Introduction

On 29 June 2017 the High Court made an order for costs against the three former directors of Custom House Capital (the “Company”) having already disqualified them from acting as directors for periods in excess of ten years. The judgment was unusual because the order for costs was not just in relation to the legal costs but also for the very significant investigative costs of the Official Liquidator.

Background

Introduction

With the commencement of the Companies Accounting Act 2017 (“2017 Act”) on 9 June 2017, the priority of charges in liquidations has been dramatically altered.

Judicial Development

The recent judgment in MB Refrigeration and Air-conditioning Limited (in liquidation) –v- Allied Irish Bank Plc [2016] has clarified what constitutes “notice” of the liquidation of a company for creditors and banks alike.

In less than a week after its bankruptcy filing, a debtor was able to obtain confirmation of its prepackaged plan of reorganization in the Bankruptcy Court for the Southern District of New York. In allowing the case to be confirmed on a compressed timeframe that was unprecedented for cases filed in the Southern District of New York, the Bankruptcy Court held that the 28-day notice period for confirmation of a chapter 11 plan could run coextensively with the period under which creditor votes on the plan were solicited prior to the commencement of the bankruptcy case.

We recently published an article entitled“Good news for financial institutions seeking to challenge Protective Certificates” which outlined the positive steps taken the High Court to prevent a Debtor from receiving the full benefit of a protective certificate (“PC”) where it would cause irreparable loss to a lending institution.

In a June 3, 2016 decision¹ , the United States Bankruptcy Court for the District of Delaware (“the Bankruptcy Court”) invalidated, on federal public policy grounds, a provision in the debtorLLC’s operating agreement that it viewed as hindering the LLC’s right to file for bankruptcy. Such provision provided that the consent of all members of the LLC, including a creditor holding a so-called “golden share” received pursuant to a forbearance agreement, was required for the debtor to commence a voluntary bankruptcy case.

The High Court recently considered Protective Certificates (PC) in the context of Personal Insolvency Arrangements (PIA) in the recent case of Clones Credit Union –v- McManus. A Protective Certificate can be obtained by debtors to prevent enforcement action threatened by creditors. The PC allows such protection for a period of 70 days to facilitate an informal arrangement with creditors.

In its recently issued decision in Husky International Electronics, Inc. v. Ritz, a 7-1 majority of the Supreme Court has clarified that intentionally fraudulent transfers designed to hinder or defraud creditors can fall within the definition of “actual fraud” under Section 523(a)(2)(A) of the Bankruptcy Code and can sometimes result in corresponding liabilities being non-dischargeable in a personal bankruptcy proceeding.¹

In a March 29, 2016 decision,1 the United States Court of Appeals for the Second Circuit (the "Court of Appeals") held that creditors are preempted from asserting state law constructive fraudulent conveyance claims by virtue of the Bankruptcy Code's "safe harbors" that, among other things, exempt transfers made in connection with a contract for the purchase, sale or loan of a security (here, in the context of a leveraged buyout ("LBO")), from being clawed back into the bankruptcy estate for distribution to creditors.

On January 4, 2016, the United States Bankruptcy Court for the Southern District of New York (the “Bankruptcy Court”) deviated from SDNY precedent and held that, despite the absence of clear Congressional intent, the avoidance powers provided for under Section 548 of the Bankruptcy Code can be applied extraterritorially. As a result, a fraudulent transfer of property of a debtor’s estate that occurs outside of the United States can be recovered under Section 550 of the Bankruptcy Code.