A common query with D&O insurance coverage is whether post-insolvency claims against the insolvent company’s directors and officers trigger the Insured vs. Insured exclusion found in most D&O policies. This issue arises when claims are brought on behalf of the insolvent company against directors in an attempt to recover money for 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.

In Sharma v Top Brands Ltd [2015] EWCA Civ 1140, the Court of Appeal refused to allow a former liquidator of a company (which was a vehicle for VAT fraud) to rely on the illegality defence to avoid liability for a claim brought against her for breach of duty under section 212 of the Insolvency Act 1986 (IA 1986).

Background

On December 14, 2015, the United States Court of Appeals for the Second Circuit held that claims arising from securities of a debtor’s affiliate must be subordinated to all claims or interests senior or equal to claims of the same type as the underlying securities in the bankruptcy proceeding.

This month in Sharma v Top Brands Ltd [2015] EWCA Civ 1140 the Court of Appeal has again been asked to grapple with the question of when the illegality defence is available to defendants to actions brought by an insolvent company where the losses claimed are arguably tainted by the company's own fraudulent actions. In this instance the question for the court was whether the defence was available to a former liquidator of a company seeking to defend a claim brought against her for breach of duty under section 212 of the Insolvency Act 1986 (IA 1986).

On October 28, 2015, the United States Bankruptcy Court for the Southern District of New York (the “Bankruptcy Court”) issued a decision that significantly expands the jurisdictional bases that foreign issuers can rely upon to obtain relief in the United States under Chapter 15 of the Bankruptcy Code.

In a blow to the Lehman Chapter 11 estates, the United States Bankruptcy Court for the Southern District of New York held on September 16, 2015 that Intel Corporation’s Loss calculation resulting from a failed transaction under an ISDA Master Agreement was appropriate.¹ The decision is significant both because of the dearth of judicial interpretation of the ISDA mechanics regarding the calculation of early termination amounts, and because it affirms the general market understanding that a non-defaulting party has broad discretion in calculating “Loss,” so long as its

On June 29, 2015, the United States Court of Appeals for the Second Circuit affirmed the decision of the United States Bankruptcy Court for the Southern District of New York, which held that claims asserted by counterparties in relation to bilateral repurchase agreements do not qualify for treatment as customer claims under the Securities Investor Protection Act of 1970 (“SIPA”).