Associated Students undergo financial setback

Many CSUN clubs and organizations are feeling a financial strain on their semester events this spring due to the unusually low budget Associated Students has reported.

AS is responsible for funding numerous events on campus that are sponsored and planned by student-run clubs and organizations. ASs reported low financial budget has caused many clubs and organizations to turn to other means of allocating funds since AS has been falling short of their request budget. This has caused a financial chaos on clubs who are seeking help from AS to fund their event for the spring 2015 semester. Their low budget has left many students in shock; often feeling disappointed AS couldnt provide additional help.

CSUN Gospel Choir, CSUN Model United Nations and TRENDS have requested a specific budget from AS in order to fund their semester events, however, all three clubs only received about a third of their asking price.

On behalf on the Chair of Finance, Emily Priyatmo, who was absent at the meeting, AS Vice-President Talar Alexanian, stated that the balances are fairly low for this time in the semester. She urged senate to be careful with what they approve and to not increase the allocations.

The CSUN Gospel Choir requested $7,555 for their choir production, they only received $500. CSUN Model United Nations requested $19,500 and received $5,000. TRENDS wished to allocate $4,043 for their annual fashion show and received $1,000.

All three clubs had asked AS to increase their funding but only one club was granted that request . Prior to the meeting, AS had agreed to allocate $3,600 for Model UN. However, due to senates discussion, they increased their allocation to $5,000. During an open forum dissuasion the president of the Gospel club asked senate to reconsider the amount given and to increase their allocation to $3,000.

Its shocking to see only a quarter of the money. We need their help to pay for marketing and the venue, said Vice-President of TRENDS, Elvis Smith. We now have to push for more fundraising events.

Joshua Henderson asks AS senate members to increase funding for Model United Nations Program during the open forum segment of the AS senate meeting on Feb. 16, 2015 in the Grand Salon. Wynnona Loredo / Staff Photographer

According to Alexanian, Model UNs case is a unique situation when discussing funding because it acts as both a club and a class therefore it also receives additional funding from other campus organizations and the department.

I recommend to increase their funding to $5,000 in order to help fund their local California events. However, they still need money to go to New York, said Alexanian.

We are grateful for what we got but we just want to communicate with them on how important this event is. It is a 30 year old tradition and we keep growing each year, we are know at 700 participants and guest, Smith said.

Smith, along with TRENDS faculty advisor Shirley Warren, stated that the show must go one no matter what occurs financially.

Former AS student body members walk with current AS vice president Talar Alexanian (right) to the place roses on the matador statue on Presidents Day. Wynnona Loredo / Staff Photographer

Feb. 16 agenda highlights

o Senate appointed 4 new senators. They appointed Dikran Khodanian for Senator for the College of Social and Behavioral Sciences; Kathryn Kargari for Senator for the College of Arts, Media, and Communications; Josselyn Partida for Senator for the College of Arts, Media, and communications and Nancy Alonzo, Graduate Senator

o Approved funding for AS marketing workstations, TRENDS fashion show, CSUN Gospel Choir and CSUN Model United Nations.

o The Tradition of the Rose allows CSUN students to place a red rose underneath the Matador statue in celebration, victory, and when overcoming a challenge or difficulty. You can also place a rose in honor and memory of a fallen matador.

o Approved the name change of the CSUN Russian Club and Campus Advance.

o Approved the constitution of the Model African Union Club

o Hosted a Presidents day honorary event for past AS presidents

Paul Krugman: Nobody understands debt

Many economists, including Janet Yellen, view global economic troubles since 2008 largely as a story about deleveraging — a simultaneous attempt by debtors almost everywhere to reduce their liabilities. Why is deleveraging a problem? Because my spending is your income, and your spending is my income, so if everyone slashes spending at the same time, incomes go down around the world.

Or as Yellen put it in 2009, Precautions that may be smart for individuals and firms — and indeed essential to return the economy to a normal state – nevertheless magnify the distress of the economy as a whole.

So how much progress have we made in returning the economy to that normal state? None at all. You see, policymakers have been basing their actions on a false view of what debt is all about, and their attempts to reduce the problem have actually made it worse.

First, the facts: Last week, the McKinsey Global Institute issued a report titled Debt and (Not Much) Deleveraging, which found, basically, that no nation has reduced its ratio of total debt to GDP. Household debt is down in some countries, especially in the United States. But its up in others, and even where there has been significant private deleveraging, government debt has risen by more than private debt has fallen.

You might think our failure to reduce debt ratios shows that we arent trying hard enough – that families and governments havent been making a serious effort to tighten their belts, and that what the world needs is, yes, more austerity.

Banks likely to miss out in Calcutta HC’s winding-up order on Corporate Power

In what could be a setback for lenders to Corporate Power, the Calcutta High Court has ordered the Abhijeet Group-promoted firm to be wound up in response to a petition filed by an employee last year. A consortium of nine banks has loaned the company a combined R4,712 crore. Meanwhile, State Bank of India had been scouting for a buyer and was close to shortlisting one but the court’s verdict may upset its plans.

The case highlight how public sector banks have been hamstrung in dealing with stressed assets by regulations that require them to set a reserve price for an asset and call an auction to dispose of an asset. If the first auction isn’t successful, a new reserve price must be fixed and a second auction called before a bilateral negotiation can begin. The problem, as bankers have pointed out, is that the process takes a long time, often defeating the purpose. Bankers have also not been able to convert their loans into equity at a price that is favourable to them because of the rules put out by the Securities and Exchange Board of India (Sebi).

The legal process has been virtually ineffective, further frustrating the efforts of banks to recover their dues. Reserve Bank of India (RBI) data show loans worth more than R2 lakh crore were pending at 33 debt recovery tribunals (DRTs) till FY14, up from R1.43 lakh crore in FY13. The amount recovered from cases decided in the DRTs in 2013-14 was R30,590 crore while the value of loans sought to be recovered was R2.36 lakh crore.

Thus, only 13% of the outstanding NPAs in the tribunals were recovered in FY14. The Manoj Jayaswal-led Abhijeet Group is allegedly among the biggest beneficiaries of the controversial coal block allotments; the company got blocks in Jharkhand and Chhattisgarh. Corporate Power, which is primarily into coal-based power plants, had sought restructuring under the corporate debt restructuring scheme in 2013, which did not materialise. “As such, the company, namely, Corporate Power, is directed to be wound up in accordance with the provisions of the Companies Act,” justice Biswanath Somadder said in an order on Tuesday. He added that the official liquidator will take possession of all the assets and properties of the company, now in liquidation, and take charge of its books, records, documents and transactions.

An employee of the company had approached the court in July last year to get salary dues of R6.4 lakh and asked other creditors to join the petition in November.

A lawyer familiar with the case said that since banks did not join the petition, only secured lenders would get the benefits of liquidation. “First, government dues like tax deducted at source and provident fund would be settled, followed by employee salaries and finally banks would get their share,” he said.

Justice Somadder said that the petitioner will cause a gist of the order to be published in the same newspapers where the winding-up petition had been advertised. “The petitioner as well as the supporting creditors will be entitled to pursue their claims in accordance with law before the official liquidator,” he added.

Corporate Power had appealed against the winding-up petition and the division bench had observed that Rajendra Kumar is entitled to the unpaid salary and other benefits and dismissed the appeal by imposing R10,000 on CPL.

Queensland’s biggest economic challenge isn’t debt – it’s growth

Queensland has a new Labor minority government, led by Annastacia Palaszczuk, after the shock defeat of the Liberal National Party. Labor’s pre-election promises were “modest”, leaving many now wondering about the government’s policy agenda. Our experts examine some of the big challenges facing Australia’s third most populous state.

