Worldwide: Legislative/Regulatory Developments

United States—Commission to Study Proposed Changes to Chapter 11. 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 convened its first public meeting in Washington, D.C. The ABI Commission, which comprises nearly 130 corporate restructuring experts serving on 13 advisory committees, conducted 11 public field hearings during 2013. The wide range of testimony addressed proposals to: (i) change bankruptcy venue rules; (ii) abolish the hard deadline on chapter 11 plan exclusivity; (iii) reduce reorganization costs in small- to middle-market cases; (iv) establish a uniform structure and process for section 363 sales; (v) recognize the new value corollary to the absolute priority rule; (vi) adopt uniform procedures for filing section 503(b)(9) claims for administrative expenses; (vii) change the rules governing section 524(g) asbestos trusts; (viii) amend rules governing pensions and retiree benefits; (ix) change rules governing claims trading; (x) alter rules governing nonresidential real property leases, intellectual property licenses, trademarks, and patents; and (xi) revise the safe-harbor provisions for financial contracts.

The ABI Commission expects to issue a written report of its recommendations during ABI's Winter Leadership Conference in December 2014.

United States—Proposed Chapter 14 of the Bankruptcy Code for Failing Banks. On December 19, 2013, Senators John Cornyn (R-Texas) and Pat Toomey (R-Pennsylvania) introduced legislation that would eliminate a section of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the "Dodd-Frank Act" or "Dodd-Frank") and create "chapter 14" of the Bankruptcy Code to prevent any systemically important financial institution ("SIFI") from being bailed out with taxpayer funds. The bill, denominated the "Taxpayer Protection and Responsible Resolution Act" ("TPRRA"), would create the new chapter 14 as a vehicle for resolving failing SIFIs in lieu of Title II of the Dodd-Frank Act, also known as the Orderly Liquidation Authority (OLA) provision, which would be repealed. TPRRA would authorize the Federal Deposit Insurance Corporation ("FDIC") to be appointed as a receiver to carry out the liquidation of a failing financial institution. A bank could file for chapter 14 protection if it were insolvent, unable to pay its debts as they mature, or left with depleted capital, or if one of these circumstances were likely "sufficiently soon," such that filing for bankruptcy would prevent substantial harm to the financial stability of the U.S. Failed banks' risky assets would be transferred to bridge companies, which would operate as new, solvent companies that could continue to meet the failed banks' financial obligations. Shareholders of the banks and long-term creditors would bear responsibility for the banks' "bad decisions." The U.S. government would be prohibited from providing bailout financing to a chapter 14 debtor.

United States—Proposed Changes to Bankruptcy Asbestos Trust Rules to Promote Transparency. On November 13, 2013, the U.S. House of Representatives approved H.R. 982, the Furthering Asbestos Claim Transparency Act of 2013 (the "FACT Act"). If enacted, the Fact Act would amend the Bankruptcy Code to require all trusts established under section 524(g) of the Bankruptcy Code in order to deal with asbestos claims against chapter 11 debtors to file publicly available reports on a quarterly basis, disclosing the details of payment demands and disbursements, including the names and exposure histories of claimants, except as provided in a protective order or as necessary to prevent disclosure of confidential medical records or protect against identity theft. As proposed, the FACT Act would apply retroactively to bankruptcy cases commenced and bankruptcy trusts established before its passage.

United States—Final Bankruptcy-Fee Guidelines Issued. Following the culmination of two public comment periods spanning more than a year, the Office of the United States Trustee, a unit of the U.S. Department of Justice ("DOJ") assigned to oversee bankruptcy cases, issued final guidelines on June 11, 2013, governing the payment of attorneys' fees and expenses in large chapter 11 cases—those with $50 million or more in assets and $50 million or more in liabilities. The guidelines, which apply to cases filed on or after November 1, 2013, are intended to "enhance disclosure and transparency in the compensation process and to help ensure that attorneys' fees and expenses are based on market rates," according to a June 11 press release from the DOJ. According to the DOJ, the new guidelines reflect "significant changes that have occurred in the legal industry as well as the increasing complexity of business bankruptcy reorganization cases."

