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- Title
Chapter 11 Rights Offerings and Private Placements: How Creditors Can Strike A Windfall.
- Authors
Saxon, Shelby V.
- Abstract
Debtors.in.possession have increasingly turned to rights oferings and/or pnvate placement sales as an exit financing option in chapter 11 banhruptcy When timed and executed properly, these offerings can provide a windfall of returns to select creditors. This windfall does not appear to exist outside of chapteT 11, as rights offerings and private placements are subject to heightened fiduciag duties without the flexibility of the Bankniptcy Code. Notwithstand. ing objections to many aspects of these sales and their outcomes, courts adjudi· eating these disputes haue found no violations of the Code. The popularity of these o#eTings within chapter 11 has incyeased in recent years and courts have consistently confirmed plans that include them. This Article asserts that courts adjudicating rights oferings disputes haue correctly applied the plain language of the Code. However, unbridled financing terms combined with intentional complexity, opaque value incurred, and strate. gic negotiation methods have created the opportunity for favored groups of credi. tors to strike a windfall that the drafters of the Code never intended to allow, as this treatment undermines the equitable nature of bantruptcy While some commentators and at least one judge have discussed rights offering components using reasonability terms, there is currently no express reasonability test applied to rights oferings. This Article argues that a market.based reasonability stan. dard applied to rights o#ering finance t€TmS would mitigate this windfall yet presene faiT returns for investors willing to take financial ris~s. This result would moTe pmpedy balance the equitable goals of banbuptcy, while still al lowing for successful debtor exit financing.
- Subjects
UNITED States; RIGHTS offerings; PRIVATELY placed securities; DEBTOR &; creditor; UNITED States. Bankruptcy. Chapter 11, Reorganization; BANKRUPTCY
- Publication
American Bankruptcy Law Journal, 2020, Vol 94, Issue 3, p357
- ISSN
0027-9048
- Publication type
Article