ARTICLE
28 July 2021

Why The Term Of "Debt Securities" Matters

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Allen Matkins Leck Gamble Mallory & Natsis LLP

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Allen Matkins, founded in 1977, is a California-based law firm with more than 200 attorneys in four major metropolitan areas of California: Los Angeles, Orange County, San Diego, and San Francisco. The firm's areas of focus include real estate, construction, land use, environmental and natural resources, corporate and securities, real estate and commercial finance, bankruptcy, restructurings and creditors' rights, joint ventures, and tax; labor and employment, and trials, litigation, risk management, and alternative dispute resolution in all of these areas. For more information about Allen Matkins please visit www.allenmatkins.com.
The California General Corporation Law defines three types of "reorganizations" - a merger reorganization, an exchange reorganization, and a sale-of-assets reorganization. Cal. Corp. Code § 181.
United States California Corporate/Commercial Law

The California General Corporation Law defines three types of "reorganizations" - a merger reorganization, an exchange reorganization, and a sale-of-assets reorganization.  Cal. Corp. Code § 181.    A "sale-of-assets reorganization" is defined as the acquisition of all or substantially all of the assets of a domestic corporation, foreign corporation or other business entity  in exchange in whole or in part for equity securities or debt securities.  However, not every such exchange for debt securities will constitute a reorganization.   In the case of an exchange solely for debt securities, a transaction will be a "sale-of-assets reorganization" only when the debt securities are: (i) not adequately secured; and (ii) have a maturity date in excess of five years after consummation of the reorganization.  

Thus,  a transaction will not be a "sale-of-assets reorganization" when the debt securities either (i) have a maturity date of fewer than five years (in which case they may be either secured or unsecured); or (ii) are "adequately secured" even though they have a maturity date in excess of five years.   Chapter 10  of the Corporations Code will generally govern transactions that involve the sale of all or substantially all of a corporation's assets that does not come within the definition of a "sale-of-assets reorganization".   

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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