The Book of Jargon® – Restructuring & Special Situations

Un glossaire mettant à disposition, en ligne, la terminologie utilisée en restructuration.

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  • Abandonment:
    The relinquishment of Property of the Estate, placing it outside of the scope of the Bankruptcy. Bankruptcy Code Section 554 allows for Abandonment of property that is “burdensome to the estate or that is of inconsequential value and benefit to the estate.” Abandonment revests property in the Pre-petition Debtor. There are certain limitations on the ability to abandon property, particularly when it contains toxic waste or other environmentally hazardous material.
    ABC:
    Acronym for Assignment for the Benefit of Creditors.
    Absolute Priority Rule:
    The mandated pecking order of Claims and Interests in Chapter 11. The rule derives from Bankruptcy Code Section 1129(b). It states that when a company is reorganised or liquidated under a Plan, senior Classes of Claims must receive full distributions on account of their Claims before junior Classes of Claims, first, and Interests, last, may receive any distributions, unless senior Classes consent by acceptance of the Plan.
    Abstention:
    A US Bankruptcy Court’s decision not to entertain or hear a particular case or proceeding. Bankruptcy Code Section 305 deals with abstention, and provides that, After Notice and a Hearing, a court may dismiss a Bankruptcy case or “suspend all proceedings in a case…” under certain circumstances. Additionally, 28 U.S.C. § 1334(c)(1) allows a US Bankruptcy Court to abstain permissively from hearing a proceeding that is based on a state law claim or state law cause of action.
    Abusiva Concessione del Credito:
    (Meaning “granting credit unlawfully”), the civil offence under the Italian civil code imposing liability on a lender that grants credit to a Borrower facing imminent insolvency, so that the Borrower continues to trade whilst fostering the false belief in the market that it is in a good financial state. The lender faces liability, following the grant of credit, whether or not the Debtor is eventually declared bankrupt. See also (Ricorso Abusivo al Credito).
    Accelerated Financial Safeguard:
    See the French term Sauvegarde Financière Accélérée.
    Acceleration:
    The end of the line in bond and loan world. The definitions of Default and Event of Default describe how we get there. Following an Event of Default, the bondholders (in accordance with the terms and conditions of the bond offering or with the Indenture) or lenders (under a credit agreement) have the right to “accelerate” the due date of their debts; in other words, they have the right to declare their bonds or loans immediately due and payable. Note that practice in the US and Canada (and in European Indentures) is for Insolvency Events of Default to lead automatically to Acceleration, although this is uncommon in European bank financings, which typically require direction to the agent by lenders holding two-thirds or more of the debt. Note that Acceleration can lead to an obligation on the officers of the issuer/Borrower to file for Insolvency, thereby precluding the ability to agree to a consensual Out-of-Court Restructuring.
    Accord Amiable:
    (Minnelijk Akkoord in Dutch) a type of Voluntary Composition under Belgian law involving an amicable settlement between a Debtor and any two or more of its Creditors that can be concluded as an Out-of-Court Restructuring or in the context of the Belgian Réorganisation Judiciaire (judicial reorganisation) procedure. In each case, the Accord Amiable is confidential. In a judicial reorganisation procedure, any payments or acts made pursuant to the Accord Amiable during the Période Suspecte/Verdachte Periode (the Suspect Period) before the commencement of the Faillite/Faillissement procedure will be enforceable against the trustee if the Debtor is declared Insolvent. Such an amicable settlement is negotiated during the Suspension of Payments (Sursis de Paiement/Opschorting van Betaling). Once an agreement is reached between the Debtor and the Creditors, the competent commercial court notes the settlement and terminates the judicial reorganisation procedure and, consequently, ends the Suspension of Payments. As to the out-of-court Accord Amiable, it will not affect third party rights and is protected if there is an Insolvency proceeding later on, provided a copy of the settlement was filed with the court registry.
