subsequent restrictions imposed on directors of an insolvent company.

To compare answers across multiple jurisdictions, visit the Insolvency and Directors’ Duties Country Q&A tool.

This Q&A is part of the Insolvency and Directors’ Duties Global Guide. For a full list of contents, please visit www.practicallaw.com/internationalinsolvency-guide.

J William Boone and Doroteya N Wozniak, James-Bates-Brannan-Groover-LLP
Contents

Corporate insolvency proceedings

1. What are the main out-of-court and court-sanctioned insolvency proceedings involving a liquidation of the company's assets?

Court sanctioned liquidation proceedings

Federal Bankrutpcy Court. The most commonly used court-sanctioned insolvency proceedings involving a liquidation of a company's assets are Chapter 7 and Chapter 11 of Title 11 of the United States Code (Bankruptcy Code). Chapter 7 of the Bankruptcy Code is used to liquidate company's assets where the company's management does not want to retain any remaining control over the liquidation process. For Chapter 7 proceedings, an independent trustee is appointed to liquidate the assets of the debtor. For Chapter 11 proceedings, a company's management team can remain in control over the liquidation process.

State or federal receivership. Receivership initiated under either state or federal law is another form of court-sanctioned liquidation proceeding, although it is used less frequently. Unlike the proceedings under the Bankruptcy Code, a receivership is usually initiated by one or more of the company's creditors. However, the use of a receivership for liquidating purposes is not very common in the US for various reasons. Unlike the considerate body of federal law in the area of bankruptcy which applies throughout the US and its territories, the law with respect to receiverships, whether sought under state or federal law, is:

  • Not very well developed.

  • Far from uniform.

  • Controlled by the specific laws of the applicable state (for state receiverships).

This lack of uniformity can sometimes lead to inconsistent results and a sense of uncertainty. Additionally, unlike the nationwide jurisdiction bankruptcy courts, a state receivership's authority may be limited to a failing business's assets located within the particular state's jurisdiction authorising the receivership. This can result in complications if the assets of the failing business are located in multiple jurisdictions.

Out-of-court liquidation proceedings

The other available liquidating proceeding is an assignment for the benefit of creditors (ABC). In some states the assignment for the benefit of creditors is an out-of-court proceeding whereas in others it is not. In general, in an ABC, the debtor transfers its assets to a trustee who then distributes the debtor's assets among the debtor's creditors. In some states, the debtor is allowed a certain level of control over the process such as being able to select the ABC trustee. This type of liquidating proceeding is governed by state law and, as such, its availability and nature differ from state to state. Due to the overwhelming use of bankruptcy proceedings under Chapter 7 and Chapter 11 for dealing with the liquidation of troubled businesses, the remainder of this article will focus solely on these federal bankruptcy proceedings and will not discuss receiverships and ABCs.

 
2. Are there statutory proceedings allowing for a rescue/restructuring of the debtor company's operations and debts?

The statutory proceedings allowing for a rescue/restructuring of the debtor company's operations and debts within the US are the various federal bankruptcy proceedings under the Bankruptcy Code:

  • Chapter 7 of the Bankruptcy Code (liquidation for individuals and businesses where an independent trustee is appointed to liquidate the assets of the debtor).

  • Chapter 9 of the Bankruptcy Code (restructuring for municipalities and other government agencies).

  • Chapter 11 of the Bankruptcy Code (restructuring for individuals and businesses where the entity is empowered to retain control of the assets and no trustee is initially appointed).

  • Chapter 12 of the Bankruptcy Code (restructuring for family farmers and fishermen).

  • Chapter 13 of the Bankruptcy Code (restructuring for individuals where the debtor retains control of his or her assets).

  • Chapter 15 of the Bankruptcy Code (ancillary and other international cases that initiate bankruptcy proceedings in the US based on the Model Law on Cross Border Insolvency prepared by the United Nations Commission on International Trade Law).

In general, in the US, the main avenue for restructuring a failing business entity is through the filing of a bankruptcy proceeding under one of the above-referenced chapters of the Bankruptcy Code. In most cases, a restructuring, rather than a liquidation of a troubled business will be the first choice of action. If a business is experiencing difficulties, the likely route will be to file for Chapter 11 in an attempt to restructure its debts or sell the company as a going concern and, if unsuccessful, orderly liquidate through Chapter 11 or convert the case to a Chapter 7 proceeding. The filing of a Chapter 7 proceeding for a failing business is not the first resort. The reason for this flexibility is that neither insolvency nor inability to pay debts is a prerequisite for commencing a voluntary restructuring or liquidation bankruptcy proceeding under any of the chapters (re SGL Carbon Corp, 200 F.3d 154, 163 (C.A.3 (Del.),1999);( re Integrated Telecom Express Inc, 384 F.3d 108, 121 ( 3rd Cir. 2004); (re Stolrow' s Inc, 84 B.R. 167 ( Bankr. 9th Cir. 1988)); (re Local Union 722 Int' l Bhd. of Teamsters, 414 B.R. 443, 450 ( Bankr. N.D. Ill. 2009); (re Int' l Oriental Rug Ctr., 165 B.R. 436, 442 (Bankr.N.D.Ill.1994); (re Hulse, 66 B.R. 681 ( Bankr. M.D. Fla. 1986)).

However, some courts have noted that a troubled company must be facing some financial difficulty such that if it did not file at the time, it may have the need to file in the future (re Talladega Steaks Inc, 50 B.R. 42, 44 (Bkrtcy.Ala.,1985); re the Bible Speaks, 65 B.R. 415, 426 (Bankr.D.Mass.1986); Matter of Cohoes Indus. Terminal Inc, 931 F.2d 222, 228 (C.A.2 (N.Y.),1991); re Foster, 2011 WL 3438495, *1, *6 (Bkrtcy.S.D.Ga.,2011) ) .

Access to insolvency proceedings for solvent debtors is designed to avoid "a hopeless situation" later (SGL Carbon, 163). In other words, a business entity that is still solvent but experiencing financial troubles can proceed directly with the filing of a bankruptcy proceeding instead of having to resort to other restructuring options or liquidation of its assets. As a result, the troubled company's chances for a successful restructuring are increased immeasurably as it can now use whatever remaining resources it has to restructure rather than spend its remaining funds in an attempt to appease its creditors. In addition, the Bankruptcy Code allows for creditors to initiate involuntary bankruptcy proceedings if certain requirements are met (section 303(b), Bankruptcy Code).

 
3. What are the general requirements for commencing insolvency proceedings?

Under the Bankruptcy Code there are both voluntary and involuntary insolvency proceedings.

Voluntary federal insolvency proceeding

The general requirements for commencing a voluntary federal bankruptcy proceeding are administrative in nature as insolvency and minimum debt requirements are not prerequisites to commencing a voluntary federal bankruptcy proceeding. These administrative requirements for initiating a federal bankruptcy proceeding under Chapter 7 and Chapter 11 are substantially the same. There are some substantive requirements for involuntary federal bankruptcy proceedings which will be discussed below.

A bankruptcy proceeding under Chapter 7 or Chapter 11 of the Bankruptcy Code commences with the filing of a voluntary or involuntary bankruptcy petition (official forms B1, B5, respectively) and the payment of the corresponding filing fee (Title 11, §§ 301(a), 303(b), USC). The bankruptcy petitions are prescribed by the Judicial Conference of the United States, which, along with all other official bankruptcy forms, can be found at www.uscourts.gov/FormsAndFees/Forms/Bankruptcy

Forms.aspx. In general, the bankruptcy proceeding must be commenced in the bankruptcy court for the district which encompasses the debtor's domicile, residence, principal place of business or principal assets in the US, for the 180 days immediately preceding the filing of the case. A debtor commencing a voluntary proceeding is also required to file (Title 11, § 521, USC):

  • Schedules containing all secured and unsecured creditors.

  • All assets and liabilities.

  • Current income and expenses.

  • A statement of the debtor's financial affairs.

  • Corporate resolution authorising filing in voluntary case.

If the debtor is a corporation, it must also file a corporate ownership statement identifying any corporation that directly or indirectly owns 10% or more of any class of the debtor corporation's equity interests. If there are no entities to report, the debtor corporation must state this in the corporate ownership statement (Fed. R. Bankr. P. 1007, 7007.1). If the debtor is filing a Chapter 11 bankruptcy proceeding, in addition to its voluntary petition, the debtor will likely need to file certain motions commonly referred to as "First Day Motions" which generally seek permission from the court for the debtor to continue operating in its usual course of business and ensure that critical vendors are paid on an ongoing basis after the filing of the bankruptcy proceeding and access to utilities is maintained during the proceeding. Examples of First Day Motions are motions seeking authority for the debtor to:

  • Pay its pre-petition claims to employees and/or critical vendors.

  • Use its bank accounts and cash management systems.

  • Pay its insurance obligations.

  • Obtain permission to use proceeds from collateral pledged to secured lenders.

Involuntary bankruptcy proceeding

Involuntary bankruptcy proceedings have some additional requirements. An involuntary proceeding under Chapter 7 or Chapter 11 can only be commenced by creditors whose claims are non-contingent regarding liability or subject to a bona fide dispute as to either liability or amount and whose undisputed claims aggregate at least US$15,775 (as adjusted effective 1 April 2016; to be readjusted effective 1 April 2019) (Title 11, § 303(b), USC; Revision of Certain Dollar Amounts in the Bankruptcy Code, 81 Fed. Reg. 34, 8748-8749 ( 22 February, 2016)). If the company has less than 12 qualifying creditors, only one qualifying creditor is needed to initiate the involuntary insolvency proceeding. If there are 12 or more creditors, at least three qualifying creditors are needed to initiate the involuntary bankruptcy (Title 11, § 303(b), USC). Each of the petitioning creditors must file the same corporate ownership statement as required by a corporate debtor in a voluntary bankruptcy (Fed. R. Bankr. P. 1010(b)). The qualifying creditors must also be able to show that the debtor is not paying its debts as they become due (Title 11, § 303, USC). On the filing of the bankruptcy petition, the debtor must be served with a copy of the involuntary petition and the original summons (Fed. R. Bankr. P. 1010(a)).

