Courts and professionals have wrestled for years with the appropriate approach to use in setting the interest rate when a debtor imposes a chapter 11 plan on a secured creditor and pays the creditor the value of its collateral through deferred payments under section 1129(b)(2)(A)(i)(II) of the Bankruptcy Code. Secured lenders gained a major victory on October 20, 2017, when the Second Circuit Court of Appeals concluded that a market rate of interest is preferred to a so-called “formula approach” in chapter 11, when an efficient market exists.

Over the years, the United States Supreme Court has had to interpret ambiguous, imprecise, and otherwise puzzling language in the Bankruptcy Code, including the phrases “claim,” “interest in property,” “ordinary course of business,” “applicable nonbankruptcy law,” “allowed secured claim,” “willful and malicious injury,” “on account of,” “value, as of the effective date of the plan,” “projected disposable income,” “defalcation,” and “retirement funds.” The interpretive principles employed by the Court in interpreting the peculiarities of the Bankruptcy Code were in full view when the Court r

FSA has made a statement explaining how the bank’s failure to comply with FSA’s liquidity guidelines as they applied to it was critical. It says that while the bank’s downfall was not directly due to the breaches, the breaches happened at a critical period for the financial markets and at a time FSA needed banks to keep it up to date on their liquidity. (Source: FSA Explains Liquidity Importance)

FSA has published a set of frequently asked questions designed to help readers understand MG Global’s insolvency position and investors’ rights under it. (Source: MF Global Investors – Your Questions Answered)

The absolute priority rule of Section 1129(b) of the Bankruptcy Code is a fundamental creditor protection in a Chapter 11 bankruptcy case. In general terms, the rule provides that if a class of unsecured creditors rejects a debtor’s reorganization plan and is not paid in full, junior creditors and equity interestholders may not receive or retain any property under the plan. The rule thus implements the general state-law principle that creditors are entitled to payment before shareholders, unless creditors agree to a different result.

FSA has won a case in the High Court in which the court held one individual and two businesses were operating a collective investment scheme without authorisation. The court banned James Maynard from selling land for business purposes in the UK for life and made a bankruptcy order against him. It ordered him and Countrywide Land Holdings Limited to pay £31,896,194 to FSA and ordered Plateau Development & Land Limited, now in liquidation, to pay £918,975. Tracey McDermott said there was a low probability of getting meaningful compensation but that FSA had scored an important victory.

WorldSpreads Limited has become the third firm to enter into the Special Administration Regime. The firm, a spread betting company, entered into the regime following the discovery of accounting irregularities which led to a finding that the firm could not continue in business. (Source: Firm Enters Special Administration)

The Internal Market Directorate is discussing with stakeholders whether the debt write-down or bail-in tool would help a managed reorganisation or winding down of a financial institution that faced imminent failure. This discussion takes place in the context of the ongoing work on an EU framework for managing crises in the banking sector. The debt write-down or bail-in tool would complement the special resolution powers that need to be available for authorities to stem risks to financial stability and limit the recourse to taxpayer’s money.

Background

The United Kingdom Supreme Court recently decided the appeal in the important case In the Matter of Lehman Brothers International (Europe) (LBIE) (In Administration) and In the matter of the Insolvency Act 1986 [2012] UK (the Case).

In summary, the Case is about which claims can be treated as claims for client money. This turns on interpreting the rules of the UK’s Financial Services Authority’s (FSA) Client Assets Sourcebook (CASS) in chapter 7 of CASS. These FSA rules stem from the Markets in Financial Instruments Directive (MiFID).

Pritchard Stockbrokers Ltd has become the second firm to enter into the investment firms Special Administration Regime. FSA stopped the firm carrying out its business on 10 February because of serious concerns about the business and how the firm was handling investors’ money. WH Ireland has taken over the assets belonging to most of the firms’ customers. (Source: Stockbroker Goes Into Special Administration)