    Accordo di Ristrutturazione:
    A debt restructuring agreement that forms the basis of an Italian pre-Insolvency procedure for company restructuring. The Debtor and the Creditors negotiate the agreement out of court during the first phase. This is followed by another phase in which the Debtor files the petition and an interim opinion of the Esperto on the suitability of the proposed agreement for ensuring the regular payment of the claims of dissenting Creditors with the Tribunale Fallimentare (Italian bankruptcy court) and the Companies Register. This filing brings about a Moratorium on Creditor action for 60 days. The Debtor can also request a Moratorium during the first phase by filing certain documents. In order to be sanctioned (omologato) by the court, the debt restructuring agreement must be approved by Creditors representing at least 60 per cent of the credits. Once the restructuring plan has been ratified through the Omologazione issued by the court, the transactions outlined in the agreement will not be subject to Clawback by means of the Revocatoria Fallimentare. New finance made available during the implementation of a sanctioned (omologato) restructuring agreement and new finance provided in order to obtain the Omologazione are allowed subject to certain conditions; the new loans would be treated as super-senior. See Crediti Prededucibili.
    Ackord:
    A financial settlement between a Debtor and its Creditors in Sweden. The Ackord can be a Voluntary Composition (Underhandsackord), or a composition within the scope of Konkurs proceedings or a judicial composition (Offentligt Ackord) within the scope of Swedish reorganisation proceedings. If the Ackord is obtained via a judicial composition, minority Creditors will be bound by the arrangement made by the Debtor and the majority of Creditors.
    Acreedores con Garantía Real:
    In Mexico, Creditors whose credits are secured by a mortgage or a pledge (i.e., Secured Creditors).
    Acreedores Reconocidos:
    A Mexican term; see Recognised Creditors.
    Actio Pauliana:
    With origins in Roman law, under Dutch, French, Belgian and Luxembourg law this is an action on the basis of Preference. The Actio Pauliana can be invoked by any Creditor of the Debtor where the Debtor has entered into Suspect Transactions on a voluntary basis, for example, for the purpose of decreasing the value of assets. In bankruptcy, only the Dutch Curator (bankruptcy trustee) or, in Luxembourg, the Curateur is authorised to invoke the Actio Pauliana. The Curator may in exceptional circumstances invoke the Actio Pauliana where the Debtor has entered into a Suspect Transaction pursuant to a contractual or Dutch statutory obligation to enter into that transaction. The Actio Pauliana is not limited to transactions falling within a Preference Period. In a limited number of Dutch statutory cases, a one-year period applies during which knowledge of prejudice to the counterparty’s Creditors (an important test as to whether the Actio Pauliana can be invoked) is presumed, subject to proof to the contrary.
    Acto en Fraude de Acreedores:
    Means, under the Mexican Insolvency Act, any actions of the Mexican Debtor taken with the intent of defrauding Creditors. In Mexico, it is the equivalent of Fraudulent Transfer. Specific rules exist under the Mexican Insolvency Act. Any action will be deemed fraudulent (i) if consummated prior to the date of the Insolvency Judgment, when the Insolvent entity is knowingly defrauding its Creditors and the third party participating in any such action had actual knowledge of such fraudulent intent; if the action is gratuitous, however, it will be deemed fraudulent even if the third party had no actual knowledge of the fraudulent intent or (ii) if consummated after the Fecha de Retrotracción (the effective date), when, among other things, the Insolvent entity (a) receives no consideration, or the consideration received or paid by the Insolvent entity, or the terms and conditions of the transaction, are materially below market, or (b) makes a payment of indebtedness not yet due, or writes off debts owed to it. It will also be presumed fraudulent, unless the interested third party proves that it was acting in good faith, when the Insolvent entity (a) grants or increases Collateral that was not originally contemplated, and (b) makes any payments that were not originally contemplated. See Fraudulent Transfer.
    Acuerdo de Refinanciación:
    A refinancing agreement which is negotiated by a Debtor on the verge of Insolvency and which temporarily puts on hold the obligation to file for Insolvency when the fact of its preparation is communicated to the Insolvency court by the Debtor. After three months from such communication, the Debtor must file for Insolvency unless it is no longer Insolvent.
