Why The Term Of "Debt Securities" Matters

The California General Corporation Law defines three types of "reorganizations" - a merger reorganization, an exchange reorganization, and a sale-of-assets reorganization.  Cal. Corp. Code § 181.    A "sale-of-assets reorganization" is defined as the acquisition of all or substantially all of the assets of a domestic corporation, foreign corporation or other business entity  in exchange in whole or in part for equity securities or debt securities.  However, not every such exchange for debt securities will constitute a reorganization.   In the case of an exchange solely for debt securities, a transaction will be a "sale-of-assets reorganization" only when the debt securities are: (i) not adequately secured; and (ii) have a maturity date in excess of five years after consummation of the reorganization.  

Thus,  a transaction will not be a "sale-of-assets reorganization" when the debt securities either (i) have a maturity date of fewer than five years (in which case they may be either secured or unsecured); or (ii) are "adequately secured" even though they have a maturity date in excess of five years.   Chapter 10  of the Corporations Code will generally govern transactions that involve the sale of all or substantially all of a corporation's assets that does not come within the definition of a "sale-of-assets reorganization".