Monthly Archives: September 2014

Bankruptcy Court Holds Secured Creditors Can Be “Crammed Down” With Below-Market Replacement Notes

The following post comes to us from Mark I. Bane, Partner focusing on corporate restructurings at Ropes & Gray LLP, and is based on a Ropes & Gray Alert.

On August 26, 2014, in the case In re MPM Silicones, LLC, Case No. 14-22503 (Bankr. S.D.N.Y.) (“Momentive”), the United States Bankruptcy Court for the Southern District of New York held that secured creditors could be “crammed down” in a chapter 11 plan with replacement notes bearing interest at substantially below market rates. Unless overturned on appeal, this decision will introduce a new level of risk to leveraged lending—secured lenders will face the specter of losing in a bankruptcy restructuring not only their negotiated rates, but any semblance of market treatment. This risk could result in a tightening of availability and increased costs to borrowers in levered transactions.

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Outsized Power & Influence: The Role of Proxy Advisers

Daniel M. Gallagher is a Commissioner at the U.S. Securities and Exchange Commission. The following post is based on a Washington Legal Foundation working paper by Mr. Gallagher; the complete publication, including footnotes, is available here.

Shareholder voting has undergone a remarkable transformation over the past few decades. Institutional ownership of shares was once negligible; now, it predominates. This is important because individual investors are generally rationally apathetic when it comes to shareholder voting: value potentially gained through voting is outweighed by the burden of determining how to vote and actually casting that vote. By contrast, institutional investors possess economies of scale, and so regularly vote billions of shares each year on thousands of ballot items for the thousands of companies in which they invest.

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The Million-Comment-Letter Petition: The Rulemaking Petition on Disclosure of Political Spending Attracts More than 1,000,000 SEC Comment Letters

Lucian Bebchuk is Professor of Law, Economics, and Finance at Harvard Law School. Robert J. Jackson, Jr. is Professor of Law at Columbia Law School. Bebchuk and Jackson served as co-chairs of the Committee on Disclosure of Corporate Political Spending, which filed a rulemaking petition requesting that the SEC require all public companies to disclose their political spending, discussed on the Forum here. Bebchuk and Jackson are also co-authors of Shining Light on Corporate Political Spending, published last year in the Georgetown Law Journal. A series of posts in which Bebchuk and Jackson respond to objections to an SEC rule requiring disclosure of corporate political spending is available here. All posts related to the SEC rulemaking petition on disclosure of political spending are available here.

In July 2011, we co-chaired a committee of ten corporate and securities law experts that petitioned the Securities and Exchange Commission to develop rules requiring public companies to disclose their political spending. We are delighted to announce that, as reflected in the SEC’s webpage for comments filed on our petition, the SEC has now received more than a million comment letters regarding the petition. To our knowledge, the petition has attracted far more comments than any other SEC rulemaking petition—or, indeed, than any other issue on which the Commission has accepted public comment—in the history of the SEC.

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Stakeholder Governance, Competition and Firm Value

The following post comes to us from Franklin Allen, Professor of Economics at the University of Pennsylvania and Imperial College London; Elena Carletti, Professor of Finance at Bocconi University; and Robert Marquez, Professor of Finance at the University of California, Davis.

Academic literature has typically analyzed corporate governance from an agency perspective, sometimes referred to as separation of ownership and control between investors and managers. This reflects the view in the US, UK and many other Anglo-Saxon countries, where the law clearly specifies that shareholders are the owners of the firm and managers have a fiduciary duty to act in their interests. However, firms’ objectives vary across other countries, and often deviate significantly from the paradigm of shareholder value maximization. A salient example is Germany, where the system of co-determination requires large firms to have an equal number of seats for employees and shareholders in the supervisory board in order to pursue the interests of all parties (see Rieckers and Spindler, 2004, and Schmidt, 2004). Similarly, stakeholders’ interests are pursued through direct or indirect representation of employees in companies’ boards in countries like Austria, the Netherlands, Denmark, Sweden, Luxembourg and France (Wymeersch, 1998, and Ginglinger, Megginson, and Waxin, 2009), or through other arrangements and social norms in countries like China and Japan (Wang and Huang, 2006, Dore, 2000, Jackson and Miyajima, 2007, and Milhaupt 2001).

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2014 Proxy Season Review—Looking Forward to Next Year

The following post comes to us from John P. Kelsh, partner in the Corporate and Securities group at Sidley Austin LLP, and is based on a Sidley Austin publication by Mr. Kelsh, Claire H. Holland, Corey Perry, and Thomas J. Kim.