    Ad Hoc Committee:
    In the US, an unofficial committee, which is made up of Creditors or Equity Security Holders voluntarily coming together to form a committee. Unofficial committees can request that the United States Trustee or the US Bankruptcy Court recognise them as Official Committees. If a committee is an unofficial committee, it is critical that the committee representatives file a 2019 Statement. Unless a showing of Substantial Contribution can be made under Bankruptcy Code Section 503(b)(4), Professionals hired by unofficial committees are reimbursed by their constituents, not by the Estate. In Canada, it is common for the holders of bond debt and former employees or retirees to organise Ad Hoc Committees in large CCAA cases. Ad Hoc Committees in Canada are generally informal and may be self-funded or be funded by the Debtor. In some cases, the Debtor under CCAA protection has been directed by the Canadian court to fund an Ad Hoc Committee where, for example, such committee represents the interests of former employees or retirees.
    Additional Assistance:
    In the US, a Foreign Representative may seek Additional Assistance (limited by sections of Chapter 15) — in other words, relief that is not otherwise granted under Chapter 15 — from a US Bankruptcy Court once a Foreign Proceeding has been recognised. Bankruptcy Code Section 1507.
    Adequate Assurance of Future Performance:
    Before a Debtor can assume an Executory Contract or Unexpired Lease that is in default, in addition to curing the Defaults, it must show that it will be able to perform its obligations under such contract or lease in the future. The terminology for that requirement, contained in Bankruptcy Code Section 365(b)(1)(C), is Adequate Assurance of Future Performance.
    Adequate Assurance of Payment:
    Under Bankruptcy Code Section 366, a Utility must receive Adequate Assurance of Payment for Post-petition services as a condition to providing Post-petition services to a Debtor. The means of “assurance of payment” are described in Bankruptcy Code Section 366(c).
    Adequate Protection:
    Certain rights or actions by the Debtor, most notably under Bankruptcy Code Sections 362, 363 or 364, are limited by the requirement that affected Entities receive Adequate Protection of their interests in property. Bankruptcy Code Section 361 describes the means by which the Debtor can provide Adequate Protection: (1) cash payments, (2) additional or replacement Liens or (3) such other relief that constitutes the “indubitable equivalent” of an entity’s interest. Additionally, an Equity Cushion may be used to show that the interest in property of a Secured Creditor is adequately protected. In the context of Chapter 12 cases, however, a different definition exists as set forth in Bankruptcy Code Section 1205.
    Adjusted EBITDA:
    EBITDA on steroids. Refers to EBITDA, adjusted to eliminate the impact of certain unusual or non-cash items that the issuer or Borrower (or its Sponsor) believes are not indicative of the future performance of its business. In credit agreements, this term can also refer to EBITDA adjusted on a pro forma basis for acquisitions and disposals, (i.e., when measuring EBITDA for a particular period), any acquisition or disposal in that period is deemed to have happened on the first day of such period so the EBITDA of the acquired/disposed-of asset is gained/lost for the whole period. A form of Adjusted EBITDA is also a component of the leverage ratio and fixed-charge-coverage ratio definitions.
    Administrador Concursal:
    Person appointed by a Spanish Insolvency court either to supervise or fully manage an Insolvent company. In most Insolvencies there must be three administrators: (i) a lawyer; (ii) an auditor or economist and (iii) a Creditor holding an ordinary or non-secured generally privileged claim. For more information on Spanish Insolvency, see Latham & Watkins Client Alert No. 872, “Spanish Insolvency Act Changes — Paving the Way for Restructurings” (29 May 2009), available at www.lw.com.
    Administration:
    A formal Insolvency process in England designed to facilitate the rescue of an Insolvent company or achieve a better return to Creditors than if the company immediately went into Liquidation. It involves the executive control of the company passing from the directors to an Administrator and a Moratorium on most Secured Claims and Unsecured Claims. The procedure has gained notoriety through the use of Pre-packs.
