"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:

In what appears to be a matter of first impression, Bankruptcy Judge Robert D. Drain, United States Bankruptcy Court for the Southern District of New York, has held that a statutory safe harbor against constructive fraudulent conveyance actions under the Bankruptcy Code involving securities transfers does not apply to the private sale of securities, even when there are no allegations of illegal conduct or fraud involved in the underlying transaction.

In a 113-page decision (click here to read decision) that is sure to be applauded by lenders and bond traders alike, Judge Alan S. Gold of the United States District Court for the Southern District of Florida, in overturning a Bankruptcy Court opinion that has caused lenders much concern, has issued a stern ruling that provides a bulwark against efforts by creditors and trustees in bankruptcy to expand the scope of the fraudulent conveyance provisions under the Bankruptcy Code.

In 1999 the Third Circuit Court of Appeals rendered its decision in Calpine Corp. v. O’Brien Environmental Energy, Inc. (In re O’Brien Environmental Energy, Inc.), 181 F.2d 527, denying Calpine Corporation’s request for the payment of a break-up fee after Calpine lost its effort to acquire the assets of O’Brien Environmental Energy out of bankruptcy.

The Second Circuit Court of Appeals recently issued its decision on a question of first impression before the court: whether section 502(d) of the Bankruptcy Code applies to administrative claims arising under section 503(b) of the Bankruptcy Code. See, generally, ASM Capital, L.P. v. Ames Dept. Stores, Inc. (In re Ames Dept. Stores, Inc.), 582 F.3d 422 (2d Cir. 2009).

During the bankruptcy cycle following the recession of 2001, numerous debtors – notably airlines such as US Airways and United Air Lines, Inc. – undertook “distress terminations” of their ERISA-qualified defined benefit pension plans, which are insured by the Pension Benefit Guaranty Corporation (PBGC). The PBGC found itself holding large general unsecured claims arising from significant underfunding of pension plans insured by the PBGC as a result of these terminations. Efforts by the PBGC to obtain either administrative priority or secured status for these claims invariably failed.1