“Proxy season” is stretching longer and longer with each passing year as the “off season” has become the season to engage with institutional shareholders and to prepare for the next season. With 2014’s annual meetings now largely completed and the 2015 proxy season on the horizon, now seems a good time to review lessons learned and themes from 2014. This Corporate Governance Update addresses some of the developments that shaped the proxy season in 2014 and discusses points worth considering as preparations for the 2015 season begin.

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From Institutional Theories to Private Pensions

The following post comes to us from Martin Gelter, Associate Professor of Law at Fordham University.

I recently posted my forthcoming book chapter, From Institutional Theories to Private Pensions (in Company Law and CSR: New Legal and Economic Challenges, Ivan Tchotourian ed., Bruylant 2014) on SSRN.

Corporate governance is sometimes described by political scientists as a three-player game between capital, management, and labor. Yet, in most contemporary debates about corporate governance among lawyers and economists, especially in the English-speaking world, the agency problem and conflicts of interest between shareholders and management seem to be single conflict of interest to which much attention is paid. In this chapter, which builds on previously published law review articles, I attempt to put this observation into a larger historical context, arguing that the nearly exclusive focus on the concern of shareholders is historically and geographically contingent. Differences between conflicts of interest in different corporate governance systems have long been recognized in the scholarly literature. Most obviously, it is well known that the majority-minority agency problem is more salient than the one between shareholders and managers in countries where concentrated ownership is more common. However, it is also worthwhile to look at other conflicts in the tripartite structure of corporate governance that may be equally relevant, at least under certain circumstances. Most importantly, the interests of employees are often relegated either to employment law, or are interpreted as an aspect of corporate social responsibility and thus dismissed as an issue promoted by “sandals-wearing activists” that are effectively only a distributive concern.

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So Much for Bright-Line Tests on Extraterritorial Reach of US Securities Laws?

The following post comes to us from Jonathan E. Richman, Partner in the Litigation Department and a co-head of the Securities Litigation Group at Proskauer Rose LLP, and is based on a Proskauer publication authored by Mr. Richman, Ralph C. Ferrara, Ann M. Ashton, and Tanya J. Dmitronow.

In its landmark 2010 decision in Morrison v. National Australia Bank, the Supreme Court articulated what seemed to be a bright-line test for determining the extent to which the U.S. securities laws apply to transactions with international elements. In so doing, the Court harshly rejected the fact-intensive “conduct/effects” tests propounded several decades ago by the Second Circuit and followed by many other courts throughout the country.

Last week, the Second Circuit got its revenge. In a long-awaited decision in ParkCentral Global Hub Limited v. Porsche Automobile Holdings SE, the court declined “to proffer a test that will reliably determine when a particular invocation of [the Securities Exchange Act’s anti-fraud provision] will be deemed appropriately domestic or impermissibly extraterritorial.” Instead, the Second Circuit held that courts must carefully consider the facts and circumstances of each case to avoid the very result that the Supreme Court had hoped to prevent in Morrison: promiscuous application of the U.S. securities laws to transactions that have little, if any, relationship to the United States.

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The Tension Between Conservative Corporate Law Theory and Citizens United

The following post is based on a recent article forthcoming in Cornell Law Review, earlier issued as a working paper of the Harvard Law School Program on Corporate Governance, by Leo Strine, Chief Justice of the Delaware Supreme Court and a Senior Fellow of the Program, and Nicholas Walter, law clerk at the U.S. Court of Appeals for the Ninth Circuit, and a former law clerk at Delaware Court of Chancery. The article, Conservative Collision Course?: the Tension Between Conservative Corporate Law Theory and Citizens United, is available here. Work from the Program on Corporate Governance about corporate political spending includes Shining Light on Corporate Political Spending by Lucian Bebchuk and Robert Jackson, discussed on the Forum here, and Corporate Political Speech: Who Decides? by Lucian Bebchuk and Robert Jackson, available here.

Leo Strine, Chief Justice of the Delaware Supreme Court Review and a Senior Fellow of the Harvard Law School Program on Corporate Governance, and Nicholas Walter recently issued an essay with that is forthcoming in Cornell Law Review. The essay, titled Conservative Collision Course?: the Tension Between Conservative Corporate Law Theory and Citizens United, is available here.

The abstract of Chief Justice Strine’s and Walter’s essay summarizes it briefly as follows:

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