When Private Equity Limited Partners Fail
Richard F. Hahn and Michael E. Wiles, partners at Debevoise & Plimpton, and Bryan R. Kaplan, an associate with the firm, write that until recently, it seemed improbable that an institutional investor in a private equity fund (limited partner) would be unable to satisfy a capital commitment due to liquidity problems, or would be compelled to file for bankruptcy protection. Under current market conditions, however, they warn that the threat of a limited partner's insolvency is no longer a remote possibility.
Protection for Shareholder Payments in LBOs Gone Bad
Lisa M. Schweitzer, a partner with Cleary Gottlieb Steen & Hamilton, and Luke A. Barefoot, an associate, write that when a company acquired in an LBO faces an inability to sustain its debt load or other business conditions push it to seek bankruptcy protection, debtors may review the LBO transaction to determine whether the payments made to shareholders, and debt incurred, may be avoided under federal and state fraudulent conveyance theories based on an argument that the company received less than reasonably equivalent value in exchange. The success of such challenges, they say, often initially turns on the applicability of the safe harbor for securities transactions provided by §546(e) of the Bankruptcy Code.
Free With Registration: Claimants Fight Subordination
Laurence May, a member of Cole Schotz, writes that the U.S. Court of Appeals for the Fifth Circuit recently affirmed the subordination a claim of $2,742,114 on the ground that the claim "arose from" the rescission of a purchase or sale of a security under §510(b) of the Bankruptcy Code. This, he says, is the most recent in a series of decisions rendered by the federal courts of appeals over the last several years to grapple with the application of §510(b) to a claim that does not readily fall within the statute's language.
