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Valuations in insolvency the speaker

Grant Jones LLM.Chartered Accountant, Solicitor, New York Attorney, Licensed Insolvency Practitioner & Special Professor of Laws, Nottingham University .LinkedIn - http://uk.linkedin.com/in/accountantarbitrator (To download the slides, please go to the dropbox account on my LinkedIn page & to the SSBV seminars folder & download slides available on this page).Acknowledgements - (a) Charles Pugh of Bristows (who helped with the slides) (b) Maureen Kelly of Keystone Law re BBC Worldwide comment

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The seminar. the slides

The two abbreviations I will use are Intellectual property Rights (IPR) and Insolvency Practitioner (IP).

I will not cover know-how, but perhaps it is the most interesting IPR.

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Valuations in insolvency . Intellectual property: introduction

Relevance of intellectual property rights.

Realisations no longer based primarily on tangible assets.

Licenses and how to protect your rights.

Analysis of options and risks.

Importance of strategy on cross-border basis.

Importance of licences.

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Valuations in insolvency . Intellectual property: IPR 4 IPs (& their valuers).

Software licenses are key to most technology businesses.

Licensor and licensee position compared.

Risk/opportunity on insolvency.

Need to consider options and strategies to protect rights.

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Valuations in insolvency . Insolvency outcomes

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Valuations in insolvency . Consequences of insolvency: administration.

Moratorium: creditors rights severely circumscribed by Schedule B1 sections 83-86 Insolvency Act 1986 (as amended), more especially:

• No steps to enforce security unless administrator or court consents.• No repossession of goods including retention of title.• No right of re-entry.• No legal proceedings commenced or pursued unless administrator or court consents.

Importance of the 'pre-pack‘.

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Valuations in insolvency . Consequences of insolvency: liquidation.

•Secure debtors can enforce their security.

•Proceedings against the liquidated company cannot be commenced, nor continued without court leave.

•Right to disclaim.

•Liquidator able to review past transactions.

•Certain transactions are void, i.e. disposition of company property, transfer of company shares, etc.

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Valuations in insolvency . Consequences of insolvency: Company voluntary arrangement (CVA).

Possibility of interim moratorium.

The CVA represents a binding statutory contract between the company and it's creditors.

Highly flexible tool.

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Valuations in insolvency . Licenses in insolvency.

No automatic right of termination: subject terms of the original contract.

Ability of insolvency practitioner to enforce contract against licensee/licensor.

Risk of insolvency practitioner allowing registered rights to lapse.

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Valuations in insolvency . Disclaimer and revisions of licences.

Rights of disclaimer -- section 178 insolvency act 1986 -- "unprofitable contract" as "onerous property":

Does this include intellectual property licenses?

Even if it does, does this right prevent use of right? (See section 178 (4) (b))

Applications are caught using section 181 Insolvency Act 1986 for transfer of IPR.

What about licenses from government bodies -- change in the nature or characteristics and content -- Phoenix -- revision of licence?

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Valuations in insolvency . Steps in anticipation of insolvency.

Termination provisions. Automatic right of assignment or suspended assignment. Step-in rights: (a) payment of fees & renewals; (b) enforcement of infringement of rights. Options: (a) to purchase or match terms of assignment; (b) waiver certain provisions; (c) to take control. Confidential information/source code into escrow. Registration of licences notice. Security -- guarantees and other protection the risk of preference. Hive down.

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Valuations in insolvency . Co-ownership rights.

Assignment.

Step-in rights. "[t]he right of the customer, where the supplier defaults, to intervene in one or more of the supplier's areas of responsibility" (WikiLaw) Option to waive provisions/take control. BBC Worldwide

• Risk of breach of anti-deprivation rules.

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Valuations in insolvency . Co-ownership rights.

Assignment.

Step-in rights. "[t]he right of the customer, where the supplier defaults, to intervene in one or more of the supplier's areas of responsibility" (WikiLaw)

Option to waive provisions/take control.

BBC Worldwide.

• Risk of breach of anti-deprivation rules.

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Valuations in insolvency . "Termination on insolvency – good news for licensors.

The current economic climate has lead to an increased focus on insolvency provisions in licences.

An intellectual property licence well drafted in favour of the licensor will usually contain a provision enabling the licensor to terminate the licence in the event that the licensee becomes insolvent. These provisions are particularly important in the case of exclusive licences where the licensee is the only source of income from the technology for the licensor.

There has, until recently, been some doubt as to whether such a provision would be enforceable.

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Valuations in insolvency . "Termination on insolvency – good news for licensors.

The concern was that it might be “trumped” by insolvency laws which exist to ensure that creditors are paid off fairly in the event of insolvency.

A recent Court of Appeal decision has confirmed that a provision enabling an intellectual property licensor (or anylicensor) to terminate a licence in the event of a licensee’s insolvency is enforceable and does not breach insolvency laws.

The Court of Appeal decision in question arose out of the highly publicised collapse of Woolworths.

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Valuations in insolvency . "Termination on insolvency – good news for licensors.

Woolworth’s subsidiary (called Media) was party to a joint venture with BBC Worldwide. BBC Worldwide licensed some intellectual property rights to a subsidiary of thejoint venture company. The licence contained the following wording:

"If [Media] or any parent undertaking of [Media] or (if [Media] is a member of [the Woolworths group]) [Group], suffers an Insolvency Event and [BBCW] serve notice in accordance with the provisions of clause 26.7.1 of the Joint Venture Agreement (and become unconditionally bound to buy V Shares) this Agreement shall immediately terminate…“.

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Valuations in insolvency . "Termination on insolvency – good news for licensors.

The administrators of Woolworths argued that the termination of the licence under this provision was in breach of the common law “anti-deprivation rule”.

The Court of Appeal held that the anti-deprivation rule means that one: “...cannot contract out of provisions of insolvency legislation which govern the way assets are dealt with inliquidation.” It found that the termination of the licence based on the insolvency of the licensee: “does not involve what has been the property of the insolvent party becoming vested in a third party”, rather a “limited interest being brought to an end in accordance with its terms.”

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Valuations in insolvency . Co-ownership rights.

"Termination on insolvency – good news for licensors.

This is a welcome clarification for licensors that a termination provision triggered by the licensee’s insolvency will normally be enforceable."

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Valuations in insolvency . Acquiring IP from insolvent companies.

• Assets at an undervalue: customer lists and other intangible assets; Western Intelligence v KDO [1998] BCC 472

• Valuation of IPR.

• Breakup rights: ‘spin out of restaurant website to make orders’.

• Analysis of ownership and lack of warranties.

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Valuations in insolvency . International aspects of IPR upon insolvency.

•Licence provisions:

•Termination provisions: early triggers but beware!

•Assignment.

•Step-in rights.

•Willingness to fight for rights; no obligation of fairness between creditors.

•In short title to IPR assets acquired from the IP.

•Jurisdiction and law of choice.

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The Endthank you, as...

save for ........