 

Insolvency of corporate groups

4. Are there joint insolvency proceedings available that can apply to a whole group of companies? Do all members of a corporate group have to proceed under the same type of insolvency proceeding?

Related companies are allowed to file joint federal insolvency proceedings. However, to initiate the proceedings each filing company must file its own separate petition, schedules, and any other requisite disclosures. Each petition must disclose that related cases are also being filed and the same judge is appointed to handle all of the related cases. Also, it is significant that the federal statutory framework provides that if at least one company is subject to the jurisdiction of the federal bankruptcy court, then all other related companies (regardless of their origin or location) are also authorised to file in the same jurisdiction. The insolvency proceedings are not automatically joined, the related debtors must petition the court to seek allowance to join the cases. There are two different methods for joining related insolvency proceedings as follows:

  • Joining the proceedings for administrative purposes only, known as "joint administration".

  • Consolidating the proceedings for substantive purposes, known as "substantive consolidation".

The difference between the two is that through joint administration the cases are administered as if one case but the assets, debts, and creditors of each debtor are not consolidated. Therefore, one plan can include provisions for dealing with the restructuring of all of the various related companies. On the other hand, when substantively consolidated all of the related family companies are treated as if only one entity, therefore all the assets and liabilities are combined.

The Federal Rules of Bankruptcy Procedure (Bankruptcy Rules) and case law specifically contemplate both joint administration and substantive consolidation of related cases. Bankruptcy Rule 1015 allows for the joint administration of cases involving two or more related debtors to allow for more efficient administration and preservation of resources. Once the court grants the petition for the joint administration of the cases, then the related companies can choose which case will be the lead case and going forward they can consolidate all filings relating to the filing companies under that case. This results in a streamlined one-stop docket which contains the filings of all pleadings, monthly operating reports, and any other documents for all of the related debtors. Obtaining approval for joint administration is relatively routine and the request for approval of such is generally included as part of the motions which debtors typically file soon after the initiation of the case.

On the other hand, substantive consolidation is a substantive issue that frequently draws objections from creditors and is very much the exception to the norm. Unlike joint administration, substantive consolidation is governed by case law (re Bonham, 229 F.3d 750, 763 (C.A.9 (Alaska), 2000; Sampsell v Imperial Paper & Color Corp, 313 U.S. 215, 217 (1941)Eastgroup Properties v Southern Motel Ass' n Ltd, 935 F.2d 245, 246 (11th Cir. 1991). Substantive consolidation allows for the treatment of the various related debtors as one entity. In other words, the related entities are treated as if their assets and liabilities have merged and creditors in all the consolidated cases have claims against the same pool of assets (re Ben Franklin Retail Stores Inc, 214 B.R. 852, 857 ( Bankr. N.D. Ill. 1997).

Substantive consolidation affects the substantive rights of the creditors (see above) as the satisfaction of liabilities from the same pool of assets can sometimes produce a dilution of the value of a creditor's security interest in one of the related entities. Whereas joint administration does not, as the estates remain separate, and a creditor with a claim in one case has no right to distribution from the estate in any other case. See Question 10for more information on substantive consolidation.

Another issue that frequently arises with the filing of insolvency proceedings for related debtors located in different jurisdictions is in which jurisdiction the proceedings should be commenced. A bankruptcy proceeding can be commenced in a jurisdiction where there is a pending case under the Bankruptcy Code concerning the person's affiliate, general partner or partnership (Title 28, § 1408(2), USC). As a result, for example, a California company can file a proceeding in New York if an affiliate has a case pending there. The rules governing the venue for bankruptcy cases are found in sections 1408 to 1410 of Title 28 of the United States Code.

Furthermore, there is no prohibition against different affiliates proceeding under different chapters of the Bankruptcy Code. However, when an entity files under Chapter 7 of the Bankruptcy Code (the liquidation provisions) an independent trustee will be appointed for each debtor (although a court may still order the joint administration of each of the separate debtors). In practice, it is uncommon for one affiliate to file under one chapter of the Bankruptcy Code, while another files under a different chapter. Generally this would only be the outcome when one affiliate by operation of law could not file under a particular chapter of the Bankruptcy Code. For example, if a diversified financial services family of companies were to file for bankruptcy, it is conceivable that a subsidiary that is a regulated broker/dealer (which can only file under Chapter 7 of the Bankruptcy Code) would file separately from the rest of the enterprise (which may want to attempt to reorganise under Chapter 11).

 
5. Can the same insolvency office holder(s) administer the assets and the liabilities of the entire corporate group? Is a court hearing required to determine whether administration by the same individual(s) is appropriate and, if yes, does notice have to be given to creditors?

Generally in US bankruptcy cases where there is joint administration of a related group of companies under a Chapter 11 reorganisation, the same currently serving office holder of the parent company is allowed to continue to serve in his existing capacity and as a practical matter can manage the group of debtors' assets and businesses while the insolvency proceedings are pending (re Ben Franklin Retail Stores Inc, 214 B.R. 852 ( Bankr. N.D. Ill. 1997)). Similarly in a Chapter 7 liquidation of the group of companies, the same court appointed Chapter 7 trustee may be allowed to administer the assets and liabilities of each of the members of the group. This is allowed even if members of the corporate group have claims against each other or guaranteed each other's debt (re Int' l Oil Co, 427 F.2d 186 (2d Cir. 1970)). However, such an insolvency office holder must publicly disclose in court filings any potential conflicts among the members of the corporate group as he discovers them. If there is sufficient disclosure, a court will likely continue the joint management in the absence of any unusual circumstances (re BH&P Inc, 949 F.2d 1300, 1310 (3d Cir. 1991) (citing re OPM Leasing Servs Inc, 16 B.R. 932, 938 ( Bankr. S.D.N.Y. 1982)). The cases demonstrate that the realities and practicalities of bankruptcy administration in large, complex cases make it doubtful that a court will sever an established trusteeship over multiple related corporations in cases that are well-progressed. This is unless there is a showing of actual, present conflict incapable of any other equitable resolution, especially where full disclosure of the potential for conflict was made at the outset of appointment.

If a party in interest does not support the management of the debtors by the same insolvency office holder, then such party is allowed to file a motion with the bankruptcy court seeking appropriate relief. Under the Bankruptcy Code, a party in interest such as secured and unsecured creditors, creditors' committees, stockholders, or the United States Trustee (a government official that monitors bankruptcy cases) can file a motion with the bankruptcy court requesting the appointment of an independent fiduciary for one or more members of a corporate family in bankruptcy (Title 11, § 1104, USC). The party requesting the appointment of an independent fiduciary has the burden of proving that there is an actual conflict among the members of the corporate family, or wrongdoing such as fraud, dishonesty or other good cause to appoint an independent trustee for one or more members of the corporate group (Title 11, § 1104(a)(1)–(3), USC). In addition, if a party suspects wrongdoing or other grounds to appoint a trustee, but lacks proof, it may request the bankruptcy court to appoint an independent examiner. An examiner does not operate any of the companies but will investigate designated issues and prepare a report for the bankruptcy court and creditors to act on (Title 11, §§ 1104(d), 1106(b), USC). Section 1104(c) permits the bankruptcy court to appoint an examiner in its discretion but also requires the appointment of an examiner in any case in which the debtor's fixed, liquidated unsecured debts (other insider debts or debts for goods, services or taxes) exceed US$5million (Walton v Cornerstone Ministries Investments Inc, 398 B.R. 77, 81-83 (N.D.Ga.,2008); re Revco D.S. Inc, 898 F.2d 498, 501 (6th Cir. 1990); re Collins & Aikman Corp, 368 B.R. 623 (Bankr.E.D.Mich.2007); re UAL Corp, 307 B.R. 80, 86 (Bkrtcy.N.D.Ill.,2004); re 1243 20th St Inc, 6 B.R. 683 (Bankr.D.D.C.1980); Loral Stockholders Protective Comm v Loral Space & Commc' ns Ltd (re Loral Space & Commc' ns Ltd), No. 04 CIV 8645 (RPP), 2004 U.S. Dist. WL 2979785 (S.D.N.Y. 2004); re Schepps Food Stores Inc, 148 B.R. 27 (S.D.Tex.1992); In re Vision Dev. Group of Broward County LLC, No. 07–17778–BKC–RBR, 2008 WL 2676827 (Bankr.S.D.Fla. 30 June 2008) *82)). However, a very small minority of cases held that while section 1104(c) expresses a congressional preference for appointment of an independent examiner to conduct a necessary investigation, the facts and circumstances of the case may permit a bankruptcy court to deny the request for appointment of an examiner even in cases with more than US$5 million in fixed debts (cf re Residential Capital LLC, 474 B.R. 112, 121 (Bankr.S.D.N.Y. 2012) ; re Rutenberg, 158 B.R. 230 (Bankr.M.D.Fla.1993); re Shelter Res Corp, 35 B.R. 304 ( Bankr.N.D.Ohio 1983); re GHR Cos Inc, 43 B.R. 165 (Bankr.D.Mass.1984)). Regardless of whether a trustee or examiner is sought, a party in interest must request relief from the bankruptcy court as soon as it believes an independent party may be needed. The right to request this relief is waived if the party in interest stands by as the case progresses with joint management (re Nat' l Pub Serv Corp, 68 F.2d 859 (2d Cir. 1934)). Once a party in interest files a motion to appoint a trustee or examiner, all other parties in interest in the case may support or oppose the motion (Title 11, § 1109, USC). Other secured and unsecured creditors or other parties in interest are allowed to object or be heard at hearings involving appointment of a trustee or examiner.

