One of the biggest problems for any finance lawyer is how transatlantic insolvencies should be conducted.
There has been a series of restructurings in the last decade where the US and English courts have had to work together, and for the most part compromises have been reached between the two systems. But the most recent case looks set to blow everything out of the water.
UK manufacturing company T&N is a subsidiary of US company Federal-Mogul, which filed for bankruptcy (or Chapter 11) three years ago. Federal-Mogul is fiendishly complex, not least because of all its asbestos liabilities.
At first the lawyers believed it would end up as a transatlantic restructuring led by a Chapter 11 plan of reorganisation and supported in the UK by a scheme of arrangement. But the asbestos issue, where there could be future creditors that have not yet emerged, has been the problem. Under US law, an asset sold out of insolvency is not free of asbestos liabilities in the future, but under English law an asset sold out of administration is clear of longtail liabilities. It is a classic conflict of laws.
The UK administrators, advised by Denton Wilde Sapte, are now objecting to the Chapter 11 plan because they argue that it could be unfair to future UK creditors.
In early December, the bankruptcy court in Delaware will convene. If UK objections are not taken into account, Federal-Mogul will make legal history as the first unenforceable Chapter 11 in the UK. All bets are off.