Restructuring & Insolvency

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Linklaters Insights: Business judgment standard applicable to sale of assets located in U.S. in a Chapter 15 case

14 December 2012

On November 16, 2012, the United States Bankruptcy Court for the District of Delaware issued an opinion in the Chapter 15 case of In re Elpida Memory, Inc. addressing which legal standard applied to the Bankruptcy Court’s review of an asset sale already approved by the court presiding over Elpida’s main reorganization proceeding in Japan.

In a matter of first impression, the Bankruptcy Court held that the plain meaning of section 1520 of the U.S. Bankruptcy Code and the associated legislative history required it to apply the section 363 standard, that is, whether the sale constitutes a sound exercise of business judgment. The Bankruptcy Court concluded that the principles of comity embodied in Chapter 15 either did not apply or could not defeat the plain meaning and legislative history of section 1520. As a result, a subsequent hearing is scheduled to be held on December 4-5, 2012, to determine whether the foreign representative can show that the sale of assets located in the U.S. constitutes a sound exercise of business judgment.

This decision is important because it provides objecting creditors a second bite at the apple to challenge the asset sale with all of the discovery and related tools afforded to creditors under the U.S. Bankruptcy Code and associated rules. This could complicate the consummation of sales for Chapter 15 debtors and may be a consideration in determining whether to file a Chapter 15 case.

The full article is available on the Linklaters website.