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.
2023 has been a remarkable year with the past several months displaying an upward trend for the Business Restructuring + Insolvency Group at Morrison Foerster. We would like to provide our friends and clients with an overview of our current matters, each of which demonstrate our track record of being a go-to firm for complex restructurings across industries and jurisdictions.
Overview/Executive Summary
In response to the recent collapse of several prominent banking institutions, Morrison Foerster conducted a brief poll to gauge how companies and their employees are faring in the wake of these historic events. Our goal is to understand how this situation has impacted these organizations, including delving into which issues and challenges, if any, will be top of mind for business leaders and their respective organizations in the weeks and months ahead.
Methodology
The FDIC receiverships of Silicon Valley Bank and Signature Bank have caused certain early-stage companies to face potentially crippling near-term liquidity issues. These liquidity issues may result in a company becoming insolvent. Therefore, boards of directors of such companies need to consider their fiduciary duties as well as steps that can be taken to mitigate risks.
Fiduciary duties are typically owed to the company for the benefit of its owners.
The March 2023 banking crisis has been an unexpected “stress test” for dealing with liquidity issues.
When state regulators closed Silicon Valley Bank this past Friday, many startups understandably faced severe liquidity issues triggered by the sudden and unexpected loss of access to their deposits.
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?
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.
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.