“… [B]ecause Congress has not clearly abrogated the solvent-debtor exception,” the U.S. Court of Appeals for the Fifth Circuit held that a reorganized solvent debtor had to “pay what it promised now that it is financially capable.” In re Ultra Petroleum Corp., 2022 WL 8025329, *1, (5th Cir. Oct. 14, 2022) (2-1). Moreover, “given [the debtor’s ] solvency, post-petition interest is to be calculated according to the agreed-upon … contractual default rate …,” not the “much lower Federal Judgment Rate …,” held the court. Id.

With rising insolvency rates, driven in particular by the number of creditors’ voluntary liquidations reaching record highs, the decision in the recent Court of Appeal case of PSV 1982 Limited v Langdon [2022] EWCA Civ 1319 serves as a timely reminder for directors of the personal risks involved in re-using the name of a liquidated company.

The “connections” of the chairman (“W”) of the debtor’s investment bank (“S”) to his family’s foundations do “not give rise to an actual, active conflict of any kind,” held a bankruptcy judge in the Southern District of New York on Oct. 17, 2022. In re SAS A.B., 2022 WL 10189110, *3 (Bankr. S.D.N.Y. Oct. 17, 2022). According to the court, it “is only through strained speculation [by the U.S. Trustee] that a potential issue can even be posited.” Accord, In re Harold & Williams Dev. Co., 977 F.2d 906 (4^th Cir.

“…[B]ecause Congress has not clearly abrogated the solvent-debtor exception,” the U.S. Court of Appeals for the Fifth Circuit held that a reorganized solvent debtor had to “pay what it promised now that it is financially capable.” In re Ultra Petroleum Corp., 2022 WL 8025329, *1, (5^th Cir. Oct. 14, 2022) (2-1). Moreover, “given [the debtor’s ] solvency, post-petition interest is to be calculated according to the agreed-upon … contractual default rate …,” not the “much lower Federal Judgment Rate . . .,” held the court. Id.

The Third Circuit recently affirmed a bankruptcy court’s denial of a defendant’s motion to disqualify the plaintiff’s law firm in a large adversary proceeding, holding that it had not abused its discretion because the plaintiff law firm (W) had “complied with” American Bar Association Model Rule of Professional Conduct 1.10(a)(2). In re Maxus Energy Corp., 2022 WL 4113656, *4 (3d Cir. Sept. 9, 2022). According to the court, a lawyer (B) who “moved from” the defendant’s law firm “to the [plaintiff’s] firm” was not cause for W (the new firm) to be disqualified.

With administration figures creeping back up after falling to low levels during the pandemic, the number of pre-pack sales of businesses in administration also appears to be on the increase. In such transactions, a purchaser acquires all, or substantially all, of the business and assets of the insolvent company from the administrator, with the terms of the deal being agreed pre-appointment and completion usually taking place immediately after the administrator takes office.

The appellate courts have been busy explaining or clarifying preference and fraudulent transfer law. Although novices may think the Bankruptcy Code (Code) is clear on its face, imaginative counsel have found gaps in the statute and generated rafts of litigation since the Code's enactment in 1979. Recent appellate decisions, summarized below, show that courts are still making new law or refining prior case law.

Preferences

Key Points

“Under the long-standing ‘solvent-debtor exception,’ plaintiffs [unsecured trade creditors] possess an equitable right to receive post-petition interest at the contractual or default state law rate, subject to any other equitable considerations, before [the debtor] collects surplus value from the bankruptcy estate,” held the Ninth Circuit on Aug. 29, 2022. In re PG&E Corporation, 2022 WL 3712498, *4 (9^th Cir. Aug. 29, 2022) (2-1).

The defendant "was a `mere conduit' of [a] fraudulent transfer and cannot be liable to the bankruptcy estate for funds she never knew about," held the U.S. Court of Appeals for the Second Circuit on May 5, 2022. In re BICOM N.Y., LLC, 2022 WL 1419997 (2d Cir. May 5, 2022). Affirming the lower courts' granting of summary judgement to the defendant transferee, the court refused to "equate ...