 
6. If the law does not permit a single insolvency office holder, are there provisions allowing different office holders to co-ordinate with each other so that the value of the group's assets can be maximised?

The US Bankruptcy Code contemplates, and it is common practice for bankruptcy cases involving affiliated companies, absent demonstrated conflicts of interest between the companies, to be managed by a single insolvency office holder. See Question 5.

 
7. Can professional advisers work for the entire corporate group?

In most cases, professional advisers such as law, accounting and audit firms can provide services to the entire corporate group in bankruptcy, particularly where historically the accounting has been done on a consolidated basis. However, when there are material conflicts among members of the corporate group, joint representation is not allowed. There are no uniform rules on whether the conflicts of interest must be actual or potential to require separate professionals for each member of a corporate group. For example, in the case of Interwest Business Equipment v United States Trustee (re Interwest Business Equipment) the court required separate counsel for each corporate group member since the affiliated debtors had an arrangement whereby one member of the group would pay another a percentage of its revenue despite the fact that other unaffiliated creditors went unpaid (23 F.3d 311 (10th Cir. 1994)). Other cases are less stringent, requiring an actual conflict between members of the corporate group before requiring the retention of different professional firms (re BH&P Inc, 949 F.3d 1300, 1314–15 (3d Cir. 1991)). The case of re BH&P Inc, 949 F.3d 1300, 1314–15 (3d Cir. 1991) held that the existence of inter-debtor claims is no longer an automatic ground for disqualification of an attorney who represents the entire corporate group. There must be an actual conflict of interest to disqualify counsel from joint representation (re Adelphia Commc' ns Corp, 336 B.R. 610 ( Bankr. S.D.N.Y. 2006); re Gilbertson Restaurants LLC, No. 04-00385, 2004 WL 1724878 *1, *5 (Bankr. N.D. Iowa 2004)).

 
8. Are the rules regarding members of a corporate group transferring assets to one another different when one or more members are insolvent?

The rules regarding members of a corporate group transferring assets to one another are a little bit different when one or more members are insolvent. Outside of a bankruptcy proceeding, the relationships are governed by the law of the entity's state of formation, and the state laws respect the nature of the interest that one affiliate has in another. For example, Delaware partnership law provides that a partner may (Delaware Code, Title 6, §17-107):

  • Lend money to the limited partnership.

  • Borrow money from the limited partnership.

  • Act as a surety, guarantor or endorser for the limited partnership.

  • Guarantee or assume one or more specific obligations of the limited partnership.

  • Provide collateral for and transact other business with the limited partnership.

The statute also provides that a partner transacting business with a partnership has the same rights and obligations as a person who is not a partner.

Generally, a problem only arises where the company which is transferring assets to another group member is insolvent or not paying its debts as they become due. Such transfers may be challenged as a fraudulent transfer. However, once a bankruptcy case is filed, the debtor-in-possession (that is, the troubled company) is only allowed to engage in transactions which are in the ordinary course of its business. Any other transactions must be approved by the bankruptcy court. Furthermore, some specific transactions such as the incurrence of post-petition debt and sale of the debtor's assets (Title 11, § 363, USC), always require the approval of the bankruptcy court. Therefore, a solvent family member most likely could loan money to a financially distressed member but not vice versa.

Another issue with dealings between related companies is that in bankruptcy even past transactions, especially loan transactions, can be highly scrutinised by creditors or other interested parties and possibly attacked (see Question 5). A common issue that arises with loan transactions between related entities is that once a bankruptcy case has been filed, creditors or other parties in interest may seek to examine the facts associated with such loan and possibly try to recharacterise it as an investment (that is, equity) (re Cold Harbor Assocs LP, 204 B.R. 904, 915 (Bankr. E.D. Va. 1997)) or try to subordinate the repayment of same to the repayment of third party unaffiliated creditors (Herzog v Leighton Holdings Ltd) (re Kids Creek Partners LP), 212 B.R. 898, 931 (Bankr. N.D. Ill. 1997), aff' d, 239 B.R. 497 (N.D. Ill. 1999). The central inquiry under the recharacterisation theory is whether the transaction bears the earmarks of an arm's-length negotiation. The more an exchange appears to reflect the characteristics of an arm's-length negotiation, the more likely the transaction is to be treated as debt. On the other hand, with equitable subordination, the court generally looks at the misconduct of a creditor as a basis to subordinate its debt where the incurring of the debt was inequitable towards the other creditors. US counsel must review affiliated transactions to determine the risks of recharacterisation or whether other safeguards are needed to protect the intent of the parties to the transaction.

Therefore, even though affiliates can make loans or investments or transact business with each other freely outside of bankruptcy, once a bankruptcy case is filed, the related entities should always be mindful of the requirements under the Bankruptcy Code with regards to any proposed transaction. In addition, the related entities must also be aware that a bankruptcy court may recharacterise or subordinate past transactions.

 
9. How are claims of one member of a corporate group against other members of the group treated in a formal insolvency processes for those members?

Intercompany claims

The Bankruptcy Code does not discriminate between claims of one member of a corporate family against other members of the corporate family (intercompany claims) and claims of third parties. All claims that are properly and timely filed are presumptively "allowed" (the term used in the Bankruptcy Code for valid, enforceable claims), unless objected to by the debtor, a creditors' committee, or another party in interest (Title 11, § 502(a), USC). Therefore, intercompany claims or loans are not automatically disallowed.

The fact that a claim is an intercompany claim is not, by itself, grounds for objection.

Although intercompany claims are presumptively allowed, such claims will be subject to scrutiny by other third party creditors and parties in interest. In appropriate circumstances, intercompany claims may be subordinated to claims of other creditors or may be "recharacterised" as an equity investment by the affiliate. Equitable subordination and recharacterisation accomplish the same functional goal, the subordinated or recharacterised creditor can only be paid after non- subordinated or non-recharacterised creditors are paid in full. However, the two theories work differently. Equitable subordination subordinates one creditor's claims to other creditors' claims. However, recharacterisation changes the debt claim to an equity interest and therefore the recharacterised claim shares pari passu with equity and under the US system, equity members only receive distributions after all other creditor claims are satisfied.

Equitable subordination

The Bankruptcy Code specifically authorises equitable subordination. Section 510(c) provides that the bankruptcy court may under principles of equitable subordination, subordinate for purposes of distribution all or part of an allowed claim to all or part of another allowed claim, or all or part of an allowed interest to all or part of another allowed interest (Title 11, §510(c)(1), USC). A party seeking subordination of a claim must bring an adversary proceeding (a civil lawsuit before the bankruptcy court) or provide for subordination through a plan of reorganisation (Fed. R. Bankr. P. 7001(8)). While equitable subordination has a statutory base, the statute's parameters are a matter of common law. Most courts use the Mobile Steel test, which requires as follows (Benjamin v Diamond (re Mobile Steel Co), 563 F.2d 692, 699-700 (5th Cir. 1977)):

  • The creditor to be subordinated has engaged in inequitable conduct.

  • The inequitable conduct resulted in harm to other creditors of the debtor or conferred an unfair advantage on the claimant.

  • Subordination would not otherwise be inconsistent with the bankruptcy laws.

As the law following Mobile Steel has developed, courts have distinguished between insider claims and non-insider claims. Claims of non-insiders are far less likely to be subordinated. To subordinate a non-insider, substantial egregious and unfair misconduct must be proven (Sunbeam Corp v Morgan Stanley & Co (re Sunbeam Corp), 284 B.R. 355, 364 ( Bankr. S.D.N.Y. 2002). The conduct must be tantamount to fraud, overreaching, or spoliation. However, some courts have recognised that subordination of a non-insider can be appropriate even when the conduct does not amount to actual fraud (Capitol Bank & Trust Co v 604 Columbus Ave Realty Trust (In re 604 Columbus Ave Realty Trust), 968 F.2d 1332, 1361 (1st Cir. 1992)). However, it is a very high standard to subordinate a non-insider, and courts rarely do so (re Sunbeam Corp, 284 B.R. at 364). In contrast, when a creditor is an insider, his dealings may be subject to more rigorous scrutiny, and the burden may be on him to prove the good faith of the transaction and to show its intrinsic fairness to the debtor (Mishkin v Siclari (re Adler, Coleman Clearing Corp), 277 B.R. 520, 564 (Bankr. S.D.N.Y. 2002). When the party to be subordinated is an insider, the proponent of subordination must show a substantial basis to warrant subordination, then the burden shifts to the insider to prove the fairness of his claim (re 80 Nassau Assocs., 169 B.R. 832, 839 , n.5 (Bankr. S.D.N.Y. 1994) (citing Pepper v Litton, 308 U.S. 295, 306 (1939)).

Recharacterisation

Recharacterisation accomplishes the same economic objective as equitable subordination but through different means. Recharacterisation is a judicial inquiry into whether a debt transaction bears the rudiments of an arm's-length transaction. If it does not, the bankruptcy court may recharacterise the debt claim as an equity interest. Ultimately the court will not accept the label of "debt" or "equity" placed by the debtor on a particular transaction, but will inquire into the actual nature of a transaction to determine how best to characterise it (re Cold Harbor Assocs LP, 204 B.R. 904, 915 ( Bankr. E.D. Va. 1997)). Unlike equitable subordination, recharacterisation has no express statutory basis. Instead, courts rely on their common law equitable powers under section 105(a) of the Bankruptcy Code to issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of the Bankruptcy Code (Title 11, § 105(a), USC).