Dear Premier Palaszczuk,

As you meet with Queensland business leaders on Tuesday and get down to the business of governing, you’re sure to face many immediate preoccupations and challenges. But considering the economy was the dominant issue of this election, I would like to provide three pieces of advice for your new Labor minority government.

The economy is ultimately about people

First of all, I would encourage you to remember that the ultimate objective of economic policy is to promote inclusive economic growth and welfare. I use the word inclusive here to mean that all individuals, especially those at the bottom end of income distribution, should be guaranteed access to the benefits and opportunities arising from the increasing pace of economic activity. It is only by being inclusive that growth can effectively generate “development”.

Budget, taxes, debt and expenditure are only tools that the government can use to achieve the fundamental goals of inclusive growth and welfare. Unfortunately, in the recent past both the federal and Queensland governments have mistaken tools for objectives.

This has led to a policy of “minimisation”: to minimise debt, minimise deficit, and minimise expenditure. This is hardly a good way to run fiscal policy. On the contrary, inclusive growth and welfare become more difficult to achieve when the only purpose of policy is to shrink the size and scope of government, thus compromising its ability to supply public goods and to stabilise the economy against cyclical shocks.

There are two important features that should instead characterise good fiscal policy.

One is the synchronisation of expenditure with the business cycle. Cutting expenditure just to balance the budget in a time of economic contraction will only make the contraction worse. Conversely, when the economy slows down, the government should increase expenditure and possibly run a deficit. This will help the economy recover.

That is not just theory: my own research on Australia indicates that one extra dollar of government expenditure generates more than one dollar of gross domestic product (GDP). I have done similar research for Queensland, which is yet to be published but which found a similar result.

Of course, the increase in expenditure and deficit in time of contraction must be offset by expenditure cuts and surpluses in time of economic expansion. This counter-cyclical pattern of government expenditure and deficit will ensure that the economy is stabilised in response to shocks, and there is no accumulation of debt in the long-term.

The second feature of good fiscal policy is attention to quality considerations in public investment. It is rather common to think that economic growth is just a matter of investment, and hence that the best (and possibly only) way in which governments can support growth is by throwing money into some infrastructure projects.

But the quality of investment and spending is as important as its quantity. Quality, for instance, means that upgrading the curriculum or promoting work-integrated learning is as important as building a new school.

Similarly, the growth payoff from building a tunnel that does not really address any transport bottlenecks or does not facilitate connectivity between market nodes is going to be small. I guess that the general message here is: public investment in infrastructure is not a panacea, and there is more that the government should/can do to promote inclusive growth.

Obsession with debt

My second bit of advice Premier is to get some perspective on the “debt problem” of Queensland.

There is no question that Queensland debt has grown considerably since 2006-07, and that today the debt to GDP ratio in Queensland is higher than in the rest of Australia, as I showed in a recent article.

But from a policy perspective, what matters is not much the comparison with other states, but instead the extent to which debt is sustainable. Sustainability refers to the dynamics of the debt to GDP ratio in the long-term. It is a simple matter of algebra to show that debt is sustainable as long as the economy grows sufficiently fast.

So, the issue of sustainability is essentially a question of economic growth. If in the attempt to reduce debt you were to undertake cuts or actions that undermine the growth potential of the economy, then the debt problem would simply get worse.

Now, this does not mean that Queensland should take a course of fiscal profligacy. It means, however, that there is no need at this stage to make drastic measures to repay debt. The type of counter-cyclical fiscal policy previously described, coupled with sound interventions in support of growth, will be enough to prevent further debt accumulation and hence to ensure its sustainability.

I welcome your government’s decision to re-consider the proposed plan of asset privatisations. It is the wrong response to a problem that does not require any such strong choice.

From an economic perspective, there is simply no evidence to support the notion that the private sector always does it better. Certainly, there are several examples of successful privatisations of public assets. But there are also many instances where privatisation has not resulted in a decrease in price and/or an increase in consumer’s satisfaction.

What does the economic data tells us?

And this brings me to the last bit of advice: make sure that your team takes a comprehensive look at the economic data before making any big decisions.

