In Whirlpool Corporation v. Wells Fargo Bank, N.A., et al. (In re hhgregg, Inc.), No. 18-3363 (7th Cir. Feb. 11, 2020), the Seventh Circuit Court of Appeals recently held that the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (“BAPCPA“) created a federal priority rule rendering a secured lender’s first-priority, floating liens on inventory superior to the reclamation claims of a trade vendor. The facts in the case are typical, and the holding does not mark a demonstrative shift in common practice.

Facts

The Small Business Reorganization Act of 2019 (“SBRA“) is in effect as of yesterday, February 19, 2020. The SBRA was enacted to provide smaller business debtors with a more streamlined path to restructuring their debts. Below are some highlights of the new law.

Absolute-Priority Rule

In LNV Corporation v. Ad Hoc Group of Second Lien Creditors (In re La Paloma Generating Company, LLC, Adv. Pro. No 19-50110 (JTD) (D. Del. January 13, 2020), a Delaware bankruptcy court recently held that actions taken by a senior secured creditor to enforce its rights under an intercreditor agreement did not constitute a breach of the duty of good faith and fair dealings owed to the junior lienholders. The circumstances in La Paloma are not uncommon.

Background

The laws of preferential and fraudulent transfers under the Bankruptcy Code can often seem theoretical and formulaic. When certain boxes are checked, it appears, at first blush, that a pre-bankruptcy transfer can be avoided, regardless of any intent or surrounding circumstances.

In a recent decision, the Court of Appeal reconfirmed that the Duomatic principle can only apply where all shareholders have approved the relevant act of the company. It is not enough that a relevant individual would have approved the act had they known about it: Dickinson v NAL Realisations (Staffordshire) Ltd [2019] EWCA CIV 2146.

In MicroBilt Corporation v. Ranger Specialty Income Fund, L.P. et al. (In re Princeton AlternativeIncome Fund,LP), Case No. 3:18-CV-16557 (D.N.J. Nov. 27, 2019), the District Court for the District of New Jersey recently affirmed a bankruptcy court's decision to appoint a chapter 11 trustee, without conducting a traditional evidentiary hearing.  The holding reinforces that a bankruptcy court has broad discretion to grant extreme remedies in a case.

Facts

The High Court has ordered a liquidator's firm to pay a proportion of the costs incurred by successful defendants following judgment in proceedings commenced by a claimant company in liquidation.

The High Court has ordered a liquidator’s firm to pay a proportion of the costs incurred by successful defendants following judgment in proceedings commenced by a claimant company in liquidation.

Revisiting over 150 years of case law, the High Court has resolved a question on which both the courts and textbooks had given conflicting answers: is a director's liability for payment of a dividend which is unlawful as a result of incorrect accounts fault-based or strict?

In In re Linn Energy, LLC, 2019 WL 4149481 (5th Cir. Sept. 3, 2019), the Fifth Circuit recently reminded us that if a debt instrument looks like a security and quacks like a security, it likely is a security for purposes of subordination under section 510(b) of the Bankruptcy Code. The implications of characterizing an instrument as a security under section 510(b) is that any claim arising therefrom is subject to subordination to general unsecured creditors.