The oil and gas industry in the United States is highly dependent upon an intricate set of agreements that allow oil and gas to be gathered from privately owned land. Historically, the dedication language in oil and gas gathering agreements — through which the rights to the oil or gas in specified land are dedicated — was viewed as being a covenant that ran with the land. That view was put to the test during the wave of oil and gas exploration company bankruptcies that began in 2014.

It is a defence to an unfair preference claim to show there were no reasonable grounds to suspect the insolvency of the debtor company.

Referred to as the ‘good faith defence’, the creditor has the onus of establishing the defence contained in section 588FG(2) of the Corporations Act 2001 (Cth).

Suspicion of insolvency

The courts have identified the following principles with respect to the good faith defence:

On February 25, 2019, the United States Court of Appeals for the Second Circuit issued a decision holding that a trustee is not barred by either the presumption against extraterritoriality or by international comity principles from recovering property from a foreign subsequent transferee that received the property from a foreign initial transferee.

In the recent case of 1st Fleet Pty Ltd (in liquidation), the Court clarified the information disclosure obligations of external administrators in the Insolvency Practice Schedule (Corporations) (IPSC) and Insolvency Practice Rules (Corporations) 2016 (Rules).

There is only a short time period for compliance, and there can be cost consequences for non compliance.

In business it is not uncommon for a director of a company to be owed money by that company.

If the commercial relationship breaks down, the director may think it is an option to serve a creditor’s statutory demand on the debtor company.

However, recent court decisions demonstrate that issuing a creditor’s statutory demand is not a sure fire method of obtaining payment where the director is owed the debt personally or is a director of both the creditor and debtor companies.

Cases where statutory demands have been successfully challenged

On January 17, 2019, the United States Court of Appeals for the Fifth Circuit issued a decision holding that “impairment” under a plan of reorganization does not arise even if a creditor is paid less than it would be entitled to under its contract, so long as the reduced recovery is due to the plan’s incorporation of the Bankruptcy Code’s disallowance provisions.

Intercreditor agreements between secured creditors are intended to limit the potential for litigation and result in predictable commercial outcomes with respect to recoveries from collateral in enforcement actions and bankruptcies. Despite the extensive drafting efforts of sophisticated counsel to eliminate ambiguities in these agreements, the interpretation of intercreditor agreements has been the subject of substantial bankruptcy litigation.

On November 8, 2018, the United States Bankruptcy Court for the Southern District of New York (the “Bankruptcy Court”) issued a decision dismissing an involuntary chapter 11 case filed against Taberna Preferred Funding IV, Ltd. (“Taberna”), a CDO, by holders of non-recourse notes (the “Petitioning Creditors”).

Parties involved in cross-border bankruptcy/restructuring situations may be wary of the risk that repeated litigation in different courts with jurisdiction over the same debtor will result in conflicting judgments. The principle of “universalism” is the theory whereby the decisions of one primary jurisdiction addressing a debtor’s bankruptcy/restructuring issues are given universal effect by courts in other jurisdictions.

On September 21, 2018, the United States District Court for the District of Delaware issued a decision holding that the Bankruptcy Court had constitutional authority to approve the nonconsensual third-party releases contained in the debtor’s plan of reorganization. The District Court also dismissed as equitably moot all other issues raised on appeal by the appellant in connection with the confirmation order.