The Government has decided to create a Special Administration Regime (SAR) for systemically important payment and securities settlement systems. It is concerned that, were one of these market infrastructures to become insolvent, the administrator or liquidator would have to work towards maximising value for creditors, rather than keeping critical payment and settlement services running. The Bank of England would have the power to apply to court for an order declaring the start of SAR proceedings. Ensuring continuity of service would be among the special administrator’s objectives.

The Government has fed back on the responses to DBIS’s consultation on the effect of bankruptcy on the ability to access a basic bank account. Responses to the consultation have shown that only 27% of people subject to a bankruptcy order are able to retain their bank account. A bank's decision not to offer a bank account to a bankrupt is mainly based on the bankrupt's credit record, rather than on the risk of the trustee making a claim against the bank, a risk that the consultation process has shown is more perceived than real.

BBA has published a briefing paper setting out its position on the Commission’s proposal for a bank recovery and resolution directive. It suggests that certain powers, such as appointing a Special Manager or requiring a plan for debt restructuring, are more akin to resolution tools and should not be used until the firm has reached its point of non-viability. This also applies to the bail-in tool, which cannot be used as the first or default option.

FMLC has published an addendum to its March 2012 paper on legal uncertainties arising from bail-ins. The addendum addresses the points the Commission made in a recent paper. (Source: FMLC Bail-in Addendum)

In a decision further defining when US public policy restricts the relief a court may grant in aid of a foreign restructuring or insolvency proceeding, the Bankruptcy Court in the Chapter 15 case of Vitro, S.A.B. de C.V. v. ACP Master, Ltd. (In re Vitro, S.A.B. de C.V.), Ch. 15 Case No. 11-33335-HDH-15, 2012 WL 2138112 (Bankr. N.D. Tex. Jun. 13, 2012) refused to a enforce a Mexican restructuring plan that novated and extinguished the guaranty obligations of the Mexican debtor’s non-debtor subsidiary guarantors.

Whether a secured creditor has an absolute right to credit bid at a sale under a chapter 11 plan has been the subject of conflicting decisions rendered by the Third, Fifth and Seventh Circuits.¹ The United States Supreme Court has resolved these inconsistent rulings with its decision in RadLAX Gateway Hotel, LLC, et al., v. Amalgamated Bank, ² which affirmed the Seventh Circuit’s holding that a secured creditor has an absolute right to credit bid in a sale under a chapter 11 plan.

Section 541(a) of the Bankruptcy Code creates a worldwide estate comprising all of the legal or equitable interests of the debtor, “wherever located,” held by the debtor as of the filing date.¹ The Bankruptcy Code’s automatic stay, in turn, applies “to all entities” and protects the debtor’s property and the bankruptcy court’s jurisdiction by barring “any act to obtain possession of property of the estate . . .

On September 2, the Delaware Supreme Court affirmed a holding by the Court of Chancery that creditors of insolvent Delaware limited liability companies do not have standing to sue derivatively. This contrasts with Delaware corporations: the Delaware courts have recognized that when a corporation becomes insolvent, creditors become the residual risk-bearers and are permitted to sue derivatively on behalf of a corporation to the same extent as stockholders.

Introduction

On June 23, 2011, after fifteen years of hugely acrimonious litigation, the Supreme Court of the United States (the “Court”) issued a decision on a narrow legal issue that may end up significantly limiting the scope of bankruptcy courts’ core jurisdiction.  

Section 108 of the Bankruptcy Code grants a two-year extension of time for a trustee in bankruptcy (or a debtor in possession) to bring law suits, provided that the applicable period to sue didn’t expire before the petition date. It also gives a short extension to the trustee for filing pleadings, curing defaults, and performing other acts on behalf of the debtor. These provisions afford a trustee and debtor in possession valuable time to discover and evaluate potential causes of action and to perform other acts to preserve the debtor’s rights.