Background

The Debtor was 82 years of age, and subject to a bankruptcy petition in the County Court in the sum of £62,000 which was heard on 19 December 2019.

While there has been much fuss over the recent ruling by the United States District Court for the Southern District of New York in In re Nine West LBO Securities Litigation¹ due to its potential ramifications for director liability, as we explored in Part I of our series on this case here, court watchers have paid less attention to the court’s treatment of officer liability and the interes

The issue in this case concerned the failure of a holder of a Qualifying Floating Charge (QFC) to give notice to a prior QFC holder before appointing administrators, therefore potentially calling into question the validity of the administration.

Introduction

The facts of this case were somewhat unusual although it serves as a reminder of the principles involved in the trading of a business by a trustee in bankruptcy.

Background

A recent ruling from the United States District Court for the Southern District of New York sent shock waves through the legal and financial community, with some shouting that this “could be a gamestopper for the private equity business.”¹ Although the ruling in In re Nine West LBO Securities Litigation² breaks new ground and arguably narrows the protections available to directors under the normally-broad business judgment rule, there are clear lessons others can take from this saga to prevent a similar fate.

Executive Summary

A recent decision from the United States Bankruptcy Court for the Northern District of Texas, In re Care Ctrs., LLC, No. 18-33967, 2020 Bankr. LEXIS 3205 (Bankr. N.D. Tex. Nov. 12, 2020), examined (1) the scope of bankruptcy court subject-matter jurisdiction for post-confirmation actions filed in state court and removed to bankruptcy court; and (2) when the court must or should abstain and remand a proceeding back to the court where the action was originally brought.

OVERVIEW

The background facts to this case are relatively straightforward: a group of companies consisting of the parent (‘AIL’) and three subsidiaries (‘the Subsidiaries’) operated in the energy sector.

A lender (‘Junior Creditor’) advanced approximately £39M to AIL, secured by qualifying floating charges (‘QFC’) over AIL and the Subsidiaries. A second lender (‘Senior Creditor’) subsequently lent £5M to AIL secured by a QFC over AIL but not the Subsidiaries.

Twelve creditors (representing about 16% of company debt, and represented by a firm of licensed insolvency practitioners) have failed in an attempt to compel administrators to move to creditors’ voluntary liquidation, alternatively an order for compulsory liquidation. The Creditors also sought the revocation of a proposal ‘purported to have been deemed approved’.

The Company was involved in construction work, falling victim to the Covid-19 pandemic in that it was forced to cease trading following the announcement of lockdown on 23 March 2020.