In Short

The Situation: For cross-border insolvency matters, parties increasingly depend on court-approved protocols to assist in the management of complex insolvencies involving a debtor or debtors whose assets, liabilities, or operations span international borders.

The Action: Courts in Bermuda, the British Virgin Islands, Singapore, the United Kingdom, and some U.S. bankruptcy districts have implemented Guidelines for Communication and Cooperation between Courts in Cross-Border Insolvency Matters.

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."

There has been considerable controversy about the extent of the powers, and the extent of obligations of a business rescue practitioner in relation to a cession of book debts by the company in rescue.

This is an important issue in business rescue because most financially distressed companies have an overdraft facility with a bank which is secured by a cession of debtors. Many practitioners want or need to use the overdraft facility as working capital.

Cession (generally)

Section 133 of the Companies Act 71 of 2008 provides for a general moratorium on legal proceedings against a company in business rescue.

I wrote an article published in the June issue of Without Prejudice in which this question was considered. I criticised the then binding judgment of Chetty t/a Nationwide Electrical v Hart NO and Another (12559/2012) [20141 ZAKZDHC 9 (25 March 2014), as it was held in that case that arbitration proceedings do not constitute legal proceedings for purposes of section 133 of the Act.

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.

Can a creditor cancel an agreement with a company in business rescue and what is the consequence of a business rescue practitioner suspending an agreement before cancellation?

The lawfulness of cancelling a contract during business rescue