 

Substantive consolidation

10. Is pooling of assets and liabilities of some or all members of a corporate group allowed, so that a creditor of one member becomes, in essence, a creditor of all members?

In certain cases, US bankruptcy courts will order the "substantive consolidation" of the assets and liabilities of one member of a corporate family with the assets and liabilities of another member of the corporate family. If a court orders substantive consolidation, all assets of the consolidated entities will be available to satisfy all claims against the consolidated entities. In addition, substantive consolidation cancels intercompany claims among the consolidated entities.

Substantive consolidation is not automatic or routine. The debtor or creditors must make a proper factual showing to the bankruptcy court to consolidate multiple companies. Courts have approved substantive consolidation of a debtor corporation with other corporations, partnerships and individuals. In addition, some (but not all) bankruptcy courts will order the consolidation of a debtor with a non-debtor who is not even before the court, if certain standards are satisfied (see below).

The Bankruptcy Code has no express statutory support for substantive consolidation. The authority for consolidation arises from the bankruptcy court's common law equitable powers under section 105 of the Bankruptcy Code. Due to the lack of express statutory support and because substantive consolidation will harm certain creditors (that is, the creditors of the more solvent entities being consolidated) most courts will order consolidation only on consent, or if there is not consent, sparingly on a proper factual basis (R2 Invs LDC v World Access Inc (re World Access Inc ), 301 B.R. 217, 272 (Bankr. N.D. Ill. 2003)).

Historically, courts have analogised substantive consolidation to the concept of "piercing the corporate veil" to defeat a corporation's limited liability so as to make shareholders liable for corporate debts. However, piercing the corporate veil is a limited common law remedy and does not result in the combination of the assets and liabilities of all members of a corporate family (as with substantive consolidation) (re Tureaud, 45 B.R. 658, 662 (Bankr. N.D. Okla. 1985)). However, veil-piercing factors are useful in a substantive consolidation analysis. The factors include whether the companies had common directors, whether one affiliate finances the other affiliate, and whether one affiliate is grossly undercapitalised (among other factors). The case of Augie/Restivo has reduced this multifactor test to two critical factors for substantive consolidation (Union Savings Bank v Augie/Restivo Baking Co (re Augie/Restivo Baking Co), 860 F.2d 515, 518 (2d Cir. 1988)). Under Augie/Restivo, consolidation will be granted if it can be proven that:

  • Creditors dealt with the separate companies as a single economic entity and did not rely on the separate credit of the companies.

  • Consolidation will benefit all creditors by eliminating the costs of untangling their finances, claims and assets.

The Augie/Restivo test is restrictive as it disfavours consolidation (absent creditor consent). However, other courts have set a lower threshold to permit consolidation. For example, some courts require a proponent of consolidation to first show a substantial identity between the entities to be consolidated and that the consolidation will avoid some harm or grant some benefit (Eastgroup Props v Motel Ass'n Ltd, 935 F.2d 245, 249 (11th Cir.1991)). Once the proponent has proven this, the burden shifts to any parties opposing the consolidation, who must prove they relied on the separateness of the entities to be consolidated. Even if the parties opposing consolidation prove they relied on the separateness of the entities, the court can still order consolidation (unless the harm from consolidation greatly outweighs the benefit). A significant circuit court ruling on substantive consolidation is re Owens-Corning, 419 F.3d 195 (3d Cir. 2005). Owens-Corning makes substantive consolidation more difficult than under the test in Augie/Restivo. Under Owens-Corning, a proponent of consolidation must also prove that:

  • Prior to the bankruptcy, the debtors to be consolidated disregarded their corporate separateness so significantly that creditors treated the different companies as a single legal entity.

  • The entities' assets and liabilities are so scrambled that consolidation helps all creditors.

Therefore, a proponent of consolidation must demonstrate a very significant corporate breakdown, in that creditors had contractual expectations that the entities were unified and that their expectation was reasonable. Where such proof is established, a creditor can still prevent consolidation if it proves that it is adversely affected by the consolidation and it actually relied on the separateness of the entities.

The law of substantive consolidation is different in the various courts of the US, and remains an evolving theory.

 
11. What proceedings are required for the court to order the pooling of assets and liabilities?

Substantive consolidation can be accomplished through a motion to the bankruptcy court, by an adversary proceeding (which is a lawsuit brought within the pending bankruptcy proceeding), or through a plan of reorganisation or liquidation.

Regardless of how substantive consolidation is sought, if a party objects, a trial is required (often after significant pre-trial discovery by all sides). In addition, sufficient advance notice must be given to creditors (whatever the procedure selected).

 
12. Is the partial pooling of assets and liabilities allowed? What conditions apply?

The power to consolidate derives from the inherent common law equitable powers of the bankruptcy court. Substantive consolidation is a flexible remedy that can be tailored to the needs of the particular case. Therefore, there is nothing in US bankruptcy laws preventing the partial pooling of assets and liabilities.

There are limited examples under US law where a court has determined that a partial consolidation is warranted. For example, a court may authorise partial consolidation where a bank lender can prove it relied on the separate credit of one debtor entity (but all other creditors did not rely on the separateness among the various entities). In this case, a court may permit the bank to satisfy its claim from the assets of the entity on which it relied, and thereafter consolidate the entities to satisfy other creditor claims.

However, partial substantive consolidation is rare, and is only used when the unique facts of the case warrant it.

 
13. If the pooling of assets and liabilities is permitted, are there any protections for certain types of creditors?

There are no specific statutory protections for a properly secured and perfected creditor, but a secured creditor should generally be protected from consolidation. A secured creditor has a separate and distinct property interest in the collateral securing the debt. The separate property interest means that, even though the collateral may be property of the estate, to the extent the secured claim is fully collateralised, it will be treated outside of the general priority scheme existing under section 507 of the Bankruptcy Code. The claim is actually against the debtor's property and only derivatively against the debtor himself.

There are other systemic protections for secured creditors protecting them from harm by consolidation. Most significantly, for a debtor to use collateral subject to a secured creditor's lien, the debtor must provide the secured party with adequate protection of the secured creditor's interest in its collateral (Title 11, § 363(e), USC). Adequate protection is meant to protect the secured creditor, through periodic cash payments, replacement liens, or some other equivalent mechanism, from a diminution in its collateral value by the debtor's continued use of the collateral (Title 11, § 361, USC). Finally, if a secured party's adequate protection fails (the value of the collateral plus any adequate protection is less than its value when the bankruptcy case was filed) the court must grant the secured lender a "super priority" claim, superior to all other claims in the case (Title 11, § 507(b), USC).

 

Secured creditors

14. How are secured creditors treated in relation to a group of companies?

This depends on whether the two companies have been substantively consolidated (see Question 10 Substantive consolidation). Assuming there has been no substantive consolidation, the claims against each company remain independent. The only limitation is that any payment from one creditor will mitigate the claims against the other. For example, if the creditor collects 80% of its claim from the primary obligor, it can only collect 20% from the guarantor. The guarantor may then have a claim against its affiliate, the primary obligor (Title 11, § 509(a), USC). This would be an intercompany claim (see Question 9).

 

Insolvency proceedings for international corporate groups

15. What extra considerations are necessary if one or more members of the corporate group is incorporated under or governed by the laws of another jurisdiction?

Other than in Chapter 15 of the Bankruptcy Code, the Bankruptcy Code purports to assert jurisdiction over all assets of the debtor, wherever located and held by whoever (Title 11, § 541(a), USC) (re Globo Comunicacoes E Participacoes SA, 317 B.R. 235, 250-1 (S.D.N.Y. 2004)). Therefore, the Bankruptcy Code does not restrict the relief discussed above to assets located only in the US. All relief should theoretically be available to a court or a creditor for all the debtor's assets (wherever they are located throughout the world). In practice, however, the ability of a US bankruptcy court to exercise jurisdiction over assets located outside of the US may be limited (see Question 16). Therefore a court may decline to grant some or all of the relief over those foreign assets. See discussion of the re Yukos Oil Co case in Question 17.

 
16. If insolvency/restructuring proceedings are started for corporate group members in different countries, do international treaties or EU legislation apply?

Chapter 15 of the Bankruptcy Code is a codification of the Model Law on Cross-Border Insolvency, which was promulgated by the United Nations Commission on International Trade Law. The purpose of Chapter 15 is to incorporate the Model Law on Cross-Border Insolvency to provide effective mechanisms for dealing with cases of cross-border insolvency (Title 11, § 1501(a), USC). Chapter 15 of the Bankruptcy Code is effective for cases filed after 17 October 2005.

 
17. Do domestic courts typically attempt to exercise jurisdiction over all the assets of a company filing locally (regardless of where the assets are located) or do they limit their jurisdiction to local assets?

Section 109(a) of the Bankruptcy Code requires a debtor to be a person that resides or has a domicile, a place of business, or property in the US (Title 11, § 109(a), USC). If a company is a proper debtor under section 109 of the Bankruptcy Code, section 541(a) extends the jurisdictional reach of the Bankruptcy Code to all of the debtor's assets wherever they are located (see Question 16).

