The financial crisis that profoundly impacted the U.S. and global business communities in so many ways has made a particularly strong mark in the insolvency law arena, says a new report by global law firm Shearman & Sterling.
The report, titled "2010 Bankruptcy Law: The Year in Review," suggests that while the financial markets and the broader economy showed signs of recovery, the 2008 financial crisis continued to have a lasting impact, as significant case-law decisions dealing with the events surrounding the crisis were handed down.
In the Lehman Brothers bankruptcy proceedings, for example, previously untested derivative safe harbors were challenged in front of courts for the first time. In addition, secured creditors saw their credit bidding rights limited, which helped to embolden junior creditors, whose ranks often were filled by activist investors, to creatively use the cram-down provisions of the Bankruptcy Code to force nonconsensual restructurings on senior lenders. And, finally, the U.S. Fifth Circuit Court of Appellate rendered the first-ever federal appellate decision dealing with Chapter 15.
"This definitely was an active year of court decisions that will help to shape the U.S. restructuring practice for years to come," says Fredric Sosnick, head of Shearman & Sterling's Bankruptcy & Reorganization Practice.
In addition to all of the bankruptcy activity, 2010 was also a watershed year in the legislative arena, Sosnick says. The rulemaking following from the Dodd-Frank Act introduced an entirely new insolvency regime for systemically significant financial entities that fundamentally changes the game, replacing Chapter 11 with the Orderly Liquidation Authority for those entities, he says.
The Shearman & Sterling report has 12 chapters, including Dodd-Frank and the creation of an orderly liquidation authority, developments in secured creditors' rights, debtor-in-possession financing, developments in distressed mergers and acquisitions, and gifts to junior classes in plans of reorganization. Other chapters focus on safe harbor contract developments, disclosure requirements under federal rule of bankruptcy procedure 2009, claims, intellectual propertyrejection of trademark licenses, modification of retiree benefit plans, appointment of examiner, and cross-border restructuring Chapter 15 cases.
"We're finding that we're entering a brave new world of sorts in bankruptcy," says Michael Torkin, a Shearman & Sterling partner and one of the primary authors of the report. "This look back at 2010 is very instructive for companies reacting to current challenges and preparing for new ones in the months to come."
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