If good fiscal policy means that government expenditure must be synchronised to the business cycle, then the government must be able to identify and even predict the phases of the cycle. This in turn requires making the most efficient use of the large volume of statistical information that is available today. That is, good economic policy must be guided by a good understanding of the economic data.

A good look at the data is also important in terms of communication. I do not think that it helps the cause of any government to advertise a strong economy when – as is the case in Queensland today – gross domestic income per capita is declining, the only jobs that are being created are part-time, and the unemployment rate is higher than what it was three years ago (with or without seasonal adjustment).

Read more of The Conversation’s Queensland election 2015 coverage, and more ‘Dear Premier’ policy articles at the Federal Future blog.

Why Financial Benchmarks Give Investors a Boost

Not all financial benchmarks come with a large reputational stain.

While the trust in Libor and foreign exchange benchmarks has been undermined by a series of regulatory probes into their possible manipulation, indexes produced by independent administrators have “revolutionized” the investment world and have been “source of financial market innovation” according to the findings of a new report to be published tomorrow by the Cass Business School.

In an 18-page brief on financial market indexes, Cass professors Andrew Clare and Steve Thomas found that indexes have been a confidence booster for markets.

“Regulators are asking questions on benchmarks’ reliability and transparency, but investors are not,” professor Clare told MoneyBeat.

“I take for granted that indexes are vital.”

The study draws attention to the need for the market to draw a line between benchmarks constructed by surveying market participants, such as Libor, and those built out of actual transactions from regulated entities which are used to price index tracking mutual funds and exchange traded funds.

“Although the process for calculating Libor was transparent, the benchmark fell short in terms of data integrity, independence and indeed governance,” Prof. Clare said.

But that doesnt seem to have affected the integrity of indexes used to track funds’ performance.

Take, for example, exchange traded funds, which passively replicate the performance of indexes. Their popularity has grown exponentially, with around 4000 exchange traded funds available to investors. At the end of 2014, these funds which rely heavily on the indexes they track had around $2.7 trillion of assets.

“The report is a significant vindication of the importance of benchmark providers in ensuring innovative, competitive and stable financial markets,” said Rick Redding, chief executive at the Index Industry Association.

Indeed, the report found that “anything that might reduce the competition between independent benchmark administrators would be at the expense of investor choice.”

There are three main criteria that fund managers consider when picking a specific index.

First, transparency, which defines the way the index is constructed. “The method used to calculate index returns should be clear and unambiguous. This clarity should also extend to the process used for additions to and withdrawals from the index,” the report said.

Second, data integrity, which means investors want to be sure a benchmark administrator uses the most reliable source for data, such as regulated securities or commodities exchanges.

Finally, benchmarks need to be independent in how data from the provider is collated and distributed.

“However,” the report concedes, “some financial market benchmarks do not embody these attributes.”

Odds Against Casinos Hitting Financial Expectations

The casino industry has grown exponentially over the last decade as revenue-hungry states have moved to claim business that once went across state lines to Atlantic City, New Jersey, or the tribal-owned megaresorts in Connecticut. After Nevada, Pennsylvania has emerged as the countrys No. 2 gambling marketing, overtaking Atlantic City, where four of 12 casinos closed last year.

As Massachusetts and New York prepare for a new round of casino building, they have added new levels of financial scrutiny, enlisting consulting firms to vet revenue projections. But the industrys growth in the Northeasts tight geography has made modeling more complex, and experts warn there are no guarantees.

Small Lender’s Interests Might Have Bankrupted RadioShack Corporation

Most investors expected RadioShack Corporation (OTCMKTS:RSHC) to go bankrupt due to plunging sales and rising debt. However, there was still a window of opportunity for the century-old consumer electronics retailer to avoid that fate if distressed lender Salus Capital Partners approved the turnaround store closure plan.