    Administrative Agent:
    The lending institution that serves as the principal agent administering the credit facilities documented in a credit agreement and another name for the Facility Agent. The Administrative Agent is responsible for processing interest payments to lenders, posting notices delivered by the Borrower, and acting as the primary representative of the lenders under a credit agreement in dealings with the Borrower. An Indenture Trustee performs an analogous role in bond land. In US Bankruptcy cases, the Administrative Agent may also be the entity that holds the Claim on behalf of the lenders, consents to a 363 Sale, and, in some cases, may even be the entity that votes on the Plan.
    Administrative Claim or Administrative Expense Claim:
    A Claim under US Bankruptcy law that is an actual, necessary cost and expense of preserving the Bankruptcy Estate. Bankruptcy Code Section 503 deals with the allowance of such administrative expenses. More specifically, Bankruptcy Code Section 503(b) provides a non-exclusive list of the types of Claims that are considered administrative expenses. Most, but not all, Administrative Claims arise Post-petition. An example of an Administrative Claim that arises Pre-petition is a 503(b)(9) Claim. Administrative Claims are entitled to Administrative Priority for payment purposes under Bankruptcy Code Section 507(a)(2).
    Administrative Convenience Claim:
    A small Claim in a Chapter 11 case in the US. The Bankruptcy Code generally requires that all Unsecured Claims be placed in the same Class under a Plan. Administrative Convenience Claims are an exception to this rule. They are Unsecured Claims in de minimus amounts (what is considered de minimus in one case may not be de minimus in another case) that are classified separately from other Unsecured Claims, and receive Unimpaired treatment (essentially for this purpose, a lump sum cash payment in full) under the Plan. The basis for this exception is that the complexity and cost and expense of the voting and distribution processes often outweigh the value of small Claims, and thus it is more administratively convenient and cost effective to pay such Claims with cash, in full.
    Administrative Manager:
    A term used in Russia; see Administrativniy Upravlyaushiy.
    Administrative Priority:
    Bankruptcy Code Section 507, titled “Priorities,” identifies the types of Claims that are entitled to Priority in payment and the order of Priority for such types of Claims. Under Bankruptcy Code Section 507(a)(2), Administrative Claims generally have second Priority over all other Claims. First Priority is reserved for domestic support obligations that arise only in individual cases. Moreover, under Bankruptcy Code Section 507(b), certain types of administrative expenses have Super-priority over and above other Administrative Claims.
    Administrative Receivership:
    An English Insolvency law term; see Receivership.
    Administrativniy Upravlyaushiy:
    A Russian term meaning Administrative Manager or Financial Rehabilitation Administrator. This is an Arbitration Administrator appointed by the Arbitrazh Court to maintain the Register of Creditors’ Claims and to supervise the satisfaction of Creditors’ claims according to the debt repayment schedule during the Financial Rehabilitation (Finansovoye Ozdorovleniye — see Financial Rehabilitation) procedure.
    Administrator:
    A licensed UK Insolvency practitioner (usually an accountant) who is appointed by the court, the company’s directors or by certain qualifying Secured Parties for the purposes of an Administration.
    Adversary Proceeding:
    Within a US Bankruptcy case, certain matters must be resolved in what amounts to a full-blown separate civil lawsuit (involving a complaint, answer, discovery and trial), which in Bankruptcy is called an Adversary Proceeding. Adversary Proceedings are separate cases associated with the main Bankruptcy case and have separate case numbers and Dockets. They are distinguishable from Contested Matters, which may also be litigated matters, that are handled within the main Bankruptcy case. Part VII of the Bankruptcy Rules, which governs Adversary Proceedings, specifies the types of matters that must be resolved through an Adversary Proceeding.
    Affiliate:
    Defined slightly differently in different types of agreements and jurisdictions, but generally refers to a parent or subsidiary of the Debtor. This is also the case under US Bankruptcy law, but the Bankruptcy Code provides its own definition of the term in Bankruptcy Code Section 101(2), which may differ from the definition in non-Bankruptcy statutes.
    Affiliate Rule:
    In the context of proper venue for the filing of Petitions in the US by Affiliates, it provides that if venue is proper for one it is proper for all. See 28 U.S.C. § 1408(2). It allows a corporate family to select the location of its Bankruptcy filing from a number of different venue options, including the Domicile, residence, principal place of business or place of principal assets of each member of the corporate family that will be filing a Petition. See Forum Shopping.
    Affirmative Covenant:
    Requires an issuer or Borrower to do something affirmatively. These are contractual provisions contained in the terms and conditions of the bond issue, the Indenture or the credit agreement that itemise certain actions the issuer or Borrower must take to be in compliance with the applicable document. Think of these as the “Thou Shalt” covenants. Affirmative Covenants cover such things as a promise by the Borrower to pay interest and fees, maintain insurance, pay taxes, provide quarterly operating reports and other information, and similar style obligations and in a credit agreement are typically more extensive than in the terms and conditions of the bond issue or in an Indenture.
    Afkoelingsperiode:
    A Moratorium granted by the court during Dutch Suspension of Payment (Surseance van Betaling) or Faillissement proceedings, pursuant to which all Creditors are prevented from taking any enforcement action against the Debtor. The Afkoelinsperiode is granted for an initial maximum period of two months and may be extended once by a maximum period of two months.
    After Notice and a Hearing:
    A phrase used throughout the US Bankruptcy Code to describe when certain relief can be granted. It is defined in Bankruptcy Code Section 102(1) as follows: “(A) means after such notice as is appropriate in the particular circumstances, and such opportunity for a hearing as is appropriate in the particular circumstances; but (B) authorizes an act without an actual hearing if such notice is given properly and if—(i) such a hearing is not requested timely by a party in interest; or (ii) there is insufficient time for a hearing to be commenced before such act must be done, and the court authorizes such act.”
    Akkoord:
    An arrangement between the Debtor and its Creditors to reorganise the Debtor’s debts, proposed by the Debtor during Dutch Faillissement proceedings or simultaneously with or after the request for Surseance Van Betaling (Suspension of Payments) proceedings. The composition must be approved by a certain majority of Unsecured Creditors and, upon confirmation by the court, becomes binding on all Unsecured Creditors. An Akkoord will never be binding on Secured Creditors.
    Alix Protocol:
    A protocol named for restructuring consulting firm AlixPartners and predecessor Jay Alix & Associates that is followed by most United States Trustees in connection with the retention of certain Professionals in US Bankruptcy. Broadly speaking, under the Alix Protocol, a Professional required to be retained by Order of the US Bankruptcy Court may not act in more than one of the following capacities: crisis manager (hired under Bankruptcy Code Section 363), financial advisor (hired under Bankruptcy Code Section 327), claims agent/administrator and investor/acquirer. Furthermore, a Professional selected to perform any of these duties may not switch roles once it has been retained.
    Allowed Claim:
    A valid Claim that is entitled to receive distributions in US Bankruptcy, if any distributions are available for Claims of its ranking. An Allowed Claim is either (i) listed in the Debtor’s Schedules but not designated therein as contingent, unliquidated or disputed, (ii) filed as a Proof of Claim to which the Debtor does not file an objection or (iii) filed as a Proof of Claim to which the Debtor does file an objection but such objection is denied by the US Bankruptcy Court. A Claim asserted in a Proof of Claim is deemed to be an Allowed Claim until and unless it is objected to.
    Amend and Extend:
    A phrase used globally to describe debt restructuring in which maturities of debt instruments are extended through out-of-court agreements without the deleveraging of the company, often in return for better terms for the lenders. Amend and Extend forms of restructuring allow investors to delay write-downs and allows private equity to avoid contributions of new money. See Amend and Pretend and Delay and Pray.
    Amend and Pretend:
    Slang for entering into an Amendment or waiver of Defaults rather than fixing more fundamental problems with a capital structure through a full restructuring process. The Amendment or waiver is approved by the requisite lenders, and everyone then pretends all is OK. Sometimes a “head in the sand” approach is vindicated by the passage of time; often, however, it is not. See Zombie.
    Amendment:
    A change to the provisions of an existing agreement. For instance, a Borrower might agree with its lenders to amend its credit agreement to allow for more indebtedness to be incurred.
