On November 15, 2016, Texas-based Xtera Communications, Inc. and seven of its affiliates filed voluntary petitions for chapter 11 bankruptcy relief in the United States Bankruptcy Court for the District of Delaware (Case No: 16-12577). XTERA is a leading provider of high-capacity, cost-efficient optical transport solutions that it sells to telecommunications service providers.
In our previous bulletin we discussed the ‘safe harbour’ model in the Government’s suggested reforms to the current insolvency laws.
This bulletin considers another of the focus questions in the Proposal Paper: the voiding of ipso facto clauses relating to insolvency events.
Background
NJOY, Inc., an e-cigarette and vaping company headquartered in Scottsdale, Arizona, has filed for chapter 11 bankruptcy protection in the United States Bankruptcy Court for the District of Delaware (Case No. 16-12076).
Noble Environmental Power, LLC, and several of its affiliates filed for Chapter 11 protection in the Bankruptcy Court for the District of Delaware (Lead Case No. 16-12055). Noble, a renewable energy company that owns and operates wind generation assets in New York and Texas, has its principal place of business in Centerbrook, Connecticut. According to the Debtor’s first day affidavit, downward trends in energy prices have made its debt obligations untenable, leading to the commencement of this case.
On 29 April 2016, the Federal Government released a Proposals Paper titled ‘Improving bankruptcy and insolvency laws’.
The Government is proposing these reforms to encourage entrepreneurship and investment. It hopes to reduce the stigma and detriment around failed business ventures, while still balancing the need to protect creditors.
On March 2, 2016, Sports Authority Holdings, Inc. and six of its affiliates filed chapter 11 petitions before the United States Bankruptcy Court for the District of Delaware (lead case 16-10527). The cases have been assigned to the Honorable Mary F.
Recent changes to the Federal Rules of Civil Procedure will significantly alter the discovery proceedings in bankruptcy proceedings, particularly in adversary proceedings. See Fed. R. Bankr. P. Part VII (applying FRCP to adversary proceedings) and Rule 9014(c) (applying FRCP to most contested matters). While not intended to be a comprehensive analysis, below are some key considerations for bankruptcy practitioners navigating the amended rules.
Where a court has ordered the winding-up of a company, a shareholder may be able to have the winding up terminated under section 482 of the Corporations Act 2001.
Relevant factors
The power of the court to terminate a winding-up is discretionary. Relevant factors to be considered, which are not exhaustive, include the following:
If a director can exercise a right of set-off against a company in liquidation for a debt owed to the director or for a liability of the company to the director (which may be unascertained in amount or contingent), it may help to cancel out or significantly reduce the director’s liability to the company for insolvent trading.
In Allco Funds Management Limited v Trust Co (Re Services) Ltd [2014] NSWSC 1251, an inter-company loan transaction was challenged by a receiver appointed by the secured creditor to one of the companies. Common directors were involved in the transaction. The issue was whether the directors breached their fiduciary duties entitling the company via the receiver to have the transaction set aside.
The background to the case