The proceeds from the loan are then used by the target company to "buy out" the existing equity holders. For example, in a leveraged buyout ("LBO"), a buyer may fund the purchase of a target company with the proceeds of a loan secured by the target company's assets. The safe harbor provision can promote stability in financial markets by ensuring that securities transactions will not be unwound as the result of a subsequent bankruptcy. "Notwithstanding sections 544, 545, 547, 548(a)(1)(B), and 548(b) of this title, the trustee may not avoid a transfer that is a margin payment or settlement payment, made by or to (or for the benefit of) a commodity broker, forward contract merchant, stockbroker, financial institution, financial participant, or securities clearing agency, or that is a transfer made by or to (or for the benefit of) a commodity broker, forward contract merchant, stockbroker, financial institution, financial participant, or securities clearing agency, in connection with a securities contract …" Specifically, in its current form, Section 546(e) provides: Of pertinence here, Section 546(e) of the Bankruptcy Code provides a safe harbor for (and exempts from avoidance) payments made by and to financial institutions in the settlement of securities transactions or the execution of securities contracts. However, there are several limitations on a trustee's avoidance powers. Section 548 of the Bankruptcy Code permits a trustee to undo, or "avoid," transfers of a debtor or the incurrence of obligations by the debtor within two years prior to the filing of a bankruptcy, where the transfer was made or the obligation incurred (i) with the intent to hinder, delay or defraud creditors (an "Actual Fraudulent Transfer") or (ii) where the debtor was insolvent or became insolvent as a result of the transfer, and the transfer was not in exchange for reasonably equivalent value (a "Constructive Fraudulent Transfer"). Through amendment of the safe harbor, the legislation would open to challenge certain transactions which result in change in control of a target company, particularly those in connection with leveraged buy-outs. The safe harbor protects from avoidance certain securities-related transactions made prior to bankruptcy. Citing a need to reform the private equity industry, 1 a group of United States Senators and Representatives have proposed the "Stop Wall Street Looting Act of 2021." If adopted, this new legislation would restrict, among other things, the scope of the Bankruptcy Code's Section 546(e) "safe harbor" provision.
0 Comments
Leave a Reply. |
AuthorWrite something about yourself. No need to be fancy, just an overview. ArchivesCategories |