Presenting a live 90-minute webinar with interactive Q&A Rendering Structured Finance Opinions Of Counsel: Substantive Consolidation, Authority to File Bankruptcy and More Navigating Assumptions, Qualifications, Limitations and Use of Letters; Reducing Risks for Opinion Givers TUESDAY, JULY 11, 2017 1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific Today’s faculty features: Scott J. Gordon, Partner, Kirkland & Ellis , New York Michelle P . Quinn, Partner, Berger Harris , Wilmington, Del. The audio portion of the conference may be accessed via the telephone or by using your computer's speakers. Please refer to the instructions emailed to registrants for additional information. If you have any questions, please contact Customer Service at 1-800-926-7926 ext. 10 .
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Right to File Bankruptcy Pre-petition waivers of the right to file a bankruptcy petition, whether by • contract or in charter documents, have repeatedly been held to be void on the basis that they are against public policy. • Recently, in In Re BAY CLUB PARTNERS – 472, LLC, Debtor (No. 14- 30394, 2014 WL 1796688 (Bankr. D. Or. May 6, 2014)) , the court characterized as “cleverly insidious” a restriction on filing that was placed in the debtor’s operating agreement at a lender’s request rather than being placed in the loan agreement. The court held the provision to be void. 5
Right to File Bankruptcy (Cont’d) In the circumstances underlying the 1997 case of In Re Kingston Square • Associates, 214 B.R. 713 , the owner/manager of property owning SPEs solicited creditors to make involuntary bankruptcy filings in respect of the SPEs, thereby seeking to thwart the “bankruptcy - remote” provisions of the SPEs charters, which contained a requirement for the unanimous vote of directors, including an ID, for a voluntary filing. Lenders that had relied on the “bankruptcy - remote” provisions argued for dismissal on grounds of bad faith through collusion to file. The court found that the debtors had orchestrated the involuntary filings but that the filings did not further a wrongful purpose, which is a necessary element of collusion; also noting that the failure of the ID, who had been selected by one of the lenders, to participate in the governance of the SPEs eliminated the potential for proper consideration of a unanimous voluntary filing. 6
Right to File Bankruptcy (Cont’d) In 2009, General Growth Properties, Inc. replaced existing independent • directors (ID) with seasoned restructuring professionals that satisfied the ID requirements and the newly appointed IDs voted with the “inside” directors to place the SPEs, which were solvent and in varying states of financial health, into bankruptcy, supporting their votes as consistent with their fiduciary duty to creditors and shareholders as established by the LLC Agreements by reference to Delaware General Corporation Law (DGCL), which provides that the directors of a solvent corporation are required to consider the interests of shareholders in exercising their fiduciary duties. In re Gen. Growth Props., Inc., 409 B.R. 43 (Bankr. S.D.N.Y. 2009). 7
Right to File Bankruptcy (Cont’d) Delaware Limited Liability Company Act § 18-1101(c): • To the extent that, at law or in equity, a member or manager or other person has duties (including fiduciary duties) to a limited liability company or to another member or manager or to another person that is a party to or is otherwise bound by a limited liability company agreement, the member's or manager's or other person's duties may be expanded or restricted or eliminated by provisions in the limited liability company agreement; provided, that the limited liability company agreement may not eliminate the implied contractual covenant of good faith and fair dealing. Fiduciary duties should be explicitly addressed in the LLC Agreement. • 8
Delaware LLCs The Delaware Limited Liability Company Act Increase of use of LLCs in the mid-1990s • As of March 29, 2013 from the Delaware Division of Corporations 9
Delaware LLCs - Easy Administrative Procedures Online Services • Expedited and same day service • • Filing of UCC documents Payment of franchise taxes • Access to relevant provisions of the Delaware Code • • Help with finding a registered agent Name reservations • • Status check for Delaware entities 10
Delaware LLCs - Expertise of Judiciary in Business Matters Delaware's Court of Chancery • Limited jurisdiction • • High volume of corporate and LLC matters Corporations Section of the Delaware State Bar Association • Generates legislation after careful study of case law and business • trends Easy access to elected and appointed officials due to the small size of the state • 11
Delaware LLCs - Contract Flexibility Section 18- 1101(b) of the DE LLC Act: “It is the policy of this chapter to give • the maximum effect to the principle of freedom of contract and to the enforceability of limited liability company agreements.” "Except as provided in a limited liability company agreement“ or similar • language is found in most provisions of the DE LLC Act. Delaware LLC Act is friendly to the SPV structure. • 12
Delaware Opinions - the “Authority to File” Bankruptcy Opinion Reasoned opinion that addresses whether a federal bankruptcy court would • look to federal or state law to determine the parties with authority to file a bankruptcy petition on behalf of the LLC. Required because federal bankruptcy law does not specifically address LLCs. • 13
Delaware Opinions – the LLC Opinion Letter The Company has been duly formed and is validly existing in good standing as a • limited liability company under the laws of the State of Delaware. • In Delaware, this requires an LLC Agreement and a Certificate of Formation. Should not be based solely on a good standing certificate. • The LLC Agreement constitutes a legal, valid and binding agreement of the Member, and is enforceable against the Member, in accordance with its terms. • Given with standard enforceability carve-outs, including bankruptcy Sometimes drafted to cover only the Special Member provisions • 14
Delaware Opinions – the LLC Opinion Letter (Cont’d) If properly presented to a Delaware court, a Delaware court applying Delaware • law, would conclude that (i) [so long as any Obligation is outstanding,] in order for a Person to file a voluntary bankruptcy petition on behalf of the Company, the prior unanimous written consent of the Member and all Independent Managers, as provided for in Section ___ of the LLC Agreement, is required, and (ii) such provision, contained in Section ___ of the LLC Agreement, that requires, [so long as any Obligation is outstanding,] the prior unanimous written consent of the Member and all Independent Managers in order for a Person to file a voluntary bankruptcy petition on behalf of the Company, constitutes a legal, valid and binding agreement of the Member, and is enforceable against the Member, in accordance with its terms. • Given with only an equitable principles carve-out. No bankruptcy carve-out. Should track language of LLC Agreement. • • LLC Agreement should not prohibit a bankruptcy filing or require lender consent for a bankruptcy filing 15
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