A recent Federal Court decision has provided some useful insights on how related party loans will be considered in an insolvency context, particularly in relation to unreasonable director-related claims against directors and their relatives. For insolvency practitioners it also provides insight into how the assignment of claims might effectively be used to mitigate litigation risks.

Introduction

A bedrock principle underlying chapter 11 of the Bankruptcy Code is that creditors, shareholders, and other stakeholders should be provided with adequate information to make an informed decision to either accept or reject a chapter 11 plan. For this reason, the Bankruptcy Code provides that any "solicitation" of votes for or against a plan must be preceded or accompanied by stakeholders' receipt of a "disclosure statement" approved by the bankruptcy court explaining the background of the case as well as the key provisions of the chapter 11 plan.

Two recent cases from New Zealand demonstrate how an equitable lien can arise in insolvency to elevate the interest of unsecured purchasers of goods to secured status.

Key takeouts

On 22 Sept 2023, the Australian government responded to the Whittaker Review, releasing the Personal Property Securities Amendment Bill 2023 for public consultation until 17 Nov 2023.

Overview of the Whittaker review and Government's response

In Short

The Situation: The U.S. Supreme Court considered whether § 363(m) of the Bankruptcy Code, which limits a party's ability to undo an asset transfer made to a good-faith purchaser in a bankruptcy case, is jurisdictional.

Liquidators and creditors should be aware of the High Court's analysis of the limits of set-off under s 553C of the Corporations Act 2001 (Cth).

The ability of a bankruptcy trustee or chapter 11 debtor-in-possession ("DIP") to assume, assume and assign, or reject executory contracts and unexpired leases is an important tool designed to promote a "fresh start" for debtors and to maximize the value of the bankruptcy estate for the benefit of all stakeholders. However, the Bankruptcy Code establishes strict requirements for the assumption or assignment of contracts and leases.

Madoff

On April 19, 2021, the U.S. Supreme Court declined to hear the appeal of a landmark 2019 decision issued by the U.S. Court of Appeals for the Second Circuit regarding the applicability of the Bankruptcy Code's safe harbor for certain securities, commodity, or forward contract payments to prevent the avoidance in bankruptcy of $8.3 billion in payments made to the shareholders of Tribune Co. as part of its 2007 leveraged buyout ("LBO").

On October 26, 2020, the U.S. Bankruptcy Court for the Southern District of Texas issued a long-awaited ruling on whether natural gas exploration and production company Ultra Petroleum Corp. ("UPC") must pay a make-whole premium to noteholders under its confirmed chapter 11 plan and whether the noteholders are entitled to postpetition interest on their claims pursuant to the "solvent-debtor exception." On remand from the U.S.