A bankruptcy court’s asset sale order limiting specific pre-bankruptcy product liability claims required prior “actual or direct mail notice” to claimants when the debtor “knew or reasonably should have known about the claims,” held the U.S. Court of Appeals for the Second Circuit on July 13, 2016. In re Motors Liquidation Co., 2016 U.S. App. LEXIS 12848, *46-47 (2d Cir. July 13, 2016).

An individual Chapter 11 debtor’s “estate was diminishing” with no “reasonable likelihood of rehabilitation,” held the U.S. Court of Appeals for the First Circuit on July 5, 2016. In re Hoover, 2016 WL 3606918, *2 (1st Cir. July 5, 2016), affirming the bankruptcy court’s conversion of the case to a Chapter 7 liquidation. In a rare appellate decision on the conversion issue, the First Circuit affirmed the finding that the debtor had sold “inventory without replacing it with new inventory or retaining cash sufficient to offset the diminution.” Id. at *3.

A lender’s (“Lender”) derivative breach of fiduciary duty claims on behalf of Chapter 7 guarantor-Debtors cannot be time-barred because of Lender’s knowledge of the “[d]efendants’ conduct,” held the U.S. District Court for the District of Delaware on June 22, 2016. In re AMC Investors, LLC, 2016 U.S. Dist. LEXIS 80861, *16 (Del. June 22, 2016).

Key points

• Automatic stays on proceedings are imposed by Article 20 of the UNCITRAL Model Law (and mirrored in s.130(2) IA 1986)
• The case reinforces the principle that automatic stays are designed to avoid the unnecessary expenditure of assets otherwise available for distribution amongst creditors

The facts

A debtor’s pre-bankruptcy repurchase of its stock for $150 million was not a fraudulent transfer because the debtor “could have sold off enough of its assets or alternatively obtained sufficient credit to continue its business for the foreseeable future,” held the U.S. Court of Appeals for the Second Circuit on June 15, 2016. In re Adelphia Communications Corp., 2016 WL3315847, *2 (2d Cir. June 15, 2016). Affirming the lower courts, the Second Circuit stressed that “the issue of adequate capitalization,” the “sole issue presented on appeal ...

“Puerto Rico’s Recovery Act is barred by § 903(1) … of the Bankruptcy Code,” held the U.S. Supreme Court on June 13, 2016. Commonwealth of Puerto Rico v. Franklin California Tax-Free Trust, 2016 WL 3221517, *11 (U.S. June 13, 2016) (5-2). Affirming the First Circuit, the court reasoned that Code § 903(i) “preempts state bankruptcy laws [enabling] insolvent municipalities to restructure their debts over the objections of creditors [and] instead requires municipalities to restructure [their] debts under Chapter 9 of the Code.” Id., at *2.

The Facts

A owned two properties, one of which had been divided into two separately rateable properties for council tax purposes. R presented a bankruptcy petition against A based on a purported debt of £14,097.59 owed by A in respect of unpaid council tax for which it had obtained liability orders from the Magistrates Court.

Key points

Rights under s23, s24 and s31 of the Matrimonial Causes Act 1973 (the “Act”) can only be pursued by the spouses themselves. Consequently, any ongoing action brought pursuant to those sections of the Act does not vest in the trustee in bankruptcy on appointment.

The facts

Key points

• Without notice applications for recognition orders carry the obligation of full and frank disclosure to the English court in relation to the effect such orders may have on third parties.
• Failure to provide full and frank disclosure may have cost consequences.

The facts

“Reasonably equivalent value” as a defense to a fraudulent transfer suit “can be satisfied with evidence that the transferee (1) fully performed under a lawful, arm’s-length contract for fair market value, (2) provided consideration that had objective value at the time of the transaction, and (3) made the exchange in the ordinary course of the transferee’s business,” held the Supreme Court of Texas on April 1, 2016, in response to a certified question from the U.S. Court of Appeals for the Fifth Circuit. Janvey v. Golf Channel, ___ S.W.3d ___, 2016 WL 1268188, at *2 (Tex.