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Companies forced to wind down operations and liquidate their assets often choose a liquidation process known as an ABC (Assignment for the Benefit of Creditors). An ABC is usually more streamlined, requires fewer public disclosures and less court involvement, and is significantly less expensive than other formal liquidation processes such as federal bankruptcy proceedings. 1 However, recent rulings by the Delaware Court of Chancery, a popular forum for ABCs, suggest that ABCs may no longer be as easy as 1-2-3 — at least, not in Delaware.
An ABC is a liquidation process governed by state law by which a company (referred to as the assignor or the debtor) assigns all of its assets to an assignee (typically, a professional firm specializing in ABCs) that will manage the liquidation process and distribute the assets’ proceeds to the company’s creditors in accordance with the priorities dictated by state law. The assignee serves as a neutral, independent fiduciary whose duty is to maximize value for the company’s creditors and shareholders.
Certain states, such as Delaware, have enacted comprehensive statutory schemes that require various degrees of court oversight over the ABC process, including court approval of significant transactions, such as asset sales. Other states have less-developed ABC statutes and do not require any court supervision or approvals.
Recently, because of its “growing concern” regarding the “transparency and consistency” of ABC proceedings, 2 the Delaware Court of Chancery has begun requiring robust public disclosures at the outset of an ABC proceeding regarding the company and the assignee, akin to disclosures that a company typically makes within the first few days of a federal bankruptcy case. 3 At least one Vice Chancellor on the court has announced that he will require such disclosures in all future ABC cases assigned to him. 4 The purpose of these disclosures is to ensure that the court has sufficient information to evaluate the relief requested by the assignee. This is particularly important in ABC cases, which are handled ex parte — i.e., without notice to all parties who may be affected by the relief. 5
The Court of Chancery explained that the information that should be disclosed may vary from case to case. However, in at least three recent ABC proceedings, 6 the court has entered similar orders requiring assignees to make the following disclosures in a publicly filed affidavit in the early stages of the ABC proceeding:
In addition, the affidavit must attach the following disclosures:
These are not the only disclosures that may be required in an ABC. Depending on the circumstances of the case and the relief requested by the assignee, the Court of Chancery may require additional affidavits and reports, which the assignee may be required to serve upon all creditors and other parties in interest.
In light of the Court of Chancery’s focus on additional disclosures, the ABC process in Delaware may no longer be as streamlined and efficient as it once was. A company considering winding down and liquidating its assets through an ABC in Delaware should be prepared at the outset to provide significantly more information about its business, financial affairs, and events leading up to the ABC. Although these additional disclosures may add time and expense to the process, an ABC—whether in Delaware or elsewhere—is still a viable and cost-effective alternative to a federal bankruptcy proceeding that should be considered by companies facing liquidation.
[ 1 ] A bankruptcy or other proceeding may, in certain circumstances, be necessary or preferable to an ABC. A company facing financial distress should consult with experienced counsel to advise on the company’s specific situation and options. [ 2 ] See In re Theonys, Inc. , C.A. No. 2023-0195-PAF, Letter (Del. Ch. May 22, 2023) (the “Theonys Letter”). [ 3 ] See In re Glob. Safety Labs, Inc. , 275 A.3d 1278, 1284 (Del. Del. Ch. 2022) (“What the Petition lacks, and what the court invariably needs, is context. The bankruptcy courts and their practitioners have developed a vehicle for providing that context through a submission known as a ‘First-Day Declaration’ or a ‘First-Day Affidavit.’ . . . This case calls out for a comparable declaration, tailored by skilled counsel to provide the information that the court needs to evaluate the Petition. . .”). The Global Safety decision examined a petition by a company seeking to dissolve under Delaware law. However, the court explained that its concerns regarding the lack of transparency in that case also applied to ABC proceedings. See id . at 1279-80 (“The Petition is a bare-bones four-page document consisting principally of conclusory averments. It is not an outlier. It is representative of petitions that the court sees regularly in cases involving defunct or dissolved entities and in proceedings involving assignments for the benefits of creditors.”). [ 4 ] See Theonys Letter. [ 5 ] See Glob. Safety , 275 A.3d at 1280 (“Many of these proceedings are handled ex parte , so the court never has the benefit of an interested party that can provide a different perspective or ask probing questions.”). [ 6 ] In re Theonys Inc . C.A. No. 2023-0195-PAF, Order (Del. Ch. May 22, 2023); In re Boston Security Token Exchange LLC , C.A. No. 2023-0494-PAF, Order (Del. Ch. May 22, 2023); In re Secure Transfusion Solutions, Inc. , C.A. No. 2023-0463-PAF, Order (Del. Ch. May 22, 2023).
