Intersection between Bankruptcy and Securities Law
Can beneficial owners of convertible (into common stock, registered or to be registered) debt (or members of a bank group that holds options/warrants to purchase such stock) of a public company take “group” action without complying with Regulation/Schedules 13D, 13G and Section 16 of the Securities Exchange Act of 1934?
The answer depends on the type of security owned and the type of action to be taken. The disclosure requirements of Regulation 13D-G apply only when a person or group acquires more than 5 percent of a class of equity securities that are registered pursuant to Section 12 of the Exchange Act and that have voting rights. (17 C.F.R. §240.13d-1(a) & (i); Release No. 34-39538, n.43, 63 FR 2854 (January 1998)). The definition of “equity security” also includes a security convertible into an equity security, but only if the conversion right will occur within 60 days of acquisition of the underlying security. (17 C.F.R. §240.13d-3(d)(1)(i); Release No. 34-39538, n.3(a), 63 FR 2854 (January 1998)). The definition would not cover a debt security that might be exchanged for an equity security pursuant to a confirmed reorganization plan. The same Regulation 13D analysis applies when considering the disclosure requirements in §16, except that the trigger for disclosure is ownership of more than 10 percent of the class of securities at issue rather than 5 percent. (17 C.F.R. §240.16(a) - 1(a)(i); Release No. 34-28869, n.34, 56 FR 7242 (February 1991)).
Also, not every group will be considered a group for purposes of the Regulation 13D-G. A group for purposes of the Regulation consists of two or more persons “who agree to act together for the purpose of acquiring, holding, voting or disposing of equity securities.”
Read the full outline (Materials from the 2007 New York Bankruptcy Conference)