In Harrington v. Purdue Pharma LP, in a 5-4 decision, the Supreme Court held that the Bankruptcy Code does not authorize bankruptcy courts to confirm a Chapter 11 bankruptcy plan that discharges creditors’ claims against third parties without the consent of the affected claimants. The decision rejects the bankruptcy plan of Purdue Pharma, which had released members of the Sackler family from liability for their role in the opioid crisis. Justice Gorsuch wrote the majority decision. Justice Kavanaugh dissented, joined by Chief Justice Roberts and Justices Kagan and Sotomayor.
Introduction
What happens when a shady businessman transfers $1 million from one floundering car dealership to another via the bank account of an innocent immigrant? Will the first dealership’s future chapter 7 trustee be allowed to recover from the naïve newcomer as the “initial transferee” of a fraudulent transfer as per the strict letter of the law? Or will our brave courts of equity exercise their powers to prevent a most grave injustice?
The Hong Kong Court has power pursuant to section 327 of the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32) to wind up a foreign-incorporated company in Hong Kong. Before the Court can exercise its statutory jurisdiction, the following three well known “core requirements”, cited by the Court of Final Appeal in Kam Leung Siu Kwan v Kam Kwan Lai (2015) 18 HKCFAR 501, must be satisfied:
A foreign (non-U.S.) company can be dragged unwillingly into a U.S. bankruptcy case if the bankruptcy court has “personal jurisdiction” over the company.
A foreign (non-U.S.) company can be dragged unwillingly into a U.S. bankruptcy case if the bankruptcy court has “personal jurisdiction” over the company.
Since the signing of a record of meeting concerning mutual recognition of and assistance to insolvency proceedings between the courts of Mainland China and Hong Kong in May 2021, there have been a number applications for letters of request to be issued by the Hong Kong Court to the Bankruptcy Court of the Shenzhen Intermediate People’s Court.
The issue of whether directors, officers, and/or shareholders breached their fiduciary duties to a company prior to bankruptcy is commonly litigated in chapter 11 cases, as creditors look to additional sources for recovery, such as D&O insurance or “deep-pocket” shareholders, including private equity firms. The recent decision in In re AMC Investors, LLC, 637 B.R. 43 (Bankr. D. Del. 2022) provides a helpful reminder of the importance of timing in bringing such claims and the use by defendants of affirmative defenses to defeat those claims.
There is a common misconception that lender liability is a thing of the past. However, a recent decision provides a warning to lenders that they can be held liable and face substantial damages if they exercise excessive control over a debtor’s business affairs.
There is a common misconception that lender liability is a thing of the past. However, a recent decision provides a warning to lenders that they can be held liable and face substantial damages if they exercise excessive control over a debtor’s business affairs.