    Amministrazione Straordinaria:
    Italian special proceedings providing for the reorganisation of large Italian companies in a State of Insolvency. Introduced by the “Prodi” law in 1979 (named after the Ministry of Industry at that time) but now governed by Legislative Decree no. 270/99 (the “Prodibis”), as further amended by the so-called Marzano Law. Extraordinary administrations under Prodibis are still available but are not suitable for massive insolvency crises such as Parmalat. (See also Concordato Preventivo and Piano Attestato di Risanamento).
    Ancillary Proceeding or Case:
    The filing of a petition under Chapter 15 commences an ancillary proceeding or case. Bankruptcy Code Section 1504. Note that an Estate is not created and, generally, the effects of a recognised Ancillary Proceeding only apply to the Debtor’s assets within the territorial jurisdiction of the United States.
    Antecedent Debt:
    A pre-existing debt or obligation of the Debtor. In the US, in the context of Avoidance Actions under the US Bankruptcy Court, an Antecedent Debt is a debt or obligation that existed before the date of the transfer that is the subject of the Avoidance Action.
    Anti-Cookson Clause:
    In private placement transactions, a clause included in the note purchase agreement that prevents the issuer from using its Lien basket or its ability to grant subsidiary Guarantees for the purpose of granting security and/or Guarantees to its bank lenders unless the same is provided to its noteholders. Inclusion of this clause in note purchase agreements became customary practice after one issuer, Cookson Group plc, was able to grant security and Guarantees to its banks without the consent of its noteholders (whose debt was intended to rank Pari Passu with the bank debt) in reliance on the negative pledge basket and subsidiary Guarantee test in its note purchase agreement.
    Anti-deprivation Principle:
    An English common law principle that a company cannot enter into a contract if the effect of that contract is, upon the company’s Insolvency, to transfer an asset of the company to a third party or otherwise deprive that company’s Creditors of the benefit of that asset. According to recent English case law that considered the scope of the Anti-deprivation Principle, if the transfer occurs before the Insolvency of the company, it cannot fall foul of the Anti-deprivation Principle.
    Anti-layering Covenant:
    A covenant that prohibits an issuer or Borrower from layering in another level of debt between the Senior Debt and the Subordinated Debt. This is essentially a no-cheating rule. In bond world, it is only used in senior Subordinated deals and in loan world has become more common in transactions with Senior Debt and mezzanine financing. Back in bond world, senior notes include an analogous provision that requires that all debt that Subordinates itself to any senior secured credit facilities, also Subordinates itself to the senior notes. The Anti-layering Covenant ensures that the Subordinated Debt occupies the second-class slot and not the third or fourth. This clause is an important consideration when looking to add a Second Lien facility, “sandwiched” in-between the First Lien Facilities and unsecured bonds, as it may be prohibited by an Anti-layering Covenant.
    Appeal:
    A request to a higher court to overrule a decision of the lower court. In the US, orders of the US Bankruptcy Court are appealable either to the District Court or a Bankruptcy Appellate Panel if one exists in the district, by the timely filing of a notice of appeal. The appeals process is governed by Bankruptcy Rule 8001, et seq. The complexity surrounding the various different types of Appeals could fill the pages of an entire book. Suffice to say, however, that the law surrounding the Appeal of US Bankruptcy Court Orders may be different than what exists outside of Bankruptcy.
    Application:
    A written request for relief from a court that is titled as an Application rather than as a Motion, as determined by a code section, a rule or local practice. In US Bankruptcy, requests for retention of Professionals or for payment of Professionals are normally made by Application rather than by Motion, although the practice in some courts may be different. In some courts, an Application is used for Ex Parte or procedural requests.
    Arbitrage:
    To take advantage of a price differential between two or more markets, such as by buying an investment in one market and then immediately selling it at a higher price in another market.
    Arbitration Administrator:
    See Arbitrazhniy Upravlyaushiy.
