Whether a contract is "executory" such that it can be assumed, rejected, or assigned in bankruptcy is a question infrequently addressed by the circuit courts of appeals. The U.S. Court of Appeals for the Fifth Circuit provided some rare appellate court-level guidance on the question in Matter of Falcon V, L.L.C., 44 F.4th 348 (5th Cir. 2022). The Fifth Circuit affirmed lower-court rulings determining that a surety contract was not executory because the surety had already posted irrevocable surety bonds and did not owe further performance to the debtors.

Careful contract negotiation can limit the potential damage from insolvency in a construction firm’s supply chain.

As discussed in previous installments of this White Paper series, the Lummis-Gillibrand Responsible Financial Innovation Act (the “Bill”)¹ proposes a comprehensive statutory and regulatory framework in an effort to bring stability to the digital asset market. One area of proposed change relates to how digital assets and digital asset exchanges would be treated in bankruptcy. If enacted, the Bill would significantly alter the status quo from a bankruptcy perspective

OVERVIEW OF DIGITAL ASSETS IN BANKRUPTCY

Whilst creditors’ voluntary liquidations (CVLs) have spiralled in number in recent months, the formerly popular company voluntary arrangement (CVA) has fallen out of the limelight. There were only 29 registered CVAs in Q3 2022, representing just 1% of recorded company insolvencies and languishing behind administrations (also down in number compared with Q2 2022).

A falling trend

Cryptocurrency exchange FTX has filed for bankruptcy in the USA after the proposed bail-out by rival exchange, Binance, fell through earlier this week.

With rising insolvency rates, driven in particular by the number of creditors’ voluntary liquidations reaching record highs, the decision in the recent Court of Appeal case of PSV 1982 Limited v Langdon [2022] EWCA Civ 1319 serves as a timely reminder for directors of the personal risks involved in re-using the name of a liquidated company.

In Short

The Situation: Courts have disagreed over whether a make-whole premium triggered by a borrower's bankruptcy filing must be disallowed as unmatured interest. They have also disputed whether the "solvent-debtor exception" requiring the payment of postpetition interest to unimpaired unsecured creditors of a solvent debtor survived the enactment of the Bankruptcy Code. Finally, courts have split on what rate of postpetition interest unimpaired unsecured creditors of a solvent debtor are entitled to receive.

The Supreme Court handed down its long-awaited judgment in BTI 2014 LLC v Sequana SA on 5 October 2022. This important case addresses the duties of directors to consider the interests of creditors as a company approaches insolvency.

While the judgment will be welcomed by many as providing some useful guidance on a number of issues, there still remain some key areas of uncertainty which, as we consider in further detail below, will present clear challenges for directors seeking to navigate their way through a company’s financial difficulties.

The government’s monthly insolvency statistics for August 2022 present a concerning trend for companies hoping to weather the storm amid the current economic crisis. Largely driven by creditors’ voluntary liquidations, company insolvencies were 43% higher than the same period last year and 42% higher than in 2019 (pre-pandemic).

The High Court has held that where companies have adopted the model articles without amendment, any sole director acting has the power to pass resolutions acting alone.