Reform of our Australian bankruptcy landscape has been the focus of policymakers for some time. The new changes lead by the Attorney-General’s Department, will see the implementation of reforms to the Bankruptcy Act 1966 (Cth) (Bankruptcy Law Reforms) and further consultation on a Minimal Asset Procedure (as foreshadowed during our recent Personal Insolvency Forum) (Minimal Asset Procedure). A further development regarding the treatment of capital gains tax (CGT) is included in this update.
The Court at first instance held that the Applicants failed to establish that the Company was insolvent. The key findings that informed the Associate Judge’s conclusions included the following:
- the funds that were available to the Company to pay its debts included funds in an offset account in the name of the director (and an account in the name of the director’s wife); and
- the Applicants’ claims were based on unreconciled accounts of the Company.
The Applicants were granted leave to appeal and appealed the decision of the Court a quo.
The Federal Court has clarified the ability of an assignee of a claim by a liquidator pursuant to s 100-5 of the Insolvency Practice Schedule to rely upon information and documents obtained from a public examination in private proceedings relating to the assigned claim: LCM Operations Pty Ltd, in the matter of 316 Group Pty Ltd (In Liquidation) [2021] FCA 324.
Takeaways:
The economic fallout from the COVID-19 pandemic will leave in its wake a significant increase in commercial chapter 11 filings. Many of these cases will feature extensive litigation involving breach of contract claims, business interruption insurance disputes, and common law causes of action based on novel interpretations of long-standing legal doctrines such as force majeure.
U.S. Bankruptcy Judge Dennis Montali recently ruled in the Chapter 11 case of Pacific Gas & Electric (“PG&E”) that the Federal Energy Regulatory Commission (“FERC”) has no jurisdiction to interfere with the ability of a bankrupt power utility company to reject power purchase agreements (“PPAs”).
The Supreme Court this week resolved a long-standing open issue regarding the treatment of trademark license rights in bankruptcy proceedings. The Court ruled in favor of Mission Products, a licensee under a trademark license agreement that had been rejected in the chapter 11 case of Tempnology, the debtor-licensor, determining that the rejection constituted a breach of the agreement but did not rescind it.
Few issues in bankruptcy create as much contention as disputes regarding the right of setoff. This was recently highlighted by a decision in the chapter 11 case of Orexigen Therapeutics in the District of Delaware.
The judicial power of the United States is vested in courts created under Article III of the Constitution. However, Congress created the current bankruptcy court system over 40 years ago pursuant to Article I of the Constitution rather than under Article III.
Southeastern Grocers (operator of the Winn-Dixie, Bi Lo and Harvey’s supermarket chains) recently completed a successful restructuring of its balance sheet through a “prepackaged” chapter 11 case in the District of Delaware. As part of the deal with the holders of its unsecured bonds, the company agreed that under the plan of reorganization it would pay in cash the fees and expenses of the trustee for the indenture under which the unsecured bonds were issued.
The Supreme Court’s recent decision in Merit Management Group, LP v. FTI Consulting, Inc. has appropriately drawn significant attention.