Recent Developments in Acquisition Finance

January 11, 2016

Two recent court decisions may result in a broadening of the range of options available to an equity sponsor in respect of an insolvent portfolio company. The first decision may provide increased flexibility in structuring asset sales in certain chapter 11 settings, by utilizing escrows and other techniques to potentially avoid the need to apply asset-sale proceeds strictly in accordance with creditor priorities under the U.S. Bankruptcy Code. The second decision reinforces the principle that the fiduciary duties of directors of an insolvent Delaware corporation run to the entity as a whole and to all its stakeholders, with the result that, even if the directors adopt a business plan whose downside would be borne by creditors but whose upside largely would be enjoyed by equity holders, they generally will not be viewed as having breached their fiduciary duty to the corporation, so long as the business plan was rationally designed to increase profitability and enterprise value and their decisions were informed and made without improper conflicts of interest.

Read "Recent Developments in Acquisition Finance."