It is a well-established principle of bankruptcy law that claims generally crystallize as of the bankruptcy petition date. Of course, section 506(b) of the bankruptcy code allows over-secured, secured creditors to recover post-petition interest and costs, including reasonable legal fees, if their documentation provides them with the right to recover these costs. But what about unsecured creditors – are post-petition legal fees incurred by an unsecured creditor whose contract with the debtor provides for reimbursement of legal fees allowed or not?
Bankruptcy Rule 2004 allows the examination of any entity with respect to various topics, including conduct and financial condition of the debtor and any matter that may affect the administration of the estate. Does a subordination agreement that is silent on the use of Rule 2004 prevent the subordinated creditor from taking a Rule 2004 examination of the senior creditor? Yes, says an Illinois bankruptcy court.
On 28 November 2016 the German Federal Fiscal Court (FFC) (GrS BFH 1/15, published on 8 February 2017) held that the guidance on a reorganisation tax privilege (Reorganization Decree (Sanierungserlass)) issued by the German Federal Ministry of Finance (FMF) in 2003 was invalid. The ruling has created great uncertainty for the restructuring practice in Germany regarding the proper tax treatment of restructuring gains.
In its April 2018 decision, the BGH ruled on the question whether the directors of a company that has been granted debtor in possession status by the respective insolvency court can become personally liable for a breach of a duty of care vis-à-vis the creditors like an insolvency administrator. The underlying legal question was the subject of a controversial academic discussion in the past.
Two United States Bankruptcy Judges for the Southern District of New York recently issued a joint opinion addressing common issues raised by motions to dismiss in two separate adversary proceedings – one pending before Judge Bernstein and the other before Judge Glenn (the “Adversary Proceedings”). The Adversary Proceedings were filed by the debtors in two chapter 11 cases, each involving an Anguillan offshore bank – National Bank of Anguilla (Private Banking Trust) Ltd. and Caribbean Commercial Investment Bank Ltd. (the “Debtor Banks”).
Manley Toys Limited once claimed to be the seventh largest toy company in the world. Due to ongoing litigation and declining sales, it entered into a voluntary liquidation in Hong Kong. On March 22, 2016, the debtor’s appointed liquidators and foreign representatives filed a motion for recognition under chapter 15 of the Bankruptcy Code. The motion was opposed by ASI Inc., f/k/a Aviva Sports, Inc. (“Aviva”) and Toys “R” Us, Inc. (“TRU”).
U.S. Bankruptcy Rule 9019 provides that on a motion brought by a trustee (and thus a chapter 11 debtor-in-possession as well) the court may approve a settlement. The prevailing view is that due to the court’s approval requirement, pre-court approval settlement agreements are enforceable by the debtor but not against the debtor. The District Court for the Eastern District of New York recently disagreed. It held that the statutory approval requirement is not an opportunity for the debtor to repudiate the settlement.
Directors and officers (D&Os) of troubled companies should be highly sensitive to D&O insurance policies with Prior Act Exclusion. While policies with such exclusion may be cheaper, a recent decision by the U.S. Court of Appeal for the Eleventh Circuit raises the spectre that a court may hold a loss to have more than a coincidental causal connection with the officer’s conduct pre-policy period and make the (cheaper) coverage worthless.
A U.S. House of Representatives Bill would amend the Bankruptcy Code to establish new provisions to address the special issues raised by troubled nonbank financial institutions.
A recent judgment of the German Federal Fiscal Court (FFC) will have significant impact on the restructuring tool kit afforded under German law. The FFC has found that the existing practice of permitting a tax liability arising from restructuring gains to be deferred and (eventually) waived violates fundamental principles of German law. The ruling has created uncertainty regarding the proper tax treatment of restructuring gains, which may have the effect of diminishing the prospect of success of a restructuring for a company in financial distress.