Among the many financial innovations that came out of the COVID era, non-pro rata uptier transactions as a liability management exercise (“LMEs”) are among the more controversial. While lawsuits challenging non-pro rata uptier transactions are making their way through the courts, two important decisions were recently issued by the Court of Appeals for the Fifth Circuit and the New York Appellate Division.

On average, the Supreme Court hears a single bankruptcy case each term. But during the October 2022 term, the Supreme Court issued a remarkable four decisions in bankruptcy cases. These decisions, which are summarized below, address appellate issues relating to sale orders, the discharge of claims obtained by fraud, and sovereign immunity issues in two different contexts.

I. Section 363(m) of the Bankruptcy Code is not a jurisdictional provision that precludes appellate review of asset sale orders.

Businesses in a wide range of industries may now be forced to consider bankruptcy given the unprecedented economic challenges caused by the COVID-19 pandemic. This advisory is designed to provide a high-level view of issues to be considered by human resources when considering filing for Chapter 11 bankruptcy. Please note that this advisory focuses specifically on a Chapter 11 bankruptcy (pursuant to which a business will be reorganized) rather than Chapter 7 bankruptcy (pursuant to which a business will be liquidated).

Earlier this month, the Supreme Court announced that it will review the scope of Bankruptcy Code section 546(e)’s safe harbor provision. Section 546(e) protects from avoidance those transfers that are made “by or to (or for the benefit of)” a financial institution, except where there is actual fraud. The safe harbor is intended to ensure the stability of the securities market in the event of corporate restructurings.

In a recent decision (“Energy Future Holdings”) poised to have wide-reaching implications, the Third Circuit Court of Appeals reversed the decisions of the Bankruptcy and the District Courts to hold that a debtor cannot use a voluntary Chapter 11 bankruptcy filing to escape liability for a “make-whole” premium if express contractual language requires such payment when the borrower makes an optional redemption prior to a date certain.

Background

Under the Pensions Act 2004 the Pensions Regulator (tPR) has the power to impose a financial support direction (FSD) requiring a company “connected or associated” with the sponsoring employer of a UK pension fund to provide financial support to the pension fund. To date tPR has used the power in insolvencies.

This summer has seen several pension issues making the news. They show how essential it is for employers and trustees to keep abreast of how developments impact on their arrangements.

Jay Doraisamy looks at five areas which have made the headlines this summer:

The High Court has recently considered whether a bankrupt individual of pensionable age can be forced to draw his pension to pay his creditors.

Raithatha v. Williamson [2012] EWHC 909 (Ch)

Background

A bankruptcy order was made against Mr Raithatha on 9 November 2010. Mr Raithatha's trustee in bankruptcy applied for an income payments order (IPO) against Mr Raithatha's pension shortly before he was due to be discharged from bankruptcy. Mr Raithatha was then aged 59 and his pension scheme allowed him to draw a pension from age 55.

Pension scheme assets can rise and fall. So can liabilities. The timing of the section 75 debt calculation is, therefore, critically important to the ability of the scheme to meet its liabilities.

So when should trustees calculate their section 75 debt? Can they use one date to calculate scheme assets and choose a different date to calculate the cost of buying out the scheme’s liabilities?

TPR settled its dispute with Michael Van de Wiele (VdW) in relation to its UK pension scheme and issued a Contribution Notice (CN) for £60,000. Although this is significantly less than the £21 million originally sought and the £5.08 million decided by the Determinations Panel, TPR says it is “business as usual” for the use of its statutory anti-avoidance powers. A settlement at this level might be viewed as a defeat for TPR and an indication that CNs are not a potent weapon to deal with the avoidance of employer debts. That view would be seriously misguided.