Westlaw Runs Akin Gump Article on Post-Bankruptcy Securities Trading
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“To be restricted or not to be restricted: affiliate securities trading after bankruptcy,” an article by Akin Gump corporate partners Jesse Brush, Daniel Fisher and Stephen Kuhn has been published by Westlaw Today.
Weaving in themes and quotes from Shakespeare’s Hamlet, the authors discuss the topic of trading by affiliates after the issuers emergence from bankruptcy. The authors note that, despite a broad exemption “for post-emergence resales provided by Section 1145 of Title 11 of the United States Code, practitioners remain wary of public trading by former creditors that become large equity holders.”
The article discusses the important role of Section 1145 in facilitating reorganizations under the Bankruptcy Code, pointing, for example, to the fact that, under Section 1145, “debtors are able to issue new securities without the need to undertake an expensive registration processor to qualify for another exemption from registration.” It also covers treatment of “underwriters,” as defined under Section 1145, and the question of whether control persons (“any person directly or indirectly controlling…the issuer”) have available to them an “ordinary trading transactions” exception to the restrictions applicable to underwriters.
The article also covers interpretive letters and no-action letters issued by the Securities and Exchange Commission that explain that, normally, control persons who might otherwise be deemed “issuers” under the relevant section of law may receive securities under Section 1145 and resell those securities to the public without registration and without a holding period.
The authors conclude by noting that, “Large creditors of distressed companies need not wonder if securities received in exchange for claims upon emergence from bankruptcy are subject to holding periods. Following the language and purpose of Section 1145, securities held by control persons may be resold in ‘ordinary trading transactions’.”
To read the full article and conclusion, click here.