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On September 16, 2020, the Superior Court of Delaware issued an order with potential implications for companies contemplating acquisitions of businesses or assets. In MTA Can. Royalty Corp. v. Compania Minera Pangea , S.A. De C.V. , No. N19C-11-228 AML CCLD, 2020 Del. Super. LEXIS 2780 (Sept. 16, 2020), Judge Abigail M. LeGrow held that, following a merger,[1] the surviving company lacked standing to enforce a contract entered into by its predecessor (the non-surviving company in the merger) because the contract’s anti-assignment clause prohibited assignment “by operation of law”.
Companies considering acquisitions should carefully review their target’s contracts for anti-assignment clauses that prohibit assignment “by operation of law”, which Delaware courts interpret to include certain mergers. In addition, where a target’s key contracts contain anti-assignment clauses with such language, companies should carefully consider the preferred transaction structure. In a reverse triangular merger, the acquirer’s newly formed subsidiary is merged into the target, with the result being that the target survives and becomes the acquirer’s subsidiary. By contrast, in a forward triangular merger, the target does not “survive” and its rights are transferred to the existing subsidiary, which may implicate anti-assignment clauses. Reverse triangular mergers do not face the same issue because the target continues its corporate existence as a subsidiary of the acquirer.
In 2016, Compania Minera Pangea, S.A. de C.V. (“CMP”) purchased mineral rights in the El Gallo Mine from 1570926 Alberta Ltd. (“Alberta”). In exchange, CMP paid Alberta $5.25m in cash at closing and agreed to pay Alberta an additional $1m in 2018 subject to certain conditions. Of note, the agreement contained the following anti-assignment clause (the “Anti-Assignment Clause”):
Neither this Agreement nor any of the rights, interests or obligations under this Agreement may be assigned or delegated, in whole or in part, by operation of law or otherwise, by [Alberta] without the prior written consent of each other party, and any such assignment without such prior written consent shall be null and void. . . . [T]his Agreement will be binding upon, inure to the benefit of, and be enforceable by, the parties and their respective successors and assigns.
In July 2017, Alberta merged with Global Royalty Corp. (“Global”), a subsidiary of Metalla Royalty & Streaming Ltd., and Global was the surviving entity. Following that transaction, Global changed its name to MTA Canada Royalty Corp. (“MTA”). In November 2019, MTA brought a breach of contract claim against CMP based on CMP’s alleged failure to pay the $1m in consideration due in 2018.
CMP argued that MTA lacked standing to enforce Alberta’s contract with CMP because, per the Anti-Assignment Clause, Alberta was required to obtain CMP’s written consent before assigning its rights to MTA. MTA argued that the Anti-Assignment Clause was meant to prevent third-party assignments, not “successor assignments” like Alberta’s merger. Id. at *11-12. To make this argument, it relied on a 1993 Chancery decision, in which then-Vice Chancellor Jacobs had held that, subject to certain conditions, anti-assignment clauses do not apply to mergers unless mergers are explicitly prohibited. Star Cellular Tel. Co. v. Baton Rouge CGSA ., 1993 Del. Ch. LEXIS 158, at *25 (July 30, 1993). According to MTA, because the last sentence of the Anti-Assignment Clause referred to “successors”, it was clearly not intended to extend to mergers.
