In an appeal certified directly from the Bankruptcy Court for the District of Delaware (the “Bankruptcy Court”) to the Court of Appeals, the Third Circuit issued a ruling upholding Judge Kevin Gross’s decision that a chapter 11 debtor-employer may reject the continuing terms and conditions of a collective bargaining agreement (“CBA”) under 11 U.S.C. § 1113, despite that the CBA expired post-petition.

The Bankruptcy Court’s Decision

On January 17, 2014, Chief Judge Kevin Gross of the Bankruptcy Court for the District of Delaware issued a decision  limiting the right of a holder of a secured claim to credit bid at a bankruptcy sale. In re Fisker Auto. Holdings, Inc.,  Case No. 13-13087-KG, 2014 WL 210593 (Bankr. D. Del. Jan. 17, 2014). Fisker raises significant issues for lenders who  are interested in selling their secured debt and for parties who buy secured debt with the goal of using the debt to  acquire the borrower’s assets through a credit bid.

Sale at an undervalue; time for presenting a petition; implied term avoids manifest injustice; complying with time limits; order for sale threshold; Wragge & Co's finance litigation experts bring you the latest on the cases and issues affecting the lending industry.

Sale at an undervalue

In Butterfield Bank (UK) Ltd v Philip and others, the bank sought summary judgment against four guarantors of a bank facility. It was alleged that the bank had sold a property at a £500,000 undervalue.

Notice of assignment

Notice of assignment can be given by either the assignee or assignor under the Consumer Credit Act 1974 (CCA).

This was the High Court's finding in Smith v 1st Credit (Finance) Ltd and another. Smith was notified by her credit card company that her credit card debt had been assigned to 1st Credit. 1st Credit wrote to Smith shortly afterwards confirming the assignment and advising how payment could be made. Smith failed to pay and was made bankrupt by 1st Credit which subsequently repossessed and sold Smith's property.

The court will unravel a transaction where it appears to have been entered into to place assets beyond the reach of creditors.

This was the case in Ambrose sub nom Garwood v Amborse & Ambrose, where the trustee in bankruptcy of Mr Ambrose applied for declaratory relief and an order for the possession and sale of Mr & Mrs Ambrose's property.

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.

In Rhinegold Publishing Ltd v Apex Business Development Ltd, Rhinegold and another company owed debts to the defendant in the sums of approximately £22,000 and £31,000 respectively. The defendant presented a winding-up petition against both companies which resulted in settlement being reached. The settlement provided that the companies would pay off the debts owed in full by monthly payments and that no proceedings would be issued in relation to the debts referred to in the original statutory demand if payment was made.

Where there is no evidence of lack of authority in placing orders which have not been paid, the court refused to allow an injunction to restrain a winding-up petition.

In the matter of A company (2012) (the company), a creditor had issued a statutory demand against it in relation to invoices for advertising placed with it by the company's sales and marketing manager (M) that were unpaid. The company argued that those orders had been placed without its authority and M admitted that she had exceeded her authority in so placing them.

 Valuation evidence

The court has reaffirmed that comparable sales evidence is the best evidence when determining the retrospective valuation of a property.

The case of White v Davenham Trust Ltd, has reaffirmed that a creditor can choose its own method of enforcing a debt which has been guaranteed even where it might hold security for that debt.