Among the many financial innovations that came out of the COVID era, non-pro rata uptier transactions as a liability management exercise (“LMEs”) are among the more controversial. While lawsuits challenging non-pro rata uptier transactions are making their way through the courts, two important decisions were recently issued by the Court of Appeals for the Fifth Circuit and the New York Appellate Division.

On average, the Supreme Court hears a single bankruptcy case each term. But during the October 2022 term, the Supreme Court issued a remarkable four decisions in bankruptcy cases. These decisions, which are summarized below, address appellate issues relating to sale orders, the discharge of claims obtained by fraud, and sovereign immunity issues in two different contexts.

I. Section 363(m) of the Bankruptcy Code is not a jurisdictional provision that precludes appellate review of asset sale orders.

Businesses in a wide range of industries may now be forced to consider bankruptcy given the unprecedented economic challenges caused by the COVID-19 pandemic. This advisory is designed to provide a high-level view of issues to be considered by human resources when considering filing for Chapter 11 bankruptcy. Please note that this advisory focuses specifically on a Chapter 11 bankruptcy (pursuant to which a business will be reorganized) rather than Chapter 7 bankruptcy (pursuant to which a business will be liquidated).

Earlier this month, the Supreme Court announced that it will review the scope of Bankruptcy Code section 546(e)’s safe harbor provision. Section 546(e) protects from avoidance those transfers that are made “by or to (or for the benefit of)” a financial institution, except where there is actual fraud. The safe harbor is intended to ensure the stability of the securities market in the event of corporate restructurings.

The recent successful appeal in Brooks and another (Joint Liquidators of Robin Hood Centre plc in liquidation) v Armstrong and another [2016] EWHC 2893 (Ch), [2016] All ER (D) 117 (Nov) has clarified and highlighted the complexities of bringing a wrongful trading claim and the importance of correctly quantifying losses for which directors can be made personally liable under section 214 and/or 246Z of the Insolvency Act 1986 (“the Act”).

In a recent decision (“Energy Future Holdings”) poised to have wide-reaching implications, the Third Circuit Court of Appeals reversed the decisions of the Bankruptcy and the District Courts to hold that a debtor cannot use a voluntary Chapter 11 bankruptcy filing to escape liability for a “make-whole” premium if express contractual language requires such payment when the borrower makes an optional redemption prior to a date certain.

The High Court has recently demonstrated its right to exercise discretion as to whether an administration order should be made in relation to a company. In Rowntree Ventures v Oak Property Partners Limited, even though the companies were unable to pay their debts and where the statutory purpose of administration was likely to be achieved, the Court exercised its commercial judgment in determining that it was premature to make an administration order.

Background

Unless you have been hiding in an igloo in Antarctica for the last year you could not possibly have missed the media furore over the huge pension liabilities of eminent companies that have become insolvent. BHS, a venerable British retailer, is the most high profile after recently entering administration with an estimated pensions deficit of £571m.

The interest rate mis-selling scandal took another twist recently when a landmark legal case was dismissed by the High Court. Had the case been successful it would have challenged the banks’ £2.1bn compensation scheme set-up to settle inappropriate interest rate swaps – however the decision only brings temporary relief for the banks.

Background

During the previous UK government’s tenure, in March 2015 a call for evidence was launched to understand better the employee consultation process when an employer faces insolvency, restructure or other form of company rescue (Call for Evidence on Collective Redundancy Consultation for Employers facing Insolvency).

The call for evidence sought views on the following areas: