Presenting a 90-Minute Encore Presentation of the Teleconference with Live, Interactive Q&A Tronox v. Kerr-McGee: Game Changing Ruling on Fraudulent Transfer and Spin-Offs to Shed Legacy Liabilities Navigating Complex Issues of Fraudulent Conveyance, Statute of Limitations, Stern v. Marshall Consent and Damages TUESDAY, MAY 13, 2014 1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific Today’s faculty features: Michael E. Comerford, Of Counsel, Milbank Tweed Hadley & McCloy, New York Cindy Chen Delano, Vice President, Associate General Counsel, AIG Investments, New York The audio portion of the conference may be accessed via the telephone or by using your computer's speakers. Please refer to the instructions emailed to registrants for additional information. If you have any questions, please contact Customer Service at 1-800-926-7926 ext. 10 .
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Tronox v. Kerr-McGee: Game Changing Ruling on Fraudulent Transfer and Spin-Offs to Shed Legacy Liabilities Navigating Complex Issues of Fraudulent Transfers, Statutes of Limitations, Damages and Stern v. Marshall Consent May 13, 2014 Michael E. Comerford Cindy Chen Delano Of Counsel Vice President, Associate General Counsel Milbank, Tweed, Hadley & M c Cloy LLP AIG Investments mcomerford@milbank.com Cindy.Delano@aig.com The views and opinions expressed herein are those of the authors and do not necessarily reflect the views of Milbank, Tweed, Hadley & McCloy LLP or AIG Investments, their affiliates, or their employees.
Outline of Presentation I. History and Overview of Tronox v. Kerr-McGee …………………………….7 II. Overview of State Law vs. Bankruptcy Code Fraudulent Transfers ………………………………….29 III. Fraudulent Transfer Statutes of Limitation Issues ……………………….31 IV. Fraudulent Transfer Analysis ……………………………………………………..35 A. Actual Fraud Transfers ………………………………………………………36 B. Constructive Fraud Transfers ………………………………………........48 V. Damages …………………………………………………………………………………..60 Stern v. Marshall: Consent to Jurisdiction …………………………………...74 VI. 6
SECTION I History and Overview of Tronox v. Kerr-McGee 7
History and Overview of Tronox v. Kerr-McGee • Tronox Incorporated (“ Tronox ”) and 14 of its affiliates (the “ Debtors ”) filed for bankruptcy protection on January 12, 2009. • On November 30, 2010, the bankruptcy court (the “ Bankruptcy Court ”) confirmed the Debtors’ First Amended Joint Plan of Reorganization (the “ Plan ”), which, among other things, created a litigation trust (i.e. , the Anadarko Litigation Trust or the “ Trust ”) to pursue claims that three of the Debtors had brought against Anadarko Petroleum Corporation (“ Anadarko ”) and several of Anadarko’s subsidiaries, including Kerr -McGee Corporation (collectively, “ Kerr-McGee ” or the “ Defendants ”). • The beneficiaries of the Trust are public and private entities that have claims against the Debtors for damages for environmental response costs and tort liabilities. The beneficiaries include the United States, eleven states, the Navajo Nation, four environmental response trusts, and a trust for the benefit of tort plaintiffs. The beneficiaries had agreed to an allocation of the recovery in the lawsuit against Kerr- McGee. 8
History and Overview of Tronox v. Kerr- McGee (cont’d) • The lawsuit was filed by three Debtors (the “ Plaintiffs ”): (1) Tronox Incorporated (“ Tronox ”), a holding company created in 2005 to hold the stock of the other members of the group; (2) Tronox Worldwide LLC (“ Tronox Worldwide ”), which is the successor to Kerr- McGee Corporation (formed in 1929 and also known as “ Old Kerr-McGee ”); and (3) Tronox LLC (formerly known as Kerr-McGee Chemical LLC, which is the successor to Old Kerr- McGee’s chemical business). • The Plaintiffs alleged that they were left with 70 years and billions of dollars of legacy environmental and tort liabilities when the oil and gas assets of the group were transferred out and spun off; that the transfer was designed to “hinder, delay or defraud” creditors; that it left the Debtors insolvent and undercapitalized; and that these creditors can recover from the Defendants the value of the transferred oil and gas assets. These assets were acquired by Anadarko for $18 billion only a few months after they were spun off, and there is no dispute that they are worth billions more today. • Significance of lawsuit : This lawsuit raises issues of first impression regarding the application of the fraudulent conveyance laws in the face of substantial environmental and tort liability. 9
Before the Separation: Profits Versus Liabilities • By November 2005, Old Kerr-McGee had terminated all of its historical business except the oil and gas exploration and production (“ E&P ”) business and the titanium dioxide business. • By 2005, the E&P business had become wholly dominant, producing 2005 operating profits of approximately $1.8 billion as compared to the 2005 operating profits of $106 million for the titanium dioxide business. During the five years prior to 2005, the E&P business had produced cumulative operating profits of $5.2 billion as compared to $312 million for the titanium dioxide business. • Despite the success of the E&P business, Old Kerr-McGee was burdened by enormous legacy environmental and tort liabilities. • Its portfolio of environmental sites numbered more than 2,700 in 47 states, including federal Superfund sites in Jacksonville, FL; Columbus, MS; Manville, NJ; Soda Spring, ID; West Chicago, IL; Milwaukee, WI; and Wilmington, NC. • It had incurred more than $1 billion in environmental response costs since 2000 and was spending an average of more than $160 billion annually on remediation. 10
Before the Separation: Profits Versus Liabilities (cont’d) • Old Kerr-McGee also employed more than 40 professionals in its Safety and Environmental Affairs Group just to manage the active environmental sites. • During the 6 year period ended in 2005, Old Kerr-McGee had settled approximately 15,000 claims of creosote tort liability for $72 million (plus $26 million in defense costs) and it was faced with an additional 9,450 pending claims and trial lawyers intent on prosecuting a wave of creosote claims. 11
Path to Separation: Project Titan and Project Focus • As early as 2000, Old Kerr-McGee began to plan the transactions that restructured the company’s E&P and chemical businesses and that are the heart of the issues in the lawsuit. • In 2000, Lehman Brothers (one of Kerr- McGee’s investment bankers) made a series of presentations to the top management and the board of directors regarding “Project Titan” and later “Project Focus.” These “transactions” included the transfer of the E&P business assets, which were initially owned by subsidiaries of Old Kerr-McGee, to a new holding company known as Kerr- McGee Corporation (“ New Kerr-McGee ”). • The Plaintiffs contended that these steps were part of a general plan to split E&P assets from the titanium dioxide business, which was left with Old Kerr-McGee, along with all of the legacy environmental and tort liabilities. • The Defendants insisted that the purpose of Project Titan and Project Focus was to rationalize the companies’ two main businesses by organizing them into separate corporate groups and that sound business reasons justified having the two businesses as standalone entities. 12
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