The Superior Court disagreed. It explained that, as a result of the merger, Alberta had ceased to exist, so MTA could only enforce the contract if it showed that the Anti-Assignment Clause did not apply. MTA , at *6. It then held that the Anti-Assignment Clause clearly barred Alberta’s transfer of rights through a merger because the clause prevented assignment “by operation of law”, which Delaware case law had interpreted as referring to forward triangular mergers. Id. at *7-14. In light of what it regarded as a straightforward application of the Anti-Assignment Clause, the Superior Court did not engage in the Star Cellular analysis. The Superior Court found that the reference to “successors” in the Anti-Assignment Clause meant only that “valid successors” had the right to enforce the contract. Id. at *13.
Of special relevance is the Superior Court’s treatment of existing Delaware case law on anti-assignment clauses and forward triangular mergers. Existing precedent from the Court of Chancery held that anti-assignment clauses containing both a prohibition on assignment “by operation of law” and a reference to “successors” were ambiguous. Under the Star Cellular test, this ambiguity was construed against the application of the anti-assignment clause.
Specifically, MTA appears at odds with the Chancery ruling in Tenneco Auto. Inc. v. El Paso Corp. , which also involved the impact of an anti-assignment clause following a forward triangular merger. C.A. No. 18810-NC, 2002 Del. Ch. LEXIS 26 (Mar. 20, 2002). The language of the anti-assignment clause in Tenneco was similar to that in MTA : both clauses prohibited assignment “by operation of law” while also referencing “successors”. In Tenneco , Vice Chancellor Noble found that those conflicting references made the anti-assignment clause ambiguous, meaning that, under the Star Cellular test, the successor company could enforce the contract. Id. at *7-10. The MTA Court did not explain why it reached the opposite result.
Similarly, in ClubCorp, Inc. v. Pinehurst, LLC , Vice Chancellor Parsons held that, following a forward triangular merger, an anti-assignment clause with language like that in Tenneco was ambiguous because the agreement both referenced “successors” and prohibited assignment “by operation of law”. No. 5120-VCP, 2011 Del. Ch. LEXIS 176, at *26-29 (Nov. 15, 2011). Again, the ambiguity militated in favor of finding that the anti-assignment clauses did not apply to the merger. MTA did not address Pinehurst.
MTA has several significant implications for practitioners. The first is a reminder to carefully review a target’s contracts for anti-assignment clauses. Such clauses in important contracts should be flagged and thoughtfully evaluated.
In addition, practitioners should remain aware that Delaware courts interpret the phrase “by operation of law” in assignment clauses to refer to mergers in which the target company does not survive. The presence of this language in anti-assignment clauses in a target’s important contracts (if those contracts are governed by Delaware law) should prompt a discussion about the appropriate transaction structure. For example, in MTA , the Court suggested that MTA would have had standing to enforce the contract with CMP if it had been merged through a reverse triangular merger rather than a forward triangular merger. The Superior Court cited a 2013 Chancery decision, Meso Scale Diagnostics, LLC v. Roche Diagnostics GmbH , in which Vice Chancellor Parsons found that “a reverse triangular merger does not constitute an assignment by operation of law”. 62 A.3d 62, 83 (Del. Ch. 2013).
If dealing with similar language in anti-assignment clauses in important agreements, practitioners should consider alternative transaction structures that would allow the target to retain its corporate existence. According to MTA , such alternatives should allow successor companies to enforce agreements without running afoul of anti-assignment clauses prohibiting “assignment by operation of law”.[2]
[1] The transaction was an amalgamation under Canadian law, which the parties and the Court agreed was the equivalent of a merger under Delaware law. The transaction structure was equivalent to a forward triangular merger.
[2] This may not be true in other jurisdictions. For example, under California law, a reverse triangular merger has been found to be a transfer of rights by operation of law . See SQL Sols. v. Oracle Corp. , 1991 U.S. Dist. LEXIS 21097, at *8-12 (N.D. Cal. Dec. 18, 1991).
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Edition: 2023 Edition Publisher: Foundation Press ISBN: 979-8-8878-6024-4. FIRST ASSIGNMENT: Welcome to Contracts I, Section O2. For our first class on August 20, please work through the Study Guide on Promises and Bodies of Law (this will be posted on the course's CANVAS site by August 1).
