In In re Global Cord Blood Corp., 2022 WL 17478530 (Bankr. S.D.N.Y. Dec. 5, 2022), the U.S. Bankruptcy Court for the Southern District of New York denied without prejudice a petition filed by the joint provisional liquidators for recognition of a "winding-up" proceeding commenced under Cayman Islands law.
The war in Ukraine continues and the economic effect of sanctions against businesses that are connected to the Russian government are now being felt in earnest. Unsurprisingly, sanctions are becoming an increasingly hot topic for insolvency practitioners.
Recent months have seen the Courts hand down some important decisions, which provide helpful guidance on situations where the sanctions regime interfaces with insolvency processes. We have summarised three of the most significant in this article.
In Short
The Situation: Historically, creditors pursued by liquidators under the unfair preference regime could rely on a statutory set-off as a defence to the claim, reducing or eliminating their liability to repay what would otherwise be preference payments, on the basis that the liability for the unfair preference payment formed part of a running account between the creditor and the company.
In Short
The Situation: The High Court of Australia has confirmed in Bryant v Badenoch Integrated Logging Pty Ltd [2023] HCA 2 that the "peak indebtedness rule" is no longer available to liquidators when assessing the value of running accounts in unfair preference claims.
Summary
In the recent Court of Appeal decision Bacci v Green [2022] EWCA Civ 1393 the Court, upholding the decision of the High Court, held that a judgment debtor can be ordered to delegate authority to waive valuable tax protection and draw pension where doing so would enable creditors to extract what they were owed.
The Facts
In 2017, Matthew Green, son of established Mayfair art dealer Richard Green, committed fraud in obtaining loans from FundingSecure.
In Short
The Situation: Insolvency officeholders increasingly find their investigations into a company's affairs frustrated by the comingling of records on a "group" server. Claims to privilege by other group entities (or even third parties) are then advanced as an obstacle to delivering company records to the officeholder, leading to expensive and logistically complex inspection and review processes that can be a burden on insolvent estates.
In Short
The Situation: Directors in England and Wales owe duties to the companies to which they are appointed (and may face personal liability for breaching such duties). Although the Companies Act 2006 obliges directors to maximise value for a company's shareholders, case law has suggested that directors should act in the interests of a company's creditors if a company becomes distressed.
To promote the finality of bankruptcy asset sales, section 363(m) of the Bankruptcy Code "moots" an appeal of an order approving a sale to a good-faith purchaser unless the party challenging the sale obtains a stay pending appeal. Courts, however, sometimes disagree over the scope of section 363(m) and whether it also bars appeals of orders approving transactions that are related to a sale, such as settlements.
The ability of a bankruptcy trustee or chapter 11 debtor-in-possession ("DIP") to assume, assume and assign, or reject executory contracts and unexpired leases is an important tool designed to promote a "fresh start" for debtors and to maximize the value of the bankruptcy estate for the benefit of all stakeholders. However, the Bankruptcy Code establishes strict requirements for the assumption or assignment of contracts and leases.
Chapter 11 debtors commonly use plans of reorganization to decelerate defaulted loans and reinstate the obligations according to their original terms as a means of locking in favorable terms in an unfavorable market. In order to do so, the Bankruptcy Code requires that the trustee or chapter 11 debtor-in-possession ("DIP") "cure" any defaults under the loan agreement, other than defaults related to a debtor's financial condition ("ipso facto provisions") or penalties payable due to the debtor's breach of certain non-monetary obligations.