Stroock Special Bulletin
“Issues Relevant to the Defense Industry in the Bankruptcy Context”
The U.S. defense industry is expected to be under increasing financial stress over the next several years. Specifically, reduced Government spending will negatively affect defense contractors who rely primarily on Government contracts and fail to diversify their revenue base. Because some of these companies may either seek to reorganize their capital structures or file for bankruptcy in the near term, it is important for interested parties to consider national security and Government contract issues that may affect the restructuring of a U.S. defense contractor.
Although U.S. Government policies encourage investment in the United States, transactions that could result in foreign control of a "U.S. business," including a defense contractor, may involve review by the Committee on Foreign Investment in the United States ("CFIUS"). CFIUS, an inter-agency U.S. Government committee composed principally of Executive branch agencies, reviews transactions that raise national security issues. Although review is ostensibly voluntary, CFIUS may request that parties submit a transaction for review if a voluntary filing has not been made, and may initiate its own review if the parties decline to file. The President ultimately has the authority to block a transaction, or unwind it after closing, if there is credible evidence to believe that the foreign acquirer might take action that threatens to impair the national security and other provisions of law do not provide "adequate and appropriate" authority to protect the national security.