44CanalCenterPlaza,Suite400•Alexandria,VA22314•(703)739-0800•Fax(703)739-1060•www.abiworld.org ProskauerRoseLLP;NewYork RichardCorbiisanassociateinthe NewYorkoffjceofProskauerRoseLLP. rcorbi@proskauer.com Bankruptcy&RestructuringGroupofthe RichardJ.Corbi J OURNAL A M E R I C A N B A N K R U P T C Y I N S T I T U T E The Essential Resource for Today’s Busy Insolvency Professional Nondisclosure of Planned Corporate Bankruptcy Does Not Violate Federal Securities Law Contributing Editor: the class period, Intelsat raised ques- About the Author tions about Loral’s assets and sought to change the price it would pay for Loral’s assets. 14 Intelsat reduced its initial offer of $1.1 billion to $950 million for Loral’s A s the financial crisis that began assets. 15 On July 12-13, 2003, Loral and in 2007 continues to rage on Intelsat concluded negotiations in which with no end in sight, many in 2002 and 2003. 6 In 2003, Loral was Intelsat raised its offer price to more than companies have to file bankruptcy to experiencing financial difficulties and $1 billion. 16 On July 14, 2003, Loral’s escape their crushing debt. The latest had $2.2 billion of debt, and as a result board of directors approved the sale to trend in this process is when companies sought a variety of ways to improve Intelsat as well as the bankruptcy filing. 17 announce that they are going to file for its financial circumstances. 7 That same On July 15, 2003, Loral and Intelsat bankruptcy, something unheard of until year, Intelsat Ltd. emerged as a possible signed an asset-purchase agreement in the recent onslaught of bankruptcies. 1 buyer of some of Loral’s assets. 8 By May which Intelsat would pay $1.06 billion Distressed companies that buck this 2003, Intelsat demanded that Loral file for Loral’s assets and Loral would file for trend of announcing imminent bankrupt- bankruptcy in order to complete the sale chapter 11. 18 Before the markets opened cy may find themselves defending a law- so that title to Loral’s satellites would that same day, Loral announced its sale suit. This is what happened in the recent safely pass to Intelsat. 9 Since the sale to Intelsat and its chapter 11 bankruptcy case of Beleson v. Schwartz . 2 In Beleson , to Intelsat required a bankruptcy filing, filing. 19 As a result, the lead plaintiffs the U.S. District Court for the Southern Schwartz held a meeting of Loral’s board alleged that during that two-day period, District of New York ultimately resolved of directors on May 27, 2003, in order Loral’s stock price went from $3.01 to the disclosure issue in the debtor’s favor, to discuss the sale to Intelsat as part of a 30 cents per share on July 16, 2003. 20 holding that failure to disclose its nego- tiations of sale terms requiring a bank- ruptcy filing did not violate the federal Code to Code securities laws. 3 Factual Background prepackaged bankruptcy. 10 On May 30, On Aug. 11, 2003, the lead plain- In Beleson, the lead plaintiffs, Robert 2003, Intelsat and Loral agreed that a tiffs filed a class action asserting 1934 Beleson and Harvey Matcovsky, brought sale would be completed through §363 Act and Rule 10b-5 violations, assert- a class action against Bernard Schwartz of the Bankruptcy Code, although Loral ing that four fraudulent statements were for alleged violations of §§10(b) and hoped to avoid bankruptcy and actively made during the class period, giving 20(a) of the Securities and Exchange Act pursue other alternatives out of distress. 11 rise to the securities law violations. of 1934 (the 1934 Act) and Securities On June 24, 2003, Loral provided its Loral issued the following: (1) a June and Exchange Commissions Rule 10b-5. 4 lenders with a cash flow-forecast on the 30, 2003, press release announcing that The lead plaintiffs represented a group assumption that it would file for bank- it had reached an overall settlement of of investors that purchased securities of ruptcy within 30 days and that Loral had the Alcatel arbitration claims; (2) a June Loral Space & Communications Ltd. settled arbitration claims with Alcatel 30, 2003, press release in which Loral (the debtor) from June 30, 2003, to July Space Industries and Alcatel Space. 12 As stated it had collected $55 million from 15, 2003 (the class period). 5 The debtor of June 30, 2003, the first day of the class Intelsat representing an acceleration of a was a satellite communications compa- period, the lead plaintiffs alleged that receivable for agreed-upon performance ny, and Schwartz was the debtor’s CEO due diligence items remained. 13 During and chairman of the board of directors 13 Id. at 521-22. 14 Id. at 522. 6 Id. at 520-21. 1 See Jeffrey McCracken, “New Chapter in Bankruptcy: More Firms Open 15 Id. 7 Id. at 521. 16 Id. Up Early,” Wall St. J. , March 25, 2009, at C1. 8 Id. 2 599 F.Supp.2d 519 (S.D.N.Y. 2009). 17 Id. 9 Id. 3 Id. at 520. 18 Id. 10 Id. 4 Id. 19 Id. 11 Id. 5 Id. 20 Id. 12 Id.
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