13 March 2009 19:46 [Source: ICIS news]
By Al Greenwood
HOUSTON (ICIS news)--The US bankruptcy of Lyondell Chemical could entangle its management in litigation as creditors review the company's takeover by Basell Industries, a law professor said on Friday.
Lyondell Chemical filed for bankruptcy protection on 6 January, a little more than a year after the takeover.
A committee representing creditors have sought permission from the bankruptcy court to probe into the merger, according to court documents.
Such probes are typical, as the creditors wish to review merger-related payments made before the bankruptcy, said Jack Williams, a resident scholar of the American Bankruptcy Institute. Williams is also a professor of law at Georgia State University in Atlanta, Georgia.
Under certain circumstances, creditors can ask that those merger-related payments be returned to the bankrupt company, he said. The bankruptcy court would then divide those payments among the creditors, as called for by law.
The purpose of the investigation is to determine if those payments should be returned, Williams said.
In general, investigators will consider if the merger - and any payments connected to the merger - left the company insolvent, unable to meet debt payments or deprived of reasonable amounts of capital, he said.
Also, the probe could look at the financial structure underpinning the merger, said Jay Westbrook, a professor of law at the University of Texas Law School.
The results of the investigation could form the backbone of lawsuits that the creditors could file in bankruptcy court, Westbrook said.
Depending on the results of the investigation, the lawsuit could target management, lenders or the company that acquired the bankrupt firm, he said. Shareholders could possibly be involved as well.
In the case of Lyondell, however, the creditors have just recently requested the investigation, Williams said. The investigation may reveal nothing.
"We really have to see how it plays out," he said.
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