United States—Proposed Changes to Treatment of Collective Bargaining Agreements and Retiree Benefits in Bankruptcy. On January 3, 2013, the Protecting Employees and Retirees in Business Bankruptcies Act of 2013 (H.R. 100) was introduced by Representative John Conyers (D-Michigan). The proposed legislation would amend sections 1 113 and 1114 and various other provisions of the Bankruptcy Code to improve employee and retiree recoveries for unpaid wages, severance pay, stock losses, and Worker Adjustment and Retraining Notification Act damage; would promote good-faith bargaining in connection with motions to reject or revise collective bargaining agreements; and would revise the standards for court approval of executive and management retention, incentive, and other bonus programs. Among other things, the bill proposed that collective bargaining agreements could be modified only to create the "minimum savings essential to permit the debtor to exit bankruptcy, such that confirmation of a chapter 11 plan would not be likely to be followed by the liquidation, or the need for further financial reorganization, of the debtor (or any successor to the debtor) in the short-term." The bill is identical to bills proposed in the House of Representatives and the Senate in 2012.

United States—Proposed Student Loan Relief. On January 24, 2013, Senator Richard Durbin (D-Illinois) introduced the Fairness for Struggling Students Act of 2013 to address the growing student loan crisis. The bill is intended to restore fairness in student lending by treating privately issued student loans the same as other types of private debt for purposes of discharge in bankruptcy. Since 1978, government-issued or guaranteed student loans have been nondischargeable under the Bankruptcy Code. In 2005, the law was changed to give private student loans the same status in bankruptcy as government student loans. A companion bill, the Know Before You Owe Private Student Loan Act of 2013 (H.R. 3612), would require schools to counsel students before they incur expensive private student loan debt and to inform them if they have any untapped eligibility for federal student aid. It would also require the prospective borrower's school to confirm the student's enrollment status, cost of attendance, and estimated federal financial aid assistance before a private student loan is approved.

Spain—Bank Restructuring Progresses. The capital structure of the Asset Management Company for Assets Arising from Bank Restructuring ("SAREB") established in late November 2012 by the Fund for Orderly Bank Restructuring (Fondo de Reestructuración Ordenada Bancaria ("FROB")) in connection with the Spanish banking sector's recapitalization and restructuring process was completed in 2013. The exclusive purpose of SAREB is the ownership, management, and administration (whether direct or indirect), as well as the acquisition and sale, of distressed assets that have been transferred to it by: (i) financial institutions that required public assistance from FROB; and (ii) institutions that require public funds, according to the Bank of Spain's judgment and independent analysis of the capital needs and the quality of the assets of the Spanish financial system. SAREB will be managing total assets of more than €50 billion.

Germany—Coordination of Affiliated Insolvency Cases. On January 3, 2013, the German Ministry of Justice circulated draft legislation that would establish procedures to govern the coordination of insolvency proceedings of affiliated companies. Existing German law does not provide for a joint approach to such insolvencies, but is instead structured to accommodate companies on an individual basis. The proposed legislation is intended to change this, consistent with broader EU legislative activity promoting closer cooperation between courts and officeholders in the insolvency proceedings of group companies engaged in economic activity in different EU member states. Among other things, it provides for a single insolvency court to have jurisdiction over all members of an affiliated group.

France—New Law Governing Systemically Important Financial Institutions. On July 26, 2013, Law No. 2013-672 was enacted to regulate banking activities in response to lessons learned from the 2007–2008 financial crisis, which highlighted the limited number of tools available to supervisory authorities to limit the risks created in the financial system by systemically important financial institutions. The provisions of the law extend over a broad array of issues, such as the ring-fencing of certain proprietary trading activities, anti–tax haven rules, money laundering, high-frequency trading, mandatory clearing, and central supervision of counterparties. The law creates a new banking resolution regime that applies to most financial institutions. Among other powers, the French Prudential Control and Resolution Authority (Autorité de contrôle prudentiel et de résolution) now has the ability to implement a number of resolution measures with respect to a failing institution, including changing governance, recapitalizing, and suspending or prohibiting certain business operations.

The Netherlands—Proposal for Prospective Insolvency Trustees. The Minister of Justice proposed legislation in 2013 that would authorize the court appointment of a prospective trustee (beoogd curator) for a company prior to the commencement of formal insolvency proceedings for the purpose of exploring potential restructuring and/or sale opportunities. The proposal is part of a broader legislative initiative that includes a proposal for compulsory extrajudicial compositions and various measures designed to encourage the continuation and reorganization of insolvent companies.

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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