There are few things as daunting to a vendor or supplier as its counterparty’s bankruptcy. The likelihood of a significantly discounted recovery for goods and services provided and potential loss of a customer may have long-lasted impacts on profitability. Even worse, however, is the prospect that payments received in good faith prior to a debtor’s bankruptcy filing may be at risk of recoupment. In this alert, we address the risk that such payments are voidable as preferential transfers.

Directors resign for many reasons. For example, there may be disagreements among stakeholders about the future course of the company, they may be concerned about the risks associated with financial difficulty/insolvency, or they may just wish to retire.

Unitranche financing began as a middle-market product, tracing its origins to the days of recovery from the global credit crisis. The credit markets re-opened with an explosion of available capital from traditional lenders, business development companies and other direct lenders. With an increasing supply of capital, leverage shifted to borrowers and private equity, allowing them to better dictate the terms and conditions of their loan facilities. With the greater prevalence of so-called “covenant-lite” loans, also came the exponential growth of the unitranche market.

This is one of a series of articles we at Morton Fraser are producing to guide our clients through the wholesale change proposed in Scots law in relation to security over goods, intellectual property and shares, on the one hand, and invoice finance or the purchase of receivables, on the other. For a general introduction to what the Bill covers, see here.

The merchant cash advance (“MCA”) industry recently provided two different bankruptcy courts with an opportunity to consider the characterization of MCA funding transactions as either “true sales” of receivables or “disguised loans”.

Article 9 of the Uniform Commercial Code, adopted in all fifty states plus the District of Columbia with relatively few variations, sets out, among other things, the rules to be followed when obtaining a security interest in personal property collateral to secure a loan. The basic premise of Article 9 is that if the lender follows the rules, it should be protected against third parties, including other creditors or a bankruptcy trustee, who would seek to challenge the lender’s security interest or the priority of the security interest.

In its much-discussed decision, City of Chicago v. Fulton, 141 S. Ct. 585 (2020), the Supreme Court ruled that the City of Chicago (“City”) was not in violation of Section 362(a)(3) of the Bankruptcy Code for failing to release an impounded car to a debtor in bankruptcy.

Periodically courts remind corporate directors that their decisions to act or to refrain from acting during the course of managing the affairs of a corporation are not without limitations. It is well established that corporate directors owe fiduciary duties, and more specifically, a duty of care and a duty of loyalty to corporate shareholders. Those duties should always be at the front of mind of every director when any action or inaction is contemplated, but in particular, when addressing challenging issues facing the corporation.

UK Government introduces a temporary increase to minimum debt level required for a winding up petition

Restrictions have been in place since the start of the pandemic to prevent creditors taking steps to wind up debtor companies. Those restrictions are due to expire on September 30, 2021. To lessen the risk of October seeing a mass rush by creditors seeking to wind up their debtors, the UK Government has introduced a further temporary measure in connection with liquidation petitions.

In this two part article we highlight for directors some of the main ways in which the general protection of limited liability does not apply or can be lost.

Part one of this article discusses those exceptions to the principle of limited liability that arise in insolvency or distress situations. Part two deals with the provisions that have more general applicability.

Breach of duties