Congress rarely accomplishes anything these days, but the need to reform Chapter 11 of the Bankruptcy Code seems to have “crossed over the aisle.” When the Bankruptcy Code was enacted in 1978, America boasted the world’s dominant manufacturing economy. Corporate debt was mostly unsecured trade debt. Secured loans provided tangible asset financing for property, plant, and equipment.
Need to know
In a first for the US and Australian markets, the Buccaneer Energy group of companies successfully had bankruptcy plans approved by the US Bankruptcy Court for both US and Australian incorporated debtor companies.
"Once in a generation" review
Shortly before the Christmas break, the much anticipated review of the United States "Chapter 11 bankruptcy" regime was published by the American Bankruptcy Institute (ABI). This is one of very few such major "root and branch" reviews of Chapter 11 since its enactment in 1978, and the first since the 1990s.
On 25 July 2014 and 17 September 2014 respectively, Justice Brereton of the Supreme Court of NSW delivered two related judgments in Re AAA Financial Intelligence Ltd (in liquidation) andRe AAA Financial Intelligence Ltd (in liquidation) (No 2). The decisions deal with the evergreen topic of Liquidator remuneration and expenses.
Importantly, in fixing the Liquidators' remuneration, Justice Brereton adopted a "value" focussed approach, and discussed the relevance of considering matters beyond simply time spent multiplied by fixed hourly rates.
Since BP Australia Pty Ltd v Brown, there has been a practice of Courts across Australia granting "shelf orders", whereby time for voidable transaction recovery actions by a Liquidator under section 588FF is extended "at large". The Court's power to grant these "shelf orders", however, is to be scrutinised by the High Court in December 2014, in the course of the Octaviar group liquidation.
Dispute is one of priority, not ownership.
The first judgment regarding a major Personal Property Securities Act ("PPSA") priority dispute between a bank with a perfected "General Security Agreement" and an equipment owner with an unperfected "PPS Lease" has been handed down.
The decision in Richard Albarran and Blair Alexander Pleash as receivers and managers of Maiden Civil (P&E) Pty Ltd & Ors v Queensland Excavation Services Pty Ltd & Ors highlights three key issues for the insolvency industry:
The importance of notifications to potential defendants and directors of the insolvent company
The decision in Re Octaviar Administration Pty Ltd (in liq) [2013] NSWSC 786 highlights two key issues for insolvency practitioners:
Oftentimes in bankruptcy, when one entity files for bankruptcy relief, the subsidiaries or affiliates also file. Sometimes these entities are "substantively consolidated" for bankruptcy purposes, thus combining the assets and liabilities into a single pool and attributing them to a single entity. Substantive consolidation has been permitted when, for example, debtors have abused corporate formalities or creditors have treated the separate entities as a single economic unit and their affairs were hopelessly entangled.
Recently, the United States Bankruptcy Appellate Panel of the Eighth Circuit decided In re EDM Corp.,[1] affirming that a creditor’s priority in collateral may be sacrificed if the debtor’s exact legal name is not exclusively used in the financing statement.
The Eleventh Circuit recently affirmed the avoidance of nearly $2 million in postpetition payments made by debtor Delco Oil, Inc. (the "Debtor") to its petroleum supplier Marathon Petroleum Company, LLC ("Marathon").[1] The Eleventh Circuit held that funds received by Marathon from the Debtor constituted cash collateral that the Debtor had spent without the permission of either its secured lender, CapitalSource Finance ("CapitalSource"), or the bankruptcy court and, therefore, could be avoided under sections 549(a) and 363(c)(2) of the Bankruptcy Code.