In Short

The Situation: In In re MPM Silicones, L.L.C., secured noteholders argued that replacement notes distributed to them under a cram-down chapter 11 plan should bear market-rate interest rather than the lower formula rate proposed in the plan and that they were entitled to a make-whole premium.

In Short

The Situation: After a ruling in In re Ultra Petroleum Corp. by the U.S. Bankruptcy Court for the Southern District of Texas, certain private-placement noteholders are entitled to a "make-whole" premium in excess of $200 million, under a chapter 11 plan that had rendered the noteholders' claims unimpaired.

It is common for commercial contracts to contain ipso facto clauses, which allow a party to terminate or modify the terms of the contract where the other party experiences an insolvency event. A concern addressed by the Government is that these clauses can prevent a financially distressed company from turning their situation around.

The High Court’s recent decision in Ramsay Health Care Australia Pty Ltd v Compton [2017] HCA 28 has confirmed a bankruptcy court can exercise a discretion to go behind the judgment debt where sufficient reason is shown for questioning whether there is a debt due to the petitioning creditor.

In the recent decision of Lane (Trustee), in the matter of Lee (Bankrupt) v Deputy Commissioner of Taxation [2017] FCA 953, Cooper Grace Ward acted for the trustee in bankruptcy, who sought directions from the Court regarding the administration of a trading trust where the bankrupt was the trustee.

Facts

Section 477(2B) of the Corporations Act 2001 (Cth) provides that a liquidator must not enter into any sort of agreement that may last longer than three months without first obtaining approval of the Court, of the committee of inspection or by a resolution of the creditors.

Typically, a litigation funding agreement will be caught by this section because it will last more than three months.

The reference to ‘enter into an agreement’ could also catch a novation, and potentially a variation, to an agreement.

All Australian states have sale of goods legislation that, in certain circumstances, allows an unpaid seller to retain possession of goods in transit where the buyer becomes insolvent. The statutory right, called stoppage intransitu, is a useful remedy to obtain payment.

A registered security interest on the PPSR is not required to exercise the statutory right. Administrators and liquidators may be trumped by a notice under the stoppage in transitu provisions.

However, the sale of goods legislation is not identical in each state.

Competing claims to goods are common where there is an unpaid seller with alleged retention of title, the supplier’s customer has gone into external administration and the goods are in the possession of a transport or warehouse provider. Thrown into the mix may be an administrator or liquidator demanding possession of the goods to sell them.

The recent case of M Webster Holdings Pty Limited (administrators appointed) v Specific Freight Pty Limited [2017] FCA 269 illustrates how a transport provider can become ‘the meat in the sandwich’ when a consignee of goods becomes insolvent.

Webster, a fashion retailer, operated two well-known Australian businesses, David Lawrence and Marcs. Webster was placed into administration in February 2017 and its administrators continued to trade with a view to securing a purchaser.

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.