On April 5 and June 8, 2017, the U.S. House of Representatives passed bills (the Financial Institution Bankruptcy Act of 2017 ("FIBA") and the Financial CHOICE Act of 2017) that would allow financial institutions to seek protection under Chapter 11 of the Bankruptcy Code.

In bankruptcy cases under chapter 11, debtors sometimes opt for a "structured dismissal" when a consensual plan of reorganization or liquidation cannot be reached or conversion to chapter 7 would be too costly. In Czyzewski v. Jevic Holding Corp., 137 S. Ct. 973, 2017 BL 89680 (U.S. Mar. 27, 2017), the U.S. Supreme Court held that the Bankruptcy Code does not allow bankruptcy courts to approve distributions in structured dismissals which violate the Bankruptcy Code's ordinary priority rules.

On May 1, 2017, the U.S. Supreme Court agreed to hear Merit Management Group v. FTI Consulting, No. 16-784, on appeal from the U.S. Court of Appeals from the Seventh Circuit. The Court's decision could resolve a circuit split as to whether section 546(e) of the Bankruptcy Code can shield from fraudulent conveyance attack transfers made through financial institutions where such financial institutions are merely "conduits" in the relevant transaction.

On May 1, 2017, the U.S. Supreme Court agreed to hear Merit Management Group v. FTI Consulting, No. 16-784, on appeal from the U.S. Court of Appeals from the Seventh Circuit. See FTI Consulting, Inc. v. Merit Management Group, LP, 830 F.3d 690 (7th Cir. 2016) (a discussion of the Seventh Circuit's ruling is available here).

The U.S. Supreme Court ruled on March 22, 2017, in Czyzewski v. Jevic Holding Corp., that without the consent of affected creditors, bankruptcy courts may not approve "structured dismissals" providing for distributions that "deviate from the basic priority rules that apply under the primary mechanisms the [Bankruptcy] Code establishes for final distributions of estate value in business bankruptcies."

An update on recent changes

1 October 2015 – A day of changes to insolvency law

The start of October 2015 brought about important changes in insolvency law, affecting both creditors and debtors alike. The most notable changes are detailed below.

Harmonising office holder claims in administration  and  liquidation

In Ritchie Capital Mgmt., LLC v. Stoebner, 779 F.3d 857 (8th Cir. 2015), the U.S. Court of Appeals for the Eighth Circuit affirmed a bankruptcy court’s decision that transfers of trademark patents were avoidable under section 548(a)(1)(A) of the Bankruptcy Code and Minnesota state law because they were made with the intent to defraud creditors.

In its decision on the Game Station¹ appeal, the Court of Appeal has overturned the cases of Goldacre²  and  Luminar³ holding that office holders of insolvent companies must pay rent of property occupied for the  benefit of creditors on a “pay as you go” basis irrespective of when rent falls due under the lease. 

The facts

The UK’s Insolvency Act 1986 sets out in s.123 various tests to determine whether a company should be deemed unable to pay its debts. The relevance of these tests to distressed companies is obvious: deciding as they do when it is appropriate to seek an administration order or present a winding up petition. They also help determine directors’ duties, antecedent transactions and issues such as wrongful and fraudulent trading.

The UK Supreme Court judgment in the conjoined cases of Rubin and another v Eurofinance SA and others and New Cap Reinsurance Corporation (in Liquidation) and another v AE Grant and others [2012] UKSC 46, which provides vital clarification on the effect of foreign insolvency judgments on the UK courts.

Background & Court of Appeal