Bank of New York v. Tyco International Group, S.A.

Tyco International Group, S.A. (TIGSA) (defendant), a subsidiary of Tyco International, Ltd. (Tyco) (defendant), owned four business segments. TIGSA was Tyco’s holding company, and the four business segments constituted substantially all of TIGSA and Tyco’s assets. In 1998 and 2003, TIGSA issued a series of notes guaranteed by Tyco. Bank of New York (the bank) (plaintiff) was the indenture trustee. The indentures contained successor-obligor clauses that prohibited TIGSA from transferring all or substantially all of its assets unless the transferee assumed TIGSA’s note obligations through a supplemental indenture between the transferee and the bank. In 2007 TIGSA’s four business segments were transferred to Tyco and a new holding company. Tyco spun two of the segments off to its shareholders and retained the other two. Tyco proposed a supplemental indenture under which it assumed liability for TIGSA’s notes. The bank refused to sign the supplemental indenture and filed a lawsuit against TIGSA and Tyco in federal district court, alleging that the transfer of TIGSA’s assets to Tyco violated the successor-obligor clauses because Tyco did not retain ownership of all TIGSA’s assets after the transfer. The bank argued that the Second Circuit’s holding in Sharon Steel Corp. v. Chase Manhattan Bank, N.A. invalidated the transaction. In that case, the Second Circuit held that successor-obligor clauses did not permit the assignment of a liquidating company’s debts to a purchaser unless all or substantially all of the company’s assets were transferred to the purchaser at the time of liquidation. The bank moved for summary judgment.