This is a remarkable scope of jurisdiction. If a company has any property in the US, it can be a proper debtor and once properly brought before the bankruptcy court, the court's jurisdiction extends to all of the debtor's assets throughout all 50 states of the US and those in foreign jurisdictions. The furthest reaches of this jurisdictional scope were probed in the bankruptcy case of the Russian oil company, Yukos (re Yukos Oil Co, 321 B.R. 396 (Bankr. S.D. Tex. 2005)). Yukos was the largest oil producer in Russia and had approximately 200 subsidiary companies in Russia and other countries, but none in the US. In its bankruptcy petition, it reported having assets of over US$12 billion. However, it did not have any operating assets in the US. The company's only claim to proper jurisdiction in the US was the fact that its Chief Financial Officer maintained an office in his home in Texas and that on the date of the bankruptcy, the company had incorporated a subsidiary in the US and transferred US$2 million to that subsidiary from various sources. The court held that the assets located in the bank account alone were sufficient for the court to assert jurisdiction over all of Yukos' assets, including its foreign assets. However, the court ultimately dismissed the US bankruptcy case because it could not assure that Yukos' principal creditor, the Russian Government, would participate in the proceedings or be bound by the US bankruptcy court rulings. Without such participation or binding effect, any restructuring would have been futile.

The Yukos bankruptcy is representative of how US bankruptcy courts handle the extraterritorial application of the Bankruptcy Code. If there is property of the debtor (no matter how trivial) there is a sufficient statutory basis for the debtor to file a US bankruptcy case. However, once the statutory grounds are satisfied, the court will engage in a more practical analysis to determine whether, in its discretion, it should assert extraterritorial jurisdiction. Such an analysis includes analysing:

  • Whether the US court can properly effect a reorganisation of the debtor's assets and liabilities.

  • Whether the creditors in the case will participate and be bound by a US proceeding.

  • Whether the US court is a convenient forum for the parties.

  • The country's interests in seeing the assets in question reorganised under the Bankruptcy Code.

  • The general concerns of respect for foreign jurisdictions and comity.

 
18. Do local courts enforce court orders from foreign jurisdictions that attempt to exercise jurisdiction over assets located in your jurisdiction that are owned by a company subject to foreign insolvency proceedings?

Under Chapter 15 of the Bankruptcy Code, a US bankruptcy court, on a proper showing, will grant recognition to an authorised representative of a foreign bankruptcy case on application to the US bankruptcy court. The actions of the foreign court will be respected in the US, provided those actions are not manifestly contrary to the public policy of the US (Title 11, §§ 1506, 1517, USC). The foreign representative can dispose of US assets, as long as the interests of US creditors are protected (Title 11, § 1521(b), USC). Certain cases have potentially limited the ability for a foreign representative to exercise jurisdiction over assets located in the US.

SPhinX case

In the case of re SPhinX, a family of Cayman hedge funds, which were principally operated out of New York, filed for official liquidation in the Cayman Islands and subsequently filed a Chapter 15 petition in New York (re SPhinX Ltd, 351 B.R. 103 ( Bankr. S.D.N.Y. 2006)). The liquidation proceeding and the Chapter 15 petition were filed after the SPhinX funds had agreed to return a substantial preference to Refco, which was another debtor in liquidation who had provided SPhinX with foreign exchange and securities trading and execution services. The bankruptcy judge in the SPhinX Chapter 15 proceeding agreed to recognise the Cayman Islands liquidation proceeding, but recognised it only as a "foreign non-main" proceeding rather than a "foreign main" proceeding. The judge's determination was based on a number of factors. The two most important factors were:

  • The fact that the funds, even though they were Cayman companies, transacted no substantial business in the Cayman Islands but were instead operated out of New York.

  • The judge perceived that the SPhinX liquidators who were seeking recognition were principally attempting to stay an appeal of the Refco settlement, which the judge perceived to be improper and inconsistent with the Chapter 15 statute.

However, the judge made clear, that, had there been no objection from Refco, he would have likely granted a foreign main proceeding recognition based on the statutory presumption in section 1506 of the Bankruptcy Code. The presumption meant that, absent evidence to the contrary, the country of the debtor's registration is its "centre of main interest" and is therefore entitled to foreign main proceeding recognition. The practical effect of the SPhinX case on the ability of a foreign representative to obtain jurisdiction over assets in the US can be quite limited. Functionally, by obtaining recognition as a foreign non-main proceeding, the judge made clear that he could fashion relief to permit the foreign representatives to obtain jurisdiction over assets in the US. The limitation on granting foreign main proceeding recognition therefore appears to have been driven by the judge's perception that the foreign representatives' attempt to obtain a foreign main proceeding recognition was driven by an improper litigation motive to obtain a stay of the appeal of the Refco settlement.

Bear Stearns case

In contrast to the SPhinX decision, the Bear Stearns decision may have a more far reaching impact on the ability of a foreign representative to obtain jurisdiction over assets in the US (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 (S.D.N.Y. 2008)). Like SPhinX, Bear Stearns involved Cayman Islands hedge funds principally run out of New York that sought recognition in the US. However, unlike SPhinX, no party in Bear Stearns objected to recognition. Also unlike SPhinX, the judge denied recognition altogether (both as a foreign main and a foreign non-main proceeding). The judge made clear that recognition could not be separated from the "foreign main" versus "foreign non-main" determination. This means that it is a single step process, a foreign main proceeding could be recognised as a foreign main proceeding or as a foreign non-main proceeding, or recognition could be denied altogether.

The judge refused to accept the foreign representatives' position that, because there had been no objection to recognition, the court could accept the presumption in section 1516 of the Bankruptcy Code that the country of registration is the centre of main interest. The court held that it was the foreign representatives' burden to establish the centre of main interest and that the section 1516 presumption could be defeated by showing evidence (the word used in Chapter 15) rather than proof (the word used in the Model Law for Cross-Border Insolvency) that the country of registration is the centre of main interest. Based on the petitions that the representatives filed, which showed that the funds had no employees in the Cayman Islands and had their principal assets in the US (among other things) the court determined that the centre of main interest was in the US, and not in the Cayman Islands. The court therefore denied recognition of the foreign proceeding as a foreign main proceeding.

The judge also denied recognition as a foreign non-main proceeding. A foreign representative must show that there is an "establishment" in the foreign country to obtain recognition as a foreign non-main proceeding (Title 11, § 1517(b)(2), USC). An establishment is a place where the debtor carries out a non-transitory economic activity (Title 11, § 1502(2), USC). The judge determined that, because the funds were exempt companies under Cayman law and carried out no substantial business in the Cayman Islands, there was no establishment in the Cayman Islands and therefore the funds were not eligible for recognition as a foreign non-main proceeding (re Bear Stearns, 374 B.R. at 131).

The Bear Stearns decision is likely to have a more wide-reaching impact on a foreign representative's ability to obtain jurisdiction over assets in the US. It imposes a significant evidentiary burden on the foreign representative to establish the economic activity that occurs in the foreign country. However, ultimately, the impact of the decision may be somewhat muted. For example, when the foreign debtor has actual operations in the foreign country, the Bear Stearns decision does not appear to limit recognition of the foreign proceeding as a foreign non-main proceeding.

Therefore, ultimately, cases like Bear Stearns may pose more procedural rather than substantive barriers to obtaining jurisdiction over assets of a foreign company that are located in the US.

The application of Chapter 15 continues to evolve in the US as seen by the split of authority on the question of which date a court should use in connection with evaluation of the relevant date for determining the centre of main interests (COMI). In recent years, some cases have used the date of filing of the petition for recognition and others have used the date of commencement of the foreign proceeding (see below).

Ran case (adopting the date of filing of petition for recognition)

A post-Bear Stearns decision involved an Israeli receiver who petitioned the court for recognition of the Israeli individual bankruptcy proceedings pending against Mr Ran in the US (re Ran, 607 F.3d 1017 (C.A.5 (Tex.), 2010)). The Israeli proceedings were commenced in Israel in 1997, the same year Mr Ran relocated to the US. The petition for recognition of the Israeli proceedings was filed in the US in 2006. Since relocating to the US, Mr Ran has gained permanent residence and established employment in Houston, Texas. The bankruptcy court refused to recognise the foreign proceeding, and the United States District Court for the Southern District of Texas affirmed this. The Israeli receiver filed an appeal with the Fifth Circuit Court of Appeals. The Fifth Circuit affirmed the denial of the recognition due to the fact that it deemed the US to be Mr Ran's COMI and the fact that Mr Ran neither had a place of operations in Israel nor had been carrying on nontransitory economic activity in Israel.

The court determined that the proceeding was not a foreign main proceeding because Mr Ran's habitual residence, and therefore his presumptive centre of main interests were in Houston, Texas. In analysing this point, the court used the date the petition for recognition was filed in the US as the relevant date for determining the COMI. This conclusion was supported by the following factors:

  • Mr Ran left Israel nearly a decade prior to the filing of the petition.

  • Mr Ran has no intent to return.

  • Mr Ran has established employment and a permanent residence in Houston.

  • Mr Ran is a legal permanent resident of the US and his children are US citizens.

  • Mr Ran maintains his finances exclusively in Texas.

The totality of the circumstances indicates that the US is Mr Ran's habitual residence and therefore his presumptive COMI. The Israeli trustee tried to counter the foregoing factors by establishing that:

  • Mr Ran's creditors are located in Israel.

  • Mr Ran's principal assets are being administered in bankruptcy proceedings pending in Israel.

  • Ran's bankruptcy proceedings were initiated in Israel and would be governed by Israeli law.

However, the court noted that the factors presented by the Israeli trustee were insufficient to prove that Israel is Mr Ran's COMI.