COURSE NO. SEC. INSTRUCTOR TEXTBOOK FIRST ASSIGNMENT Other Materials, 2023 Supplement Author: Glannon, Joseph W. Edition: 2023 Publisher: Aspen Publishing ISBN: 979-8-8861-4503-8 979-8-8861-4321-8 (for the 2022
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FIRST ASSIGNMENT. Administrative Law ; Cheskis . Due on Monday, August 16. th. Please read pages 1-26 of the text by Funk, Shapiro, and Weaver. Animal Law . Lazo Due on Tuesday, August 17 th: Please read and be prepared to discuss the cases in pages 3-45 of the text, on the topic of how "animal" is defined in different laws. Business ...
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First assignment is reading. First non-reading assignment was writing a practice essay. First graded assignment was the final exam. 20. Reply. RogerDeanVenture. • 7 yr. ago. First thing I did was talk to a lady who we didn't take as a client. She later tried to sue me.
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the course first assignme by January t will 1st. be 9th posted on the Calendar section of Canvas for. Contracts II. (section R) Mary Kate Kearney. Due Tuesday, January 10th Contract Introduction, I. Statute Defenses of pages Frauds, 227-28 pages 319-23. Criminal Law.
First Meeting: Monday, August 26, 10:30-11:45 am in Room 109. Assignment: For the first class, please:. Review the syllabus and course expectations; Read Section 1(a), (b), and (c) of the Internal Revenue Code (which can be found easily on the Cornell's Legal Information Institute here or by googling "IRC 1"); and. Read pp. 1-13, 18-38, 44-46 of the casebook (i.e. Chapter 1, Sections 1, 3, and ...
In Delaware, the assignment agreement is the main document in which the assignor assigns its property to the assignee in trust for the assignor's creditors. The Delaware Code does not have a prescribed form of an assignment agreement, so general principles of contract and trust law apply. However, an assignment may be deemed void if its
A recent federal court decision applying Delaware law, Partner Reinsurance Co. Ltd. v. RPM Mortgage, Inc., 2021 WL 2716307 (S.D.N.Y. July 1, 2021), explores some rare contractual territory—i.e., the question whether, in the absence of consent, a valid assignment may be made by a party of its rights to pursue a claim for damages for breach of a merger agreement, notwithstanding an anti ...
Delaware ABCs (Assignments for the Benefit of Creditors): No Longer as Easy as 1-2-3. Companies forced to wind down operations and liquidate their assets often choose a liquidation process known as an ABC (Assignment for the Benefit of Creditors). An ABC is usually more streamlined, requires fewer public disclosures and less court involvement ...
General DWI/DUI statutes: NJ (NJSA 39:4-50) DE (11 De. C. §4177) PA (75 Pa. St. §3802) Ramsey Course Textbook Chapter 1 (just §1:1) and Chapter 2 (just §§2:1 and 2:8). A syllabus will be posted on Canvas soon under the "Files" section for this course. The syllabus contains the reading assignments for all class lectures after the first ...
According to MTA, such alternatives should allow successor companies to enforce agreements without running afoul of anti-assignment clauses prohibiting "assignment by operation of law".[2] [1] The transaction was an amalgamation under Canadian law, which the parties and the Court agreed was the equivalent of a merger under Delaware law.
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Page 2 of 2 Week Topic Due this Week Goals and Objectives Orientation Week August 10-12 Introduction to Legal Practice Prior to class: Read: (1) Coughlin, pp. 3-14 (2) Course Policies (3) Syllabus Goals: Able to navigate a Bridges class site efficiently. Objectives: Able to locate each week's class materials, "to do" lists, assignments, etc. Able to upload assignments.
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Federal Civil Rules Supplement, 2022-2023, For Use with All Civil Procedure Casebooks (Selected Statutes) Author: Spencer, A. Edition: 2022 Edition. Publisher: West Academic Publishing ISBN: 978-1-6365-9929-8. This is a 90-minute preview/review of most of the course. Please watch it before our first meeting.
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