    Arbitrazh Courts:
    Despite what the name might suggest, these are not arbitration courts but rather state commercial courts with jurisdiction over economic disputes between Russian legal entities, foreign legal entities and individual entrepreneurs. Insolvency hearings in Russia are held before Arbitrazh Courts.
    Arbitrazhniy Upravlyaushiy:
    A Russian professional Insolvency administrator who is a member of a self-regulated organisation of Insolvency practitioners, appointed by the Arbitrazh Court to supervise and administer various stages of the bankruptcy procedure. See also Interim Administrator, Administrative Manager, External Administrator and Bankruptcy Administrator.
    Article 180:
    Article 180 of the Companies Regs, which provides that when the losses of a Saudi Arabian limited liability company reach 50 per cent of its capital, the managers of the company must within 30 days convene a meeting of the shareholders who must unanimously resolve either to (i) dissolve the company, or (ii) continue its existence provided they commit to pay its debts; such resolution must be published in the Umm Al-Qura; if the company continues to operate without the shareholders having so resolved and acted, the shareholders become jointly liable to pay all of the company’s debts and any “interested party” can commence judicial proceedings for the company’s dissolution.
    Article 395 Interest:
    Is usually referred to when dealing with Russian bonds or Russian law-governed loans and refers to the statutory penalty interest rate that should apply if no such penalty rate is provided in the agreement. This rate is equal to the Refinancing Rate, which is usually lower than the original interest rate.
    Article 9:
    The article of the UCC that governs secured transactions and the validity and Perfection of Security Interests in most personal property.
    Article I Judge:
    A judge appointed pursuant to congressional authorisation under Article I of the US Constitution. In the US, a Bankruptcy Judge is an Article I Judge. Despite the fact that Bankruptcy Judges are “federal” judges, they are not appointed by the US President under Article III but by the Circuit Court for the Circuit in which they sit. Additionally, Bankruptcy Judges are not appointed for life and instead have 14-year terms, although, if approved by the Circuit Court, they can be appointed for more than one term.
    Article III Judge:
    A judge that serves pursuant to Article III of the US Constitution. An Article III judge is appointed by the President pursuant to Article III of the US Constitution, and, with certain exceptions, holds his or her position for life. Judges of District Courts and Circuit Courts are Article III judges.
    Assemblée des Obligataires:
    (Meaning “bondholders’ committee”) in France, Luxembourg and Belgium, this is the “third” Creditors’ Committee (because the statute refers to a general meeting of the bondholders and not strictly to a bondholders’ committee). Subject to variations under applicable law, it consists of all bondholders of the Debtor, irrespective of the terms and conditions of the respective bond issues. In France, it is required to approve a restructuring plan in Sauvegarde Financière Accélérée, Sauvegarde or Redressement Judiciaire proceedings. Something to think about if you are a lender subscribing for mezzanine bonds issued by a French bidco and the sponsor will also be putting in part of its “equity” by way of bonds.
    Asset Stripping:
    Not nearly as exciting as it sounds, this is buying a business whose market value is below its asset value with the intention of breaking it up (rather than running it), selling the most profitable assets. Think Richard Gere’s character in “Pretty Woman” (Touchstone Pictures 1990).
    Asset-backed Security:
    A generic term describing tranched, exchanged-listed bonds issued by Special Purpose Entities backed by financial assets as mundane as residential mortgages (residential mortgage-backed securities or RMBS), commercial mortgages (commercial mortgage-backed securities or CMBS), automobile loans and leases, and credit card obligations, or as esoteric as casualty insurance claims (catastrophe bonds or cat bonds), life insurance claims (viatical settlement bonds) or changes in survival rates (longevity bonds). CBOs, CDOs, CFOs and CLOs are all also types of Asset-backed Securities.