The court then analysed whether the Israeli bankruptcy proceeding was a foreign non-main proceeding. In analysing this point, the court also used the date the petition for recognition was filed in the US as the relevant date for determining whether the two- part establishment test was met. The court concluded that the two-part establishment test for a foreign non-main proceeding was not met as Mr Ran did not have a place of operations in Israel nor had been carrying on nontransitory economic activity in Israel. The court noted that even if the court were to conclude that Mr Ran possessed a place of operations in Israel at the time the petition was filed, Mr Ran did not carry out any nontransitory economic activity in Israel and as a result the second part of the establishment requirement is not met. Specifically, since his departure, Mr Ran has engaged in almost no economic activity in Israel and almost all of his economic activities were centred in the US. Additionally, at the time the petition for recognition was filed, the only evidence of Mr Ran's alleged establishment with Israel were the insolvency proceedings in Israel which were brought involuntarily in Mr Ran's absence and the corresponding debts. The court also rejected the Israeli receiver's argument that as trustee of Mr Ran's estate, a principal-agent relationship between the Israeli receiver and Mr Ran existed, and that the Israeli receiver had carried out economic activity in Israel on behalf of Mr Ran, his principal. The court based its rejection on the legal principle that the Israeli receiver's appointment as a trustee of Mr Ran's estate does not amount to being Mr Ran's agent and therefore cannot act on behalf of Mr Ran. As such, the court determined that the proceeding was not a foreign non-main proceeding.

Millennium Global (adopting the date the foreign case was commenced)

The case of re Millennium Global Credit Master Fund Ltd involved two offshore funds which were the subject of liquidation proceedings in Bermuda. The offshore funds were incorporated in Bermuda and two of its three directors were located in Bermuda, however, the day-to-day operations and management of the offshore funds took place in Guernsey and London. The joint liquidators appointed over the liquidation of the two offshore funds wanted to conduct discovery and pursue further collection activities in the US so they petitioned the United States Bankruptcy Court for the Southern District of New York for recognition of the foreign proceedings as either main or non-main foreign proceedings. In its analysis, the court adopted that the appropriate date which should be used in determining the COMI and "establishment" of a foreign debtor is the date of the filing of the foreign proceeding, not, as most courts have held, the date of the filing of the petition for recognition in the US (re Millennium Global Credit Master Fund Ltd, 458 B.R. 63, 72-74 (Bankr.S.D.N.Y.2011) aff' d, 454 B.R. 88, 93 (S.D.N.Y. 2012) . As a result, the court recognised the foreign proceedings as foreign main proceedings, or as foreign non-main proceedings. This decision was appealed but affirmed by the United States District Court for the Southern District of New York.

It is unclear what the effect of the re Millennium Global decision would be and how persuasive it is, as the following year, the District Court for the Southern District of New York decided another case involving a similar issue and held that a debtor's COMI should be determined based on its activities at or around the time the Chapter 15 petition is filed (re Fairfield Sentry Ltd, 714 F.3d 127, 137 (C.A.2 (N.Y.) 2013). However, the court did say that based on EU Regulations and other international interpretations that focus on the regularity and ascertainability of a debtor's COMI, a court can consider the period between the commencement of the foreign insolvency proceeding and the filing of the Chapter 15 petition to ensure that a debtor has not manipulated its COMI in bad faith.

 
19. Can the courts co-operate with foreign courts to co-ordinate the administration of group assets?

Chapter 15 of the Bankruptcy Code, which was adopted in the 2005 amendments to the Bankruptcy Code and substantially incorporates the Model Law on Cross-Border Insolvency, provides both US courts and parties before US courts with substantial discretion to communicate with courts in foreign jurisdictions.

Section 1525 of the Bankruptcy Code. This requires that the court co-operate to the maximum extent possible with a foreign court or a foreign representative, either directly or through a trustee (Title 11, § 1525(a), USC). The US court may (subject to the parties' rights to notice and a hearing) communicate directly with, or request information or assistance from the foreign court or foreign representative (Title 11, § 1525(b), USC).

Section 1526 of the Bankruptcy Code. This requires a trustee or other person (including an examiner) to co-operate with a foreign court or a foreign representative to the maximum extent possible, subject to the supervision of the US court (Title 11, § 1526(a), USC). The trustee or other person is entitled to communicate directly with the foreign court or foreign representative, subject to the supervision of the US court (Title 11, § 1526(b), USC).

Section 1527 of the Bankruptcy Code. This defines co-operation to include the (Title 11, § 1527, USC):

  • Appointment of a person or body, including an examiner, to act at the direction of the court.

  • Communication of information by any means considered appropriate by the court.

  • Co-ordination of the administration and supervision of the debtor's assets and affairs.

  • Approval or implementation of agreements concerning the co-ordination of proceedings.

  • Co-ordination of concurrent proceedings regarding the same debtor.

In implementing the above requirements, there have been numerous examples where the parties and courts have informally used the Guidelines Applicable to Court-To-Court Communications in Cross-Border Cases as adopted and promulgated by The American Law Institute and The International Insolvency Institute. Although not always adopted verbatim, these Guidelines have served as the principal guiding source in the development of case specific guidelines.

 

Directors' duties

20. Does your jurisdiction encourage or discourage overlapping boards or management teams for separate members of a corporate group?

US corporate laws (which vary according to the state of incorporation of the company) permit overlapping boards (for example, Delaware Code, Title 8, §144(a) (3)). In addition, there is no requirement in US corporate law that directors or managers must be residents of the jurisdiction where the company operates.

Therefore, a corporate affiliated group featuring a parent company incorporated in New York (with subsidiaries located in California and Florida) may have similar or identical boards and management teams.

As a matter of convenience and to ensure enterprise control remains with the same parties, most US corporate affiliated groups use overlapping boards and management teams. However, in such cases, the directors must understand that individuals who act in a dual capacity as directors of two corporations, one of whom is parent and the other subsidiary, owe the same duty of good management to both corporations (Weinberger v UOP Inc, Del.Supr., 457 A.2d 701, 710-11 (1983) (citing Warshaw v Calhoun, Del.Supr., 221 A.2d 487, 492 (1966) (citation omitted)). Therefore, when two members of a corporate group have dealings with each other, or must allocate costs or assets among themselves, common directors must be careful to ensure the dealings or allocations are fair. A director of two related companies who permits transactions favouring one company to the detriment of the other may be personally liable to shareholders or creditors of the wronged company (Mills v Withers, 483 S.W.2d 339 (Tex. App. 1972)).

 
21. What legal consequences are there for the directors of a parent company where they are not directors of the subsidiary but do manage the subsidiary's affairs?

If a parent corporation exercises undue control over a subsidiary, the parent corporation could be held liable for such control (Odyssey Partners L.P. v Fleming Cos., 735 A.2d 386 (Del. Ch. 1999)). This liability can extend to the parent company's officers and directors, even if they are not officers or directors of the subsidiary, provided they exercise actual control over the subsidiary's actions (Lazenby v Henderson, 135 N.E. 302, 303–04 (Mass. 1922)). In addition, there are other theories under which third parties (such as directors of a parent company) could be liable for their direct or indirect management of an affiliate. For example, some US states recognise the cause of action of aiding and abetting a fraud or a breach of fiduciary duty by third parties. To sustain such an action, an injured party must prove that:

  • The third party's conduct was wrongful.

  • The defendant had knowledge that the third party's wrongful conduct was occurring.

  • The defendant's conduct provided substantial assistance or encouragement to the third party's wrongful conduct (Crowthers McCall Pattern Inc v Lewis, 129 B.R. 992, 999 (S.D.N.Y. 1991), re OODC LLC, 321 B.R. 128, 144 (Bankr. D. Del. 2005)).

Therefore, if a parent company's officers or directors knowingly and substantially assisted the subsidiary in committing a wrong, the parent company's officers and directors could be directly liable to the injured party.

 
22. What are the main duties and responsibilities of directors and officers to the company, shareholders and third parties? Do they change when the company becomes insolvent?

The officers and directors of a solvent corporation only owe fiduciary duties to shareholders or equity holders. Courts typically refer to a triad of duties owed by officers and directors to their shareholders or equity holders, the duty of due care, the duty of loyalty, and the duty of good faith (Cede & Co v Technicolor Inc, 634 A.2d 345, 361 (Del. 1993)).

The duty of due care requires officers and directors to use the amount of care that ordinarily careful and prudent men would use in similar circumstances. This means that directors and officers must inform themselves of all material and reasonably available information prior to making a business decision (re Walt Disney Co Derivative Litigation, 907 A.2d 693, 749-50 (Del. Ch. 2005) aff' d, 906 A.2d 27 (Del. 2006) (quoting Graham v Allis-Chalmers Mfg Co, 188 A.2d 125, 130 (Del. 1963)), aff' d 906 A.2d 27 (Del. 2006)).

The duty of loyalty mandates that the best interest of the corporation and its shareholders takes precedence over any competing interest possessed by a director, officer or controlling shareholder and not shared by the stockholders generally (Cede & Co., 634 A.2d at 361 (Del. 1993)). That is, directors must avoid any conflict between duty and self-interest (Ivanhoe Partners v Newmont Mining corp, 535 A.2d 1334, 1345 (Del. 1987) (citing Guth v Loft Inc, Del.Supr., 5 A.2d 503, 510 ( 1939)), Weinberger v UOP Inc, Del.Supr., 457 A.2d 701, 710 (1983)).

The duty of good faith requires directors to act at all times with honesty of purpose and in the best interests and welfare of the corporation (re Walt Disney Co Derivative Litigation, 907 A.2d at 754). However, in most states, officers and directors are protected by the "business judgment rule" which presumes that the officer's or director's actions are motivated by an interest in corporate welfare (unless the actions cannot be attributed to any rational business purpose).