Salus Capital Partners forwarded a $250 million loan facility to RadioShack in late 2013. The loan was the largest in the history of the lending group, which usually forwards loans of up to $25 million to troubled companies. Most analysts have speculated that Salus Capitals deal with RadioShack was largely made to get the attention of Wall Street bankers. Since the future outlook of the struggling retailer remained bleak, Michael Pachter, analyst at Wedbush Securities Inc, said: I could not understand why anybody would have put money in.

Before the $250 million loan facility was forwarded, RadioShack was about to sue Salus Capital for backing the deal, according to Bloomberg citing people close to the matter. As of the end of the fourth quarter (4Q), the loan facility amounted to one-third of the investment portfolio of Salus Capital. According to the regulatory filing revealed last week, the lender downgraded the risk rating on RadioShack debt to substandard, as it was forecasting losses on 60% of its asset-back loans.

Over the last few years, RadioShack had been finding it difficult to cope up with intense competition from online retailers, including Amazon.com, Inc. (NASDAQ:AMZN) and other mobile phone businesses. As of the end of 2013, it had lost 80% of its cash reserves over the last four years to $180 million. The situation worsened even further when the company was left with cash reserves of only $43.3 million last November. It has posted losses for the last 11 quarters.

As RadioShacks performance continued to worsen, Salus Partners started looking for investors to sell part of the debt. However, it could not really get the attention of investors since RadioShack was offering 11.5% interest rate on its deal with Salus Capital while its benchmark bonds were trading around a yield of 16%. The loan remains unattractive for many, despite it being collateralized against the companys assets.

However, Cerberus Capital Management showed interest in buying $100 million of the debt on the condition that it would have a right over RadioShacks assets before Salus Capital in case of bankruptcy. At the same time, RadioShack was in discussions with the lending unit of General Electric Company (NYSE:GE) to stream in a financing package worth $585 million by providing it the first priority on the assets.

Salus Partners would now rank third to claim the companys assets.

RadioShack proposed to close 1,100 of its underperforming stores as part of the turnaround plan. The store closures were meant to direct around $83 million toward cost savings, and further contribute $87 million toward liquidity.

In order to implement the plan, RadioShack had to obtain approval from all its secured lenders. It managed to gain everyones approval, except Salus Capitals. RadioShack officials again tried to gain Salus Capitals approval by elaborating upon several other proposals. They even offered to pay part of the lenders loans and other related fees. However, Salus rejected all proposals and kept citing the loan agreement condition, which restricts RadioShack from closing more than 200 stores annually.

Salus Capital essentially feared that store closures would simply reduce its chances of loan recovery in case of bankruptcy. It did not really give the store closure option a real thought. The actions of Salus Capital suggest that it believed that bankruptcy would have been beneficial for its investments. RadioShack, running out of options, filed for chapter 11 bankruptcy protection last Thursday.

Enforcement of security in insolvency

Usual Luxembourg security package

Luxembourg is one of the leading domiciles worldwide for international investment portfolio acquisition vehicles.

Acquisition financing are usually secured against the assets and cash flows of the target company as well as of the buyout vehicle.

In practice, given that a Luxembourg holding company generally does not have any operational activities, shares, receivables and cash on bank are the most important assets to cover.

Pledges are the common form of security for such movable property. They are governed by the Law of 5 August 2005 on financial collateral arrangements, as amended (the Financial Collateral Act), which transposed Directive 2002/47/EC of 6 June 2002 on financial collateral arrangements (the Collateral Directive) into national law.

Methods of enforcement of security

One of the innovations of the Financial Collateral Act has been to facilitate the enforcement of pledges. It offers to the secured creditor the opportunity to enforce pledges without having to give a prior notice to the pledgor. It further provides for the following enforcement procedures (in addition to the right to receive dividends and vote the pledged shares):

  • private sale at arms length conditions (conditions commerciales normales)
  • appropriation at a value as determined by an independent auditor
  • sale by public auction
  • attribution in court.

Upon the occurrence of an event of default as agreed between the parties, the main methods used by secured creditors to realise or appropriate the collateral are the enforcement by means of private sale or the appropriation of the pledged assets.