    Assignment:
    A transfer of rights and obligations. In US Bankruptcy, an Assignment by the Debtor may be a “use, sale, or lease” subject to Bankruptcy Code Section 363, requiring approval of the US Bankruptcy Court if Outside the Ordinary Course of Business. With respect to an executory contract or unexpired lease, Bankruptcy Code Section 365(f) governs the right of the Debtor to make an Assignment of such contract or lease to a third party, which may occur in conjunction with a sale of assets under Bankruptcy Code Section 363. Claims in Bankruptcy may also be the subject of an Assignment or transfer, pursuant to Claims Trading or otherwise, subject to Bankruptcy Rule 3001(e). Under the CCAA, a Canadian Court may make an Order assigning a contract, provided that the proposed assignee can perform the contract and all monetary Defaults will be remedied. The assignment provisions under the CCAA do not apply to Post-Filing contracts, Eligible Financial Contracts, collective bargaining agreements or contracts that are not assignable by their nature.
    Assignment for the Benefit of Creditor:
    A US state law equivalent of a Chapter 7 Bankruptcy under which all the assets and liabilities are assigned by a Debtor to a trustee called the “assignee” who liquidates the assets and pays Creditors in the order of state law Priority.
    Assignment in Bankruptcy:
    A voluntary bankruptcy assignment by a Debtor under the Canadian BIA. The Debtor may commence voluntary bankruptcy proceedings under the BIA by filing an Assignment for the benefit of its Creditors. To do this, the Debtor must be an Insolvent Person as defined in the BIA. The Debtor would retain the services of a Trustee in Bankruptcy prior to commencing bankruptcy proceedings and would assist such trustee in preparing a preliminary statement of affairs. The commencement of voluntary bankruptcy proceedings under the BIA may be completed expeditiously as there are no burdensome substantive or procedural requirements. On bankruptcy, the BIA imposes a stay of proceedings against the Debtor, but the stay does not generally apply to Secured Creditors, who are free to exercise their secured rights outside of the BIA.
    Assumption:
    Taking on and becoming bound by obligations. In the US, under Bankruptcy Code Section 365(a), with certain exceptions, a Debtor, with approval of the US Bankruptcy Court, may assume or reject an Executory Contract or Unexpired Lease. If the Debtor assumes the contract or lease, it takes on and becomes bound by all the obligations of the contract or lease. If the Debtor has previously defaulted under a contract or lease that it wishes to assume, then, as a condition to approval, the Debtor, generally, must (i) Cure the Default and (ii) provide Adequate Assurance of Future Performance of the contract or lease.
    Auction:
    A procedure for selling assets through a bidding process. In US Bankruptcy, an Auction may, but need not necessarily, take place in connection with a 363 Sale for the purpose of obtaining the highest or best offer for the assets proposed to be sold. If an Auction is to be held, the US Bankruptcy Court is usually requested, pursuant to the Motion of the sale proponent, to approve the manner in which the Auction is to take place and the rules under which bidders will be permitted to bid on the assets, and then, after the conclusion of the Auction, to approve the sale to the winning bidder.
    Automatic Stay:
    The stay that protects the Debtor and its Estate upon the filing of the Petition in the US. It is called an Automatic Stay because it goes into effect immediately upon the filing of the Petition, without the need for any Order of the US Bankruptcy Court. Notably, the Automatic Stay is effective regardless of whether a party gets notice of the filing of the Petition. The types of actions that are subject to the Automatic Stay are listed in Bankruptcy Code Section 362(a). The types of actions that are not subject to the Automatic Stay are listed in Bankruptcy Code Section 362(b). The Automatic Stay can be terminated, annulled, modified or conditioned by Order of the US Bankruptcy Court pursuant to Bankruptcy Code Section 362(d). Willful violations of the Automatic Stay that are harmful to individuals are punishable under Bankruptcy Code Section 362(k).
    Avoidable Transactions:
    See Suspect Transactions. See also Avoidance Action.
    Avoidance Action:
    An action commenced in a US Bankruptcy Court, via an Adversary Proceeding, to avoid, set aside and recover, for the benefit of the Estate, certain types of transfers that the Debtor made, either Pre-petition or Post-petition. Avoidance Actions — for both Fraudulent Transfers, Preferential Transfers and unauthorised Post-petition transfers — and the limitations thereon are addressed in Bankruptcy Code Sections 544, 545, 546, 547, 548, 549 and 550.
 
 
 

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