United States: Legislative/Regulatory Developments


On April 19, 2012, a commission established by the American Bankruptcy Institute (the "ABI Commission") to study the reform of chapter 11 of the Bankruptcy Code held its first public meeting in Washington, D.C. On July 2, the ABI Commission released the names of nearly 130 corporate restructuring experts to serve on one of 13 advisory committees. The ABI Commission expects to issue a report of its recommendations in April 2014. It convened five public hearings in 2012 and anticipates holding as many as seven field hearings in 2013, with topics for discussion to include: (i) employee benefits; (ii) labor and management and the treatment of collective bargaining agreements; (iii) valuations; (iv) unsecured trade credit; (v) safe harbors for derivatives; (vi) changes from the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 and their effect on trade credit, landlords, and others; (vii) governance of troubled companies; and (viii) entrenched management.


On November 2, 2012, the U.S. Trustee, a unit of the U.S. Justice Department entrusted with overseeing bankruptcy cases, proposed new guidelines for attorneys' fees in large chapter 11 cases (defined as debtors with at least $50 million in assets and $50 million in liabilities). A previous proposal from 2011 was roundly criticized by bankruptcy attorneys, some of whom deemed it overreaching and out of touch. The new proposal, to take effect in the summer of 2013, incorporates some changes suggested by professionals, such as narrowing which chapter 11 cases are affected, but includes other provisions deemed objectionable, including a provision that would call for attorneys to submit budgets estimating the cost and type of work they intend to perform. The guidelines are not binding law but are likely to act as a benchmark.


On April 23, 2012, the U.S. Supreme Court approved amendments to the Federal Rules of Bankruptcy Procedure (the "Bankruptcy Rules") that became effective on December 1, 2012. Several of the amendments involve technical and conforming changes to eliminate inconsistencies within the existing Bankruptcy Rules, as well as changes designed to make the Bankruptcy Rules consistent with the Federal Rules of Civil Procedure and the Federal Rules of Appellate Procedure.

Additional amendments to the Bankruptcy Rules were proposed in August 2012 by the Committee on Rules of Practice and Procedure of the U.S. Judicial Conference, including a rule that would require parties in all bankruptcy cases to consent to judgments issued by bankruptcy courts to help eliminate confusion over court authority in light of the U.S. Supreme Court's landmark 2011 decision in Stern v. Marshall, 132 S. Ct. 56 (2011). The proposed amendments would become effective December 1, 2014 (with certain exceptions).


Several federal district courts have amended their standing orders referring bankruptcy cases to bankruptcy courts in response to Stern. Local-court rules have also been altered to account for the decision. For example, the U.S. District Court for the Southern District of New York issued an amended standing order of reference on January 31, 2012, and the Local Rules Committee for the district proposed new Local Bankruptcy Rules in response to Stern. Both require litigants to state expressly whether or not they consent to entry of final orders by bankruptcy courts in core proceedings if the court is deemed to lack constitutional authority to enter a final judgment or order. The U.S. District Court for the District of Delaware similarly amended its standing order of reference on February 29, 2012.


On December 12, 2012, the European Commission ("EC") proposed reforms to the EC Insolvency Regulation (Council Regulation (EC) No 1346/2000) (the "EC Regulation") designed to modernize the rules governing cross-border insolvency proceedings. The preamble to the proposal states that "the new rules will shift focus away from liquidation and develop a new approach to helping businesses overcome financial difficulties, all the while protecting creditors' right to get their money back."

Key elements of the proposed reforms include: (i) broadening the scope of the EC Regulation by revising the definition of "insolvency proceedings" to include hybrid and pre-insolvency proceedings, as well as debt-discharge proceedings and other insolvency proceedings for natural persons; (ii) more efficient administration of insolvency proceedings by: (a) giving courts the discretion to deny a petition to commence a secondary (nonmain) proceeding if it is deemed unnecessary to protect the interests of local creditors, (b) abolishing the requirement that secondary proceedings be winding-up proceedings, and (c) improving coordination between main and secondary proceedings; and (iii) enhanced public access to court decisions in cross-border insolvency cases and standardization of creditor claim forms.


Italian law decree No. 83 of June 22, 2012 (the "Decree") introduced significant amendments to several provisions of the Italian Insolvency Act governing: (a) a debt-restructuring agreement (accordo di ristrutturazione dei debiti) pursuant to Article 182-bis ("Art. 182-bis Agreement"); and (b) an arrangement with creditors (concordato preventivo) pursuant to Article 160 ("Arrangement with Creditors"). Among other things, the Decree provides: (i) easier access to an Arrangement with Creditors consistent with the key principles underlying the chapter 11 process in the U.S. Bankruptcy Code; (ii) a new form of Arrangement with Creditors aimed at ensuring the continuity of an insolvent debtor as a going concern (concordato con continuità aziendale);); (iii) enhanced protection of new financing granted in connection with restructuring proceedings; and (iv) certain amendments to provisions regulating the payment of dissenting creditors under an Art. 182-bis Agreement.


On September 20, 2012, the French government issued a decree amending the requirements for the commencement of an accelerated financial safeguard proceeding (procé¬dure de sauvegarde financière accélérée ("SFA")). An SFA combines the elements of a "conciliation" (an out-of-court pre-insolvency proceeding involving a court-appointed mediator widely used to restructure distressed businesses in France) and a "safeguard" proceeding, which is a court-supervised proceeding culminating in the implementation of a plan restructuring a company's debt. With the changes, an SFA may now be commenced by a solvent company with either: (i) a balance-sheet surplus exceeding €25 million; or (ii) a balance-sheet surplus exceeding €10 million, provided it controls a company satisfying 150-employee or €20 million-turnover thresholds. Thus, an SFA, which will facilitate financial restructurings in distressed leveraged-buyout scenarios, is now available to most holding companies.


On July 28, 2012, Russian president Vladimir Putin gave his imprimatur to Federal Law No. 144-FZ, which amends Russian bankruptcy, financial, and banking legislation, with the goal of improving regulations governing asset returns and interim management of insolvent banks. Among other things, the amendments change Russian insolvency law to remove executive compensation and bonuses from the list of priority claims in cases involving insolvent companies. The new law, which took effect in November 2012, amends regulations governing interim administrations of financial and banking entities that have forfeited their operational licenses. It also revises the powers of the Russian federal deposit insurance agency.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Mark G. Douglas
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