The officers' and directors' duties change if a company files for bankruptcy protection and becomes a debtor-in-possession. After the filing of the bankruptcy petition, the debtor-in-possessions' officers and directors have a fiduciary duty to maximise the value of the estate not only to its shareholders or equity holders but also to the debtor-in-possession's creditors (Commodity Futures Trading Commn v Weintraub, 471 U.S. 343, 356 (1985)).

The trustee or the debtor–in- possession is accountable for all property received and has the duty to maximise the value of the estate. If a debtor remains in possession (that is, if a trustee is not appointed) the debtor's directors bear essentially the same fiduciary obligation to creditors and shareholders as the trustee for a debtor out of possession (SII Liquidation Co, 10-60702, 2014 WL 5325930 *1, *8 (Bankr. N.D. Ohio Oct. 17, 2014).

However, if state law (not bankruptcy law) applies, there is no clear answer as the law in this area is constantly evolving, and corporate law is governed by the laws of individual states. For example, in some cases, there is a duty on directors of an insolvent company to maximise the value of the company. To the extent that the directors negligently fail to do so, they are liable to creditors (N.Y. Credit Men's Adjustment Bureau v Weiss, 110 N.E.2d 397,400 (N.Y. 1953). This is very different from the rules governing a solvent company. Under the business judgment rule directors of a solvent company cannot be sued for poor decisions, as long as the directors did not act in bad faith. An example of other differences among state laws is a case that has held that exculpatory provisions in a company's charter did not apply to lawsuits brought by creditors, only to lawsuits brought by shareholders (re Ben Franklin Retail Stores Inc, 225 B.R. 646, 652 (Bankr. N.D. Ill. 1998)). Therefore, the nature of the duties owed by directors of an insolvent company is unsettled and will vary according to the circumstances and governing state law.

However, there is a trend towards extending the fiduciary duties of directors and officers of an insolvent corporation to the corporation's creditors (N. Am. Catholic Educ Programming Found Inc v Gheewalla, 930 A.2d 92, 99 (Del. 2007). In the case of a wholly owned subsidiary, the directors of the wholly owned subsidiary owe their fiduciary duties to the wholly owned subsidiary's sole stockholder (that is, the parent company) (Trenwick Am Litigation Trust v Ernst & Young LLP, 906 A.2d 168, 201 (Del. Ch. 2006)).

 
23. How are competing duties addressed where directors and officers of different group company members overlap and there are conflicts of interest between the group members?

Officers or directors of multiple corporations owe the same fiduciary duties to each corporation. In the absence of a formal negotiating structure, the officers and directors must do what is best for each of the companies or totally refrain from participation (Weinberger v UOP Inc, 457 A.2d 701, 710-11 (Del. 1983)). Therefore, on any given issue where a conflict arises, the affected director should abstain from participating in the discussion and voting on the issue.

 
24. What specific types of conduct are in breach of the duties and responsibilities of directors and officers?

The law can vary from state to state. Delaware law will be referenced (to the extent that it is available) because many states look to Delaware law if there is no established precedent in their own jurisdiction.

Types of conduct

  • Failure to take reasonable steps to minimise losses to creditors. Only the officers and directors of an insolvent corporation owe duties to creditors (see Question 22). However, some courts have held that officers and directors will not have a general duty to minimise losses to creditors even when the corporation is insolvent (Pinnacle Labs LLC v Goldberg, No.07-C-196-S, 2007 WL 2572275, at *6 (W.D. Wis. Sep. 5, 2007)). Some courts have expanded the duty to creditors even before the company becomes insolvent, in what sometimes has been referred to as the "zone of insolvency". A comparison can be made between the following two cases:

    • Wasserman v Halperin et al (re: The Classica Group), No. 04-19875 (DHS), 2006 Bankr. LEXIS 2599, n.7 (Bankr. D.N.J. 2006). The case concerns fiduciary duties of a corporate director that extends to creditors when a corporation is in the zone of insolvency; and

    • North American Catholic Educational Programming Foundation Inc v Gheewalla, 930 A.2d 92, 101 (Del.Supr.,2007). The case concerns a situation where a solvent corporation is navigating in the zone of insolvency, and the focus for Delaware directors does not change. The directors must continue to discharge their fiduciary duties to the corporation and its shareholders by exercising their business judgment in the best interests of the corporation for the benefit of its shareholder owners.

  • Misappropriation of corporate assets. The misappropriation of corporate assets is a breach of the duty of loyalty (see Question 22, Duty of loyalty). (US West Inc v Time Warner Inc, No. 14555, 1996 WL 307445, at *21 (Del. Ch. June 6, 1996)). Most basically, the duty of loyalty proscribes a fiduciary duty from any means of misappropriation of assets entrusted to a directors' or officers' management and supervision.

  • Undervaluation of corporate assets in a preference or other transaction to the detriment of creditors. Only the officers and directors of an insolvent corporation owe duties to creditors (see Question 22). A director or officer that undervalued a corporate asset in order to reap some personal gain, would be violating the duty of loyalty (see Question 22, Duty of loyalty) (Ivanhoe Partners v Newmont Mining corp, 535 A.2d 1334, 1345 (Del. 1987); re Walt Disney Co. Derivative Litigation, 907 A.2d 693, 751 (Del. Ch. 2005), aff' d 906 A.2d 27 (Del. 2006)).

  • Failure to inform creditors of insolvency. Failing to give creditors notice of insolvency may not violate a fiduciary duty. However, the Federal Rules of Bankruptcy Procedure require that creditors be given notice of a voluntary bankruptcy filing or the entry of an order for relief in an involuntary case (Fed. R. Bankr. P. 2002(f) (1)).

  • Preferring payment to one creditor as opposed to another when insufficient monies are available to pay both. Officers and directors can prefer particular creditors as long as the preference is not motivated by self-interest (Nelson v Emerson, No. 2937-VCS, 2008 WL 1961150, at *9 n.59 (Del. Ch. May 6, 2008) (citing Pennsylvania Co for Insurances on Lives & Granting Annuities v South Broad St. Theatre Co, 174 A. 112, 115-16 (Del. Ch. 1934); Asmussen v Quaker City Corp, 156 A. 180, 181 (Del. Ch. 1931)).

  • Continuing to trade when there is little prospect of being able to pay when due. There is no duty to discontinue trade in light of looming insolvency (Sanford Fork & Tool Co v Howe, Brown & Co, 157 U.S. 312, 319 (1895). The case held that such a doctrine would hinder the development of almost any new enterprise.

Other types of conduct

State and federal laws prohibit numerous specific acts. For example, insider trading is prohibited by statute and is a breach of fiduciary duties (S.E.C. v Cuban, 620 F.3d 551, 555 (5th Cir. 2010)).

 
25. What civil and criminal liability exists for directors and officers if they breach their duties and responsibilities?

Criminal liability

In the US, regardless of whether before or after insolvency occurs, officers and directors are generally not exposed to criminal liability for breaches of their fiduciary duties unless the breach occurs as a result of some kind of other criminal conduct. As a result, officers and directors will also not generally be subject to imprisonment, criminal fines or restitution.

Civil liability

Before and after insolvency, officers and directors can typically be found civilly (and monetarily) liable for breaches of their fiduciary duties. Some states allow for a corporation's certificate of incorporation to limit a director's personal liability for monetary damages for breach of a fiduciary duty (Delaware Code, Title 8, § 102(b) (7)).

 
26. Is potential personal civil or criminal liability a factor in officers and directors deciding if and when to put the company into a formal insolvency/reorganisation procedure?

The existence of potential civil liability may be a minor factor for officers and directors when deciding whether to place the company into a Chapter 11 reorganisation proceeding. This is because, while a Chapter 11 proceeding makes it a little bit more difficult for a shareholder or creditor to institute a derivative action, the filing of the proceeding does not make it impossible for such action to be filed. A shareholder or creditor could always petition the bankruptcy court for standing to pursue such an action on behalf of the estate, and a creditors' committee can be appointed in a Chapter 11 case and could also potentially seek to pursue such a cause of action. As a result, the filing of a bankruptcy proceeding is not a bar to a civil action against the officers and directors but rather creates a minor hurdle for shareholders or creditors to clear.

 
27. Is insurance available to protect directors and officers from claims arising while operating a financially distressed company?

Director and officer liability insurance is widely available in the US, and most carriers offer numerous options to customise coverage to fit the needs of a particular company. The wide availability of insurance, means that insurance is unlikely to play a major role in deciding whether to commence a formal bankruptcy proceeding.

 
28. Can directors and officers resign from their positions if the company becomes financially distressed and what difference will this make to their potential liability?

There is no personal civil or criminal exposure that acts to prevent officers and directors from resigning their positions once the company becomes financially distressed. However, the resignation does not affect any already existing civil claims against such officers and directors.

 
29. How common is litigation against directors and officers for violation of their duties after commencement of insolvency/reorganisation proceedings? Is the litigation typically successful?

In general, derivative litigation is slowing in the US (Kenneth B. Davis, Jr., The Forgotten Derivative Suit, 61 Vand. L. Rev. 387, 388 (2008)), and is largely being replaced by the following:

  • Securities and mergers and acquisition class action lawsuits.

  • Securities and Exchange Commission enforcement actions.

  • Actions or oversight by independent directors.

From the 1960s until 1987, approximately 21% of derivative suits that were filed against the New York Stock Exchange and NASDAQ National Market firms resulted in a monetary recovery for the corporation (Kenneth B. Davis, Jr., The Forgotten Derivative Suit, 61 Vand. L. Rev. 387, 411-2 (2008) (citing Roberta Romano, The Shareholder Suit: Litigation Without Foundation?, 7 J.L. Econ. & Org. 55, 61-62 (1991)). A similar study covering suits filed in 1999 and 2000 found that only 12% of resolved suits resulted in a monetary recovery to the corporation (citing Robert B. Thompson & Randall S. Thomas, The Public & Private Faces of Derivative Lawsuits, 57 Vand. L. Rev.1747, 1775-76 (2004)).

