Overall 2018 has produced a number of positive judgments from the perspective of lenders and insolvency practitioners.

In particular, the courts delivered many useful judgments disposing of numerous challenges to the enforceability of loans and security and, also, restricting abuse of the courts’ processes.

Contemptuous McKenzie Friends

Must the legal owner of securitised debt and related security disclose in proceedings it brings that it is a bare trustee for the beneficial owner? In addition, is that trustee obliged to join the beneficial owner as a party to those proceedings?

On February 27, 2018, the Supreme Court of the United States decided Merit Management Group, LP v. FTI Consulting, Inc. The key issue in the case was the scope of Section 546(e) of the bankruptcy code which insulates certain transactions from a bankruptcy trustee’s statutory avoidance powers. A bankruptcy trustee may avoid many types of pre-petition transfers, including preferential payments made to creditors within 90 days of a bankruptcy petition and transfers made for less than reasonably equivalent value completed within two years of a bankruptcy filing.

Fourth Circuit Authorizes Partial Dirt for Debt Plan

The Bankruptcy Code requires that secured creditors realize the indubitable equivalent of their claims as a condition to confirmation of a Chapter 11 plan of reorganization. In the case of Bate Land & Timber LLC, the Fourth Circuit addressed indubitable equivalence in the context of a partial dirt for debt plan where the debtor planned to covey several tracks of real property in partial satisfaction of its obligations to its secured creditor and pay the remaining balance owed in cash.

When a dealership files for bankruptcy, a manufacturer will be faced with critical decisions regarding the proposed restructuring and the treatment of its dealer agreement. The bankruptcy code provides debtors with certain rights in order to maximize the recovery for creditors. Manufacturers must be cognizant of these rights in any dealer bankruptcy.

The Bankruptcy Protector

Chapter 11 debtors operate under various levels of uncertainty. Often a company is dependent upon others to provide financing or close transactions necessary for the company’s survival. Such was the case of Eclipse Aviation, which filed for Chapter 11 bankruptcy in November 2008, with an (apparent) agreement to sell itself to its largest shareholder.

Simple retention of title clauses are commonplace and generally effective in contracts for the sale of goods. However, extending their effect to the proceeds of sale of such goods requires careful drafting.

The Court of Appeal has provided some further clarity around the creation and effects of fiduciary obligations in relation to such clauses.[1]

Proceeds of sale clauses

The Residential Tenancies (Amendment) Act 2015 has undoubtedly strengthened the position of tenants and increased the responsibilities and challenges facing receivers appointed by secured lenders over residential investment properties. While the added protections for tenants are to be welcomed, certain provisions of the Act result in relatively onerous obligations on receivers who are already faced with practical difficulties when seeking to deal with and realise the secured asset in accordance with their duties.

The High Court has reiterated that cross-examination will not generally be permitted on an interlocutory application, or where there is no conflict of fact on the affidavits.

In McCarthy v Murphy,^[1] the defendant mortgagor was not permitted to cross-examine the plaintiff (a receiver) or a bank employee who swore a supporting affidavit.

Background

Two recent judgments have brought further clarity in relation to the rights acquirers of loan portfolios to enforce against borrowers: