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).

Accountability is the major theme of the recent government consultation regarding ‘Insolvency and Corporate Governance’, which follows high profile failures such as BHS and Carillion. The consultation contains proposals relating to four main areas as set out below.

Sales of businesses in distress

The proposal represents a significant extension of the current duties owed by directors. Under the proposal, a director of a parent company may be held liable for losses following a sale of a subsidiary if:

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).

On October 20, 2017, the United States Court of Appeals for the Second Circuit issued a decision which, among other things,[1] affirmed the lower courts’ holding that certain noteholders were not entitled to payment of a make-whole premium. The Second Circuit held that the make-whole premium only was due in the case of an optional redemption, and not in the case of an acceleration brought about by a bankruptcy filing.

On October 20, 2017, the United States Court of Appeals for the Second Circuit issued an important decision regarding the manner in which interest must be calculated to satisfy the cramdown requirements in a chapter 11 case.[1] The Second Circuit sided with Momentive’s senior noteholders and found that “take back” paper issued pursuant to a chapter 11 plan should bear a market rate of interest when the market rate can be ascerta

On October 3, 2017, Bankruptcy Judge Laurie Selber Silverstein of the United States Bankruptcy Court for the District of Delaware issued a decision holding that the Bankruptcy Court had constitutional authority to approve third-party releases in a final order confirming a plan of reorganization.

98% of the liabilities of Lehman Brothers International (Europe) (in administration) (“LBIE”) were denominated in non-sterling currencies. The fall in sterling after LBIE entered administration resulted in significant paper losses for creditors, which they sought to recover from the LBIE estate. The recent decision of the UK Supreme Court in Waterfall I refused to recognize such claims.*

In less than a week after its bankruptcy filing, a debtor was able to obtain confirmation of its prepackaged plan of reorganization in the Bankruptcy Court for the Southern District of New York. In allowing the case to be confirmed on a compressed timeframe that was unprecedented for cases filed in the Southern District of New York, the Bankruptcy Court held that the 28-day notice period for confirmation of a chapter 11 plan could run coextensively with the period under which creditor votes on the plan were solicited prior to the commencement of the bankruptcy case.

The European Commission (EC) announced proposals on 22 November 2016, which are intended to harmonise national insolvency laws across the EU through a proposed directive “on preventative restructuring frameworks, second chance and measures to increase the efficiency of restructuring, insolvency and discharge procedures” (Directive). The Directive will need to be passed by the European Council and European Parliament. Then, EU Member States would be required to adopt the Directive’s provisions into their respective national laws within two years from the date of its entry into force.