On September 21, 2018, the United States District Court for the District of Delaware issued a decision holding that the Bankruptcy Court had constitutional authority to approve the nonconsensual third-party releases contained in the debtor’s plan of reorganization. The District Court also dismissed as equitably moot all other issues raised on appeal by the appellant in connection with the confirmation order.

The consummation of a plan of reorganization typically involves a series of complex actions by the debtor and its stakeholders (for example, existing debt and equity are extinguished and new debt and equity issued in their place). If an appeal of a confirmation order is taken, and the appeal reaches the appellate court following consummation of the plan, it raises the difficult question of whether it is possible to grant effective relief to the appellant at that stage. As a constitutional matter, courts — including appellate courts — cannot hear matters that have become moot.

On August 14, 2018, the United States Court of Appeals for the Eleventh Circuit issued a decision holding that section 547(c)(4) of the Bankruptcy Code, which provides a defense to the avoidance of preferential transfers to the extent the transferee provided new value to the debtor,[1] does not require new value to remain unpaid as of the date the bankruptcy petition was filed.

On June 20, 2018, the United States Bankruptcy Court for the District of Delaware issued a decision sustaining the debtors’ objection to the proof of claim filed by Contrarian Funds, LLC.

When it comes to voting on a plan, Section 1126(e) of the Bankruptcy Code provides that a bankruptcy court may designate (or disallow) the votes of any entity whose vote to accept or reject was not made in “good faith” (a term that is not defined in the Bankruptcy Code).

Section 546(e) of the Bankruptcy Code shields certain transfers involving settlement payments and other payments in connection with securities contracts (for example, payment for stock) made to certain financial intermediaries, such as banks, from avoidance as a fraudulent conveyance or preferential transfer. In recent years, several circuit courts interpreted 546(e) as applying to a transfer that flows through a financial intermediary, even if the ultimate recipient of the transfer would not qualify for the protection of 546(e).

Key Points

• A binding contract by exchange of email did not arise where parties were simply exploring a potential deal.

• Sale by auction is often appropriate where an asset is difficult to value.

• Where no differential treatment of creditors, unfair harm requires that a decision does not withstand logical analysis.

The Facts

Investors may, for reasons outside of their control, find themselves with a financially distressed company in their portfolio and possibly in unfamiliar territory. Consequently, it is not just those investors who actively seek out opportunities within the distressed space who should be mindful of the implications of insolvency processes (most commonly administration which can often also be used as part of a wider restructuring).

Key points

• Failure to comply with sections 333 and 363 of the Insolvency Act constitutes contempt of court for which a committal order may be obtained.

• A trustee in bankruptcy should not usually require permission to apply for a committal order.

• Correct procedure for application confirmed by the court.

Key points

• Information obtained by compulsion can be shared between officeholders of connected estates (parent/subsidiary)

• There must, however, be a possibility that there will be a surplus in the subsidiary estate

• The prospect must be real as opposed to fanciful

The facts