Private sale

Advantages:

  • No liability of the pledgee: Where shares are pledged, the private sale of such assets has the specific advantage that the pledgee does not become owner of the Company and does hence not have to assume any liability, even for a short period of time.
  • No valuation required as a matter of law: The law does not required proceeding to a valuation of the pledged assets. The pledgee may conduct a full marketing process to demonstrate that the pledged assets have been sold at arms length conditions. The pledgee would then have to contact several potential buyers and sell the pledged assets to the highest bidder. Reasons of certainty and prudence command however that an independent valuation is obtained to reduce the risk of challenge.

Disadvantages:

  • Vagueness of the term arms length conditions: The main disadvantage of enforcement by means of a private sale is the vagueness of the term at arms length conditions (conditions commerciales normales). As a guidance, a private sale would meet the normal commercial test when made at a price that a well-informed independent willing buyer would normally, under relevant market conditions and taking into account the information available at that time, accept to pay to a willing seller.

Appropriation

Advantages:

  • No intervention of formal authority (court or exchange): The appropriation is an out-of-court enforcement procedure. Considering that there is no formal authority to intervene, an appropriation is a cost efficient method.
  • Valuation can be performed afterwards: The appropriation can be made either after or before the valuation has been completed.
  • Appropriation can be made by a designated third party: The pledged assets can be appropriated by the pledgee himself or by a third party (eg. a special purpose vehicle wholly owned by the lenders).

Disadvantages:

  • Intervention of an independent auditor in case of appropriation of collateral: According to the Financial Collateral Act, the secured creditor can appropriate the pledged assets at a price determined pursuant to the valuation method agreed upon between the parties.

In order to reduce the risk of challenge, it is recommended to obtain an independent valuation. The secured creditor would have to appoint an independent external auditor (reviseur dentreprises agree), who is registered with the Luxembourg Institut des Reviseurs dEntreprises. The auditor will determine the value of the collateral on the basis of (i) the valuation method agreed upon between the parties and (ii) the latest published annual accounts of the Company or other recent or appropriate finance documentation. The secured creditor will need to ensure the availability of this documentation. Upon determination of the value of the pledged collateral, a set-off against the secured debts will be made (just as in a credit-bid process).

Disapplication of the insolvency rules

One consequence of the policy underlying the Financial Collateral Act#39;s aim to enhance certainty for secured parties is the disapplication, in relation to the granting and the enforcement of security, of both Luxembourg and other jurisdictions#39; laws relating to bankruptcy, liquidation, reorganisation or similar measures.

Article 20(4) of the Financial Collateral Act provides that pledges are valid and enforceable against third parties, receivers, liquidators or similar persons notwithstanding a reorganisation, winding up proceedings or similar national or foreign proceedings. The assets subject to the pledge do not form part of the estate of the insolvent company.

Article 24 of the Financial Collateral Act further gives an extraterritorial effect to article 20(4) of the Financial Collateral Act by extending the insolvency remote effect provided by said article to financial collateral arrangements governed by laws other than Luxembourg law, at the sole condition that the provider of the financial collaterals is established in Luxembourg.

The Alteco / Mag Import case

As security for the performance of their obligations under a facility agreement, two Spanish holding companies, Alteco Gestioacute;n y Promocioacute;n de Marcas, S.L and Mag Import, S.L (the Borrowers), granted a pledge over a securities account held in Luxembourg and on which shares in Gecina S.A, a French real estate company, were credited.

The pledge was subsequently amended so as to be enforceable upon default of payment and not only upon early termination as initially stated therein. Said amendment occurred during the claw-back period set out under Spanish insolvency law.

Following default of payment upon maturity, Spanish bankruptcy proceedings were opened against the Borrowers.

At the request of the Spanish receivers, the Spanish court decided to suspend the enforcement of the pledge in order to allow the receivers to challenge the amendment made to the Luxembourg security agreement during the claw-back period.

The secured creditors in turn brought an action before the Luxembourg district court to order that the Spanish provisional measures cannot interfere with the enforcement.

In its decision dated 29 January 2014, the Luxembourg court held that legal actions cannot be used to delay or frustrate the enforcement process of Luxembourg security interest even upon insolvency events.

By doing this, the Luxembourg court re-affirmed the position taken in previous case law whereby article 20(4) of the Financial Collateral Act must be regarded not only as a mandatory legal provision, but as a true loi de police which aims at sheltering financial collateral arrangements against any challenges[1], therefore giving to lenders a fully secured legal framework (Chamber of council of the district court of Luxembourg, 14 October 2010).

Enforcement of a Luxembourg share pledge as restructuring method

Claw-back rules

Companys contracts, including security agreements, can be affected by insolvency procedures if they were concluded during the suspect/hardening period (periode suspecte) and the preceding 10 days.

The suspect period starts from the moment the company stopped paying its debts (cessation des paiements), though the exact date is fixed by the court (a maximum of 6 months before the start of the insolvency procedures).

The following contracts are automatically null and void when concluded during the suspect period:

  • contracts entered into by the insolvent company, if its obligations are significantly more onerous than the obligations of the other party
  • any payment made by the insolvent company in respect of debts that are not yet due
  • any payment made by the insolvent company in respect of debts that are due, unless it was paid in cash or made by bills of exchange
  • any security granted over an asset of the insolvent company to secure obligations contracted before the security contract was entered into

Additionally, any contract or payment can be annulled by the court if the other party had personal knowledge that the company was insolvent.

If made during the suspect period, out-of-court restructuring arrangements are thus at risk to be declared null and void.

Quasi pre-pack

Pre-pack sale is a commonly used restructuring tool in the UK. It entails the sale of a company#39;s business and/or assets which has been arranged in advance of the company entering into administration and will be closed shortly after the appointment of an administrator over the company.

The benefits of this method are, inter alia:

  • the possibility to avoid as much as possible loss of value of the companys business and assets
  • the ability to realise a sale of the companys business and assets within a short period
  • the confidentiality of the prepared sale through pre-pack administration
  • the involvement of a receiver at an early stage as a result of which the receiver is in a better position to collect as much information as necessary
  • the possibility for potential buyers to have more opportunities to perform due diligence
  • a successful sale through a pre-pack will generally result in the preservation of jobs and value as much as possible
  • the value of the company as a going concern will be significantly higher than the sale of the companys business and assets in regular insolvency proceeding.

Because of the execution risk resulting from the application of Luxembourg claw-back rules during a restructuring process and due to the fact that in Luxembourg, an administrator cannot be appointed out of court by a debtor and/or its creditors, it is not possible to pre-agree a sale of business in advance in insolvency proceedings in Luxembourg.

As mentioned above, financial collateral arrangements covered by the Financial Collateral Act are valid and enforceable, even if entered into during the pre-bankruptcy suspect period.

An effect similar to the UK pre-pack sale could then be obtained by implementing a quasi pre-pack through the enforcement (by way of private sale or out-of-court attribution) of a Luxembourg pledge agreement over the shares of the holding company. Even though untested at this stage, this possibility could prove useful for the implementation of loan-to-own strategies in Luxembourg.

Harbinger Renews Attack On $1.7B LightSquared Guaranty

By Pete Brush

Law360, New York (February 09, 2015, 2:48 PM ET) — Harbinger Capital Partners LLC has appealed to a Manhattan federal judge to revisit a bankruptcy court judges refusal to eliminate a guaranty on $1.7 billion in debt owed to a group of LightSquared Inc. secured lenders a setback in Harbingers effort to bring the wireless networking business out of bankruptcy on its terms.

The hedge fund argued in a brief lodged Friday before US District Judge Paul G. Gardephe that US Bankruptcy Judge Shelley C. Chapman erred in late October when she denied Harbingers request…