When the real estate market and financial markets tumbled during 2007-2008, the fallout was felt by financial institutions from large multi-billion dollar banks to small Community Banks. As these banks struggled to stay alive, a trend emerged for bank holding companies to market and sell a distressed bank through Section 363 of the Bankruptcy Code. This alternative was utilized in many instances as opposed to a traditional “reorganization plan” or takeover by the FDIC.

This second installment of our series, “The Life Settlement Industry – Bankruptcy Issues”, will address two related issues:

(1) What type of interest (if any) does an investor-creditor have in a “life settlement” (i.e., a life insurance policy sold by the original owner to a third party for a value in excess of the policy’s cash surrender value, but less than its death benefit), and (2) How is the interest of an investor-creditor in a life settlement generally determined in a bankruptcy case?

When businesses experience financial difficulties, it is very common for them to “rob Peter to pay Paul.” Occasionally, this takes the form of using taxes that have been withheld from employees’ paychecks to pay expenses instead of remitting those funds to the IRS. Of course, it is well known that even though such obligations are corporate, individuals within the corporation determined to be “responsible persons” will be personally liable for such taxes.

A “life settlement” is the sale of a life insurance policy to a third party for a value in excess of the policy’s cash surrender value, but less than its death benefit. The life settlement industry focuses on the purchase and sale of life settlements or fractional interests in life settlements to investors. These investors may be anyone from individuals to groups of investors, hedge funds or other institutional investors.

Ruden McClosky, P.A. (“Ruden”), a formerly large and prestigious law firm that was founded in 1959 and at its peak had more than 200 attorneys commenced a bankruptcy case by filing a petition for Chapter 11 relief (“Petition”) in the United States Bankruptcy Court for the Southern District of Florida on November 1, 2011. The firm was a victim of the changing economy and the Great Recession. Ruden’s practiced largely in areas serving financial institutions and real estate developers—areas particularly hard hit by the recession.

The potential cost of making or defending a claim is often a concern for anyone involved in litigation or arbitration. AG has since 2008 been at the forefront of sharing the risk with its clients, and the litigation funding market has responded with a variety of different options and opportunities. And it's also a developing topic for the courts. Our Control Update newsletter reports all the latest developments, both commercial and legal.

Litigation funders – extent of their involvement and liability for costs

The United States Supreme Court will review a decision of the Eleventh Circuit Court of Appeals, Johnson v. Midland Funding, LLC, to resolve a dispute between the circuits regarding whether the Bankruptcy Code provides the exclusive mechanism to determine the validity of a Proof of Claim or whether the filing of a faulty Proof of Claim gives rise to a debtor’s right to sue under the Fair Debt Collection Practices Act (the “FDCPA”). The Bankruptcy Code permits a creditor to file a claim if, among other things, the creditor has a right to payment.

If you would prefer not to receive this service from Addleshaw Goddard, please email: [email protected] TRUSTEE QUARTERLY UPDATE Pensions 1 December 2016 Court holds Bankrupt cannot be forced to draw scheme benefits to pay creditors In its judgment in Horton v Henry the Court of Appeal has held that where a bankrupt member has a right to draw benefits, but has not yet chosen to do so (a) his rights to future benefits under the scheme are not "

The English courts have been careful to control the circumstances in which a constructive trust will be declared.

Introduction

Court holds Bankrupt cannot be forced to draw scheme benefits to pay creditors

In its judgment in Horton v Henry the Court of Appeal has held that where a bankrupt member has acquired a right to draw benefits, but has not yet done so (a) his rights under the scheme are not "income" over which the court can make an income payments order under section 310 of the Insolvency Act 1986; and (b) the trustee in bankruptcy cannot compel the member to take his benefits.

Background