The financial impact of the COVID-19 pandemic has put pressure on a wide range of structures and, as a result, lenders, borrowers and other counterparties are looking more closely at the impact of possible insolvency proceedings. As Jersey entities are often used in cross-border finance transactions, it is important to be aware of the differences between Jersey and English insolvency procedures for companies, trusts and limited partnerships.
What are the main Jersey insolvency procedures for a Jersey company?
These are:
The bankruptcy trustee of a bank holding company was not entitled to a consolidated corporate tax refund when a bank subsidiary had incurred losses generating the refund, held the U.S. Court of Appeals for the Tenth Circuit on May 26, 2020. Rodriguez v. FDIC (In re United Western Bancorp, Inc.), 2020 WL 2702425(10th Cir May 26, 2020). On remand from the U.S. Supreme Court, the Tenth Circuit, as directed, applied “Colorado law to resolve” the question of “who owns the federal tax refund.” Id., at *2.
Background
Jersey imposed travel restrictions in response to the Coronavirus crisis in March 2020 and has been operating a full lockdown for all residents, apart from essential workers, since 30 March.
The vast majority of employees in the Jersey financial services industry are now working from home and there has been no interruption to business continuity for the sector.
A bankruptcy court’s preliminary injunction was “not a final and immediately appealable order,” held the U.S. District Court for the District of Delaware on Dec. 10, 2019. In re Alcor Energy, LLC, 2019 WL 6716420, 4 (D. Del. Dec. 10, 2019). The court declined to “exercise [its] discretion” under 28 U.S.C. §158(a)(3) to hear the interlocutory appeal. Id., citing 16 Wright & Miller, Federal Practice and Procedure, §3926.1 (3d ed. 2017) (“There is no provision for appeal as of right from an injunction order of a bankruptcy judge to the district court.”).
A creditor’s “later-in-time reclamation demand is ‘subject to’ [a lender’s] prior rights as a secured creditor,” held the U.S. Court of Appeals for the Seventh Circuit on Feb. 11, 2020. In re HHGregg, Inc., 2020 WL 628268 (7th Cir. Feb. 11, 2020). And “[w]hen a lender insists on collateral, it expects the collateral to be worth something,” said the U.S. Court of Appeals for the Third Circuit on Feb. 11, 2020, when rejecting a guarantor’s “novel reading” of his security agreement. In re Somerset Regional Water Resources, LLC, 2020 WL 628542 (3d Cir. Feb. 11, 2020).
Lender repossesses the equipment of its business borrower after it defaults on its secured loan agreement. Because borrower needs the equipment to run its business, it then files a Chapter 11 petition and promptly asks lender to return the equipment. Lender refuses because the equipment secures the defaulted loan. Depending on where the debtor sought bankruptcy relief (e.g., New York or New Jersey), lender may be subject to sanctions for holding on to the equipment.
A bankruptcy trustee may sell “avoidance powers to a self-interested party that will abandon those claims, so long as the overall value obtained for the transfer is appropriate,” held the U.S. Court of Appeals for the Ninth Circuit on Jan. 15, 2020. Silverman v. Birdsell, 2020 WL 236777, *1 (9th Cir. Jan. 15, 2020).
A secured lender’s “mere retention of property [after a pre-bankruptcy–repossession] does not violate” the automatic stay provision [§ 362(a)(3)] of the Bankruptcy Code (“Code”), held a unanimous U.S. Supreme Court on Jan. 14, 2021. City of Chicago v. Fulton, 2021 WL 125106, *4 (Jan. 14,2021). Reversing the Seventh Circuit’s affirmance of a bankruptcy court judgment holding a secured lender in contempt for violating the automatic stay, the Court resolved “a split” in the Circuits. Id., at *2. The Second, Eighth and Ninth Circuits had agreed with the Seventh Circuit.