 
30. What defences against civil and/or criminal sanctions are available to directors and officers?

Business judgment rule

Directors are protected by the business judgment rule, which is the presumption that the directors' actions are motivated by an interest in the company's welfare. In addition, where there is no evidence of fraud, bad faith or self-dealing, a challenged decision made by the board of directors will be upheld unless it cannot be attributed to any rational business purpose (re Walt Disney Co Derivative Litigation, 907 A.2d 693, 747 (Del. Ch. 2005), aff' d 906 A.2d 27 (Del. 2006)).

The business judgment rule may or may not protect officers, depending on the jurisdiction. This can be seen by comparing two cases. Georgia law applied in TSG Water Resources Inc v D' Alba & Donovan Certified Pub. Accountants, P.C., 260 Fed. Appx. 191, 197 (11th Cir. 2007) (unpublished). The business judgment rule protects directors and officers from liability when they make good faith business decisions in an informed and deliberate manner. The presumption is that they have acted on an informed basis, in good faith and in the honest belief that the action taken was in the best interests of the company. Unless this presumption is rebutted, they cannot be held personally liable for managerial decisions. However, officers may be held liable where they engage in fraud, bad faith, or an abuse of discretion. Whereas in contrast in the case of Platt v Richardson, No. 88-0144, 1989 WL 159584, *2 (M.D. Pa. June 6, 1989)the business judgement rule applies to directors of a corporation and not to officers

Good faith

Under the business judgment rule, good faith is presumed, and a person challenging a director's action must prove bad faith by a majority of the evidence (re Walt Disney Co Derivative Litigation, 907 A.2d 693, 755 (Del. Ch. 2005), aff' d 906 A.2d 27 (Del. 2006)).

Due diligence

Officers and directors have an affirmative duty to inform themselves of all material and reasonably available information prior to making a business decision (Smith v Gorkom, 488 A.2d 858, 872 (Del. 1985); re Walt Disney Co Derivative Litig., 907 A.2d 693, 746-7 (Del. Ch. 2005) aff' d, 906 A.2d 27 (Del. 2006)). A claimant must demonstrate that a director or officer was grossly negligent (that is, recklessly indifferent) in making the challenged business decision (re Walt Disney Co. Derivative Litigation, 907 A.2d at 750).

Reliance on outside consultants or professionals

Directors (but not officers) are not liable for decisions made based on good faith reliance on the corporation's records, and on information, opinions, reports or statements presented to the corporation by (Delaware Code, Title 8, § 141(e)):

  • Its officers or employees.

  • Any other person, with regards to matters the director reasonably believes is within that person's professional or expert competence and who has been selected with reasonable care.

Exercise of reasonable judgment

Preservation of "on going" or "going concern" values does not appear to be an independent defence to an action for a breach of fiduciary duties. However, a finding that the officer or director was attempting to preserve such values may be a factual consideration in determining whether the officer or director actually breached his fiduciary duties.

 
31. If it appears that "going concern values" will result in a higher return to creditors than a liquidation of the assets, can directors and officers be protected if they decide to continue operations to protect the values for the benefit of all creditors?

There is no duty to discontinue trade in light of an impending insolvency (Sanford Fork & Tool Co v Howe, Brown & Co, 157 U.S. 312, 319 (1895)). The case held that such a doctrine would be likely to impede the development of almost any new enterprise.

However, if the company is experiencing financial difficulties, the better approach would be to file a Chapter 11 reorganisation case and continue with the company's restructuring or sales efforts as a going concern. This is because Chapter 11 would offer the troubled company protection such as temporary reprieve from paying pre-petition debts allowing it to save its money, and allow it to reject some of its unfavourable contracts. As such, while directors and officers are allowed to continue the company's operations to protect the value of the company, it may be desirable that such operation be done under the protections of the Bankruptcy Code. Otherwise, there may be some concern that the directors' actions may be challenged as not having given the company the best available options to either restructure or sell its assets as a going concern. A person challenging a director's action must prove bad faith or reckless indifference by a majority of evidence (re Walt Disney Co Derivative Litigation, 907 A.2d 693, 750-55 (Del. Ch. 2005), aff' d 906 A.2d 27 (Del. 2006)).

 
32. If a company becomes insolvent, is a director or officer of the insolvent company legally restricted from acting as a director or officer in another company, or from obtaining credit as a promoter of another company?

The officer or director of the insolvent company is not legally restricted from acting as an officer or director in another company.

 
33. If a director or officer becomes personally insolvent, is he legally restricted from continuing to act as a director or officer of his current company or another company?

Current company

The director or officer is not legally restricted from continuing to act as an officer or director of his current company.

Another company

The director or officer is not legally restricted from continuing to act as an officer or director of another company.

 

Online resources

US Courts

W www.uscourts.gov/FormsAndFees/Forms/BankruptcyForms.aspx

Description. The US Courts website is maintained by the Administrative Office of the US Courts. The website contains the official bankruptcy forms, instructions and guidelines, and is up-to-date.

Westlaw Next

W www.next.westlaw.com

The Westlaw Next website is maintained by Westlaw and is a research service for legal and law related materials within the US and abroad. The Westlaw Next website is up-to-date.



Contributor profiles

J William Boone, Partner

James-Bates-Brannan-Groover-LLP

T +404 844 2766
F +404 997 6021
E bboone@jamesbatesllp.com
W www.jamesbatesllp.com

Areas of practice. Litigation; corporate and transactional; creditors' rights and bankruptcy; workouts and reorganisation; banking and financial institutions.

Non-professional qualifications. Mercer University (J.D. cum laude 1977); Wake Forest University (BA cum laude 1974)

Professional associations/memberships

  • Fellow of the American College of Bankruptcy Attorneys.
  • Member of the Bars of the States of New York, Georgia, and Washington DC.
  • Atlanta Bar Association, Former Member of Board of Directors and Chair of Bankruptcy Section.
  • International Insolvency Institute, Member of Board of Directors and Founding member.
  • American Bar Association, Business Bankruptcy Section, Co-Chair of Joint Committee on Corporate Governance of Distressed Companies.
  • Turnaround Management Association (Member).

Publications

  • Boone, J. William, Michael A. Dunn, and Doroteya N. Wozniak. "United States." Debt Restructuring: An Alternative to Insolvency Proceedings. First ed. London: Thomson Reuters (Professional) UK Limited. The European Lawyer Reference Series, 2014. 343-63. Print.
  • Boone, J. William and Doroteya N. Wozniak. "United States of America" International Insolvency: Group insolvency and directors' duties. Fourth ed. London: Thomson Reuters (Professional) UK Limited. The European Lawyer Reference Series, 2015. 535-62. Print.
  • Boone, J. William. "United States of America." International Insolvency: Jurisdictional Comparisons. Third ed. London: Thomson Reuters (Professional) UK Limited. The European Lawyer Reference Series, 2012. 415-36. Print.
  • "Not-for-Profits in Bankruptcy: Who Doesn't Love a Charity?" BNA's Bankruptcy Law Reporter, September 2011.
  • "Multinational Enterprise Liability in Insolvency Proceedings," The European Lawyer Reference Series, 2nd ed., September 2010.
  • "Secured Lending to Debtors; Portfolios and Possibilities" Lex Mundi, May 2006.

Doroteya N Wozniak, Associate

James-Bates-Brannan-Groover-LLP

T +404 997 6031
F +404 997 6021
E dwozniak@jamesbatesllp.com
W www.jamesbatesllp.com

Areas of practice. Litigation; corporate and transactional; creditors' rights and bankruptcy; workouts and reorganisation; banking and financial institutions.

Non-professional qualifications. Mercer University (J.D. cum laude, 2011); Georgia Institute of Technology, Atlanta, Georgia (BS International Affairs and Modern Languages, honours, 2006)

Professional associations/memberships

  • Member of the Bar of the State of Georgia.
  • American Bar Association (Member).
  • Atlanta Bar Association, Bankruptcy Section, Member of Board of Directors.
  • International Women’s Insolvency & Restructuring Confederation (Member).
  • Turnaround Management Association (Member).

Publications

  • Loan Participation Agreements and the "Administrator Replacement Provision".
  • Boone, J. William, Michael A. Dunn, and Doroteya N. Wozniak. "United States." Debt Restructuring: An Alternative to Insolvency Proceedings. First ed. London: Thomson Reuters (Professional) UK Limited. The European Lawyer Reference Series, 2014. 343-63. Print.
  • Boone, J. William and Doroteya N. Wozniak. "United States of America" International Insolvency: Group insolvency and directors' duties. Fourth ed. London: Thomson Reuters (Professional) UK Limited. The European Lawyer Reference Series, 2015. 535-62. Print.

{ "siteName" : "PLC", "objType" : "PLC_Doc_C", "objID" : "1248134108109", "objName" : "Insolvency and directors duties in the United States overview", "userID" : "2", "objUrl" : "http://uk.practicallaw.com/cs/Satellite/resource/1-605-6165?null", "pageType" : "Resource", "academicUserID" : "", "contentAccessed" : "true", "analyticsPermCookie" : "2-62dceab2:15b0b6ed4bb:-1fb8", "analyticsSessionCookie" : "2-62dceab2:15b0b6ed4bb:-1fb7", "statisticSensorPath" : "http://analytics.practicallaw.com/sensor/statistic" }