In March, we reported on a brief filed by the Solicitor General recommending denial of a petition for certiorari filed by Tribune creditors seeking Supreme Court review of the Second Circuit ruling dismissing their state-law fraudulent transfer claims.

A discharge of debt in bankruptcy “operates as an injunction against the commencement or continuation of an action, the employment of process, or an act, to collect, recover or offset any such debt as a personal liability of the debtor. . . .” 11 U.S.C. § 524(a)(2). Certain debts, however, including debts “for violation of . . . any of the State securities laws,” are not subject to discharge. See 11 U.S.C. § 523(a)(19). A discharge injunction does not bar the collection of such debts.

We have blogged previously about section 546(e), the Bankruptcy Code’s safe harbor for certain transfers otherwise subject to avoidance as preferences or fraudulent transfers. See 11 U.S.C. § 546(e). Among the transfers protected by the section 546(e) safe harbor are transfers by or to a “financial participant” made “in connection with a securities contract.” Id.

Significant changes will come into force after 31 December if no agreement is reached (or is not finalised and ratified) before the end of the transition period for cross-border insolvency proceedings. Importantly, the changes will alter the grounds for jurisdiction to open insolvency proceedings in the UK and impact the recognition of those UK insolvency proceedings in the EU.

The Bankruptcy Code enables a trustee to set aside certain transfers made by debtors before bankruptcy. See 11 U.S.C. §§ 544, 547, 548. These avoidance powers are subject to certain limitations, including a safe harbor in section 546(e) exempting certain transfers. Among other things, section 546(e) bars avoidance of a “settlement payment . . . made by or to (or for the benefit of) . . . a financial institution [or] a transfer made by or to (or for the benefit of) a . . . financial institution . . .

The re-introduction of Crown preference and the resulting change in the order of priority of creditors on insolvency was announced as part of the Autumn budget in 2018, way before anyone had heard of coronavirus or COVID-19, and was originally due to come into force on 6 April 2020. It was delayed until 1 December 2020 in terms of the 2020 budget which was presented to Parliament on 11 March 2020, the same day as the World Health Organization declared the outbreak of COVID-19 a pandemic.

What is a pre-pack?

Pre-pack is the term used to describe an arrangement whereby the sale of all or part of a company’s business and/or assets is negotiated and agreed before an insolvency practitioner (IP) is appointed, with the relevant documentation being signed and implemented, immediately or shortly, after the appointment is made.

Last February, we blogged about the Third Circuit’s decision in In re Energy Future Holdings Corp, No. 19-1430, 2020 U.S. App. LEXIS 4947 (Feb. 18, 2020). The Third Circuit approved a process for resolving asbestos claims in which a bar date was imposed on filing the claims, but late claimants who were unaware of their asbestos claims would be allowed to have the bar date excused through Bankruptcy Rule 3003(c)(3). (A bar date is a date set by the court by which all claims against the debtor must be filed.

Section 550 of the Bankruptcy Code provides that, when a transfer is avoided under one of several other sections of the Code, a trustee may recover “the property transferred, or, if the court so orders, the value of such property” from “the initial transferee of such transfer,” “the entity for whose benefit such transfer was made,” or “any immediate or mediate transferee of such initial transferee.” 11 U.S.C. § 550(a).

The Corporate Insolvency and Governance Bill (“Bill”) was published on 20 May 2020. The overarching objective of the Bill is to provide businesses with the flexibility and breathing space they need to continue trading during this difficult time. The measures introduced by the Bill are designed to help UK companies and other similar entities by easing the burden on businesses and helping them avoid insolvency during this period of economic uncertainty.