The appointment of an independent director is a powerful tool for private credit lenders. The appointment is designed to introduce a voice of neutrality and fairness into the board’s decision-making process with the hope and expectation that independence from the controlling shareholder enables the board to drive toward viable value-maximizing strategies. Often times, the independent director is vested with exclusive authority (or veto rights) over a range of significant corporate decisions, including a sale, restructuring and the decision to file a bankruptcy case.

In a much-anticipated decision, the United States Court of Appeals for the Third Circuit recently held that unsecured noteholders’ claims against a debtor for certain “Applicable Premiums” were the “economic equivalent” to unmatured interest and, therefore, not recoverable under section 502(b)(2) of the Bankruptcy Code.

There is a growing trend of bankruptcy courts approving structured dismissals of chapter 11 cases following a successful sale of a debtor’s assets under section 363 of the Bankruptcy Code. A structured dismissal is a cost‑effective way for a debtor to exit chapter 11 and is an alternative to (a) confirming a post‑sale liquidating plan, which is expensive and not always viable, or (b) converting the case to chapter 7, which introduces significant uncertainty and unpredictability with the appointment of a chapter 7 trustee to replace management.

Demand for virtual currency services, including custody services, has soared in the past several years. Like their counterparts in traditional finance, these custodians are stewards of retail and institutional customer funds and serve an important and valuable function. However, as evidenced by a number of headline-grabbing failures during the lingering crypto winter, inadequate disclosures and poor custodial practices can seriously harm retail and institutional customers alike.

On July 5, 2022, cryptocurrency brokerage Voyager Digital filed for chapter 11 in the Southern District of New York Bankruptcy Court, citing a short-term “run on the bank” due to the “crypto winter” in the cryptocurrency industry generally and the default of a significant loan made to a third party as the reasons for its filing. At Voyager’s first day hearing on July 8, 2022, the Bankruptcy Court asked the critical question of whether the crypto assets on Voyager’s platform were property of the estate or its customers.

Introduction

The concept of winding up does not exclusively apply to insolvent companies. Solvent companies can also be wound up, on the initiation of the company’s directors and shareholders (for example, as part of a corporate reconstruction or to close down non-operating or redundant entities). 

An overview of the two key procedures to effect the dissolution of a solvent Australian company, being Members’ Voluntary Liquidation and Deregistration, is set out below. 

In brief

Even with the fiscal stimulus and other measures taken by the Federal and State governments in Australia, corporate insolvencies are likely to increase in coming months.

Under Australia's insolvency regimes, a distressed company may be subject to voluntary administration, creditor's voluntary winding up or court ordered winding up (collectively, an external administration). Each of these processes raises different issues for the commencement and continuation of court and arbitration proceedings.

In summary

In our previous alert we discussed how Justice Markovic in the Federal Court of Australia had granted the administrators of retailer Colette Group relief from personal liability for rent in respect of 93 stores.  

The Australian Federal Court has made orders relieving the administrators of retailer Colette from personal liability for rent in response to the COVID-19 crisis and the current uncertainty in respect of government policy about rent relief for tenants: see

What you need to know

Amendments to the Corporations Act 2001 (Cth) (Corporations Act) to implement the measures announced by Treasurer Josh Frydenberg on Sunday, 22 March 2020 to provide temporary relief for financially distressed businesses due to COVID-19 have now come into effect.

The Coronavirus Economic Response Package Omnibus Act 2020 (Cth) (CERPO Act) amendments were passed by the Parliament on 2 March 2020. They will apply for a 6 month period, but may be extended or have impacts beyond that timeframe.