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

The Court’s decision in Barokes Pty Ltd (in liq) [2022] VSC 642 is important because, for the first time in Australia, a Court has granted a creditor leave to bring a derivative action in the name of a company in liquidation against its liquidators. This case opens another significant gateway for creditors to seek redress for their losses.

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.

This is an important update in the Australian corporate and insolvency law context because, in BTI 2014 LLC v Sequana SA and others [2022] UKSC 25, the UK Supreme Court (being the UK’s highest court) confirmed the existence of a duty owed by directors to creditors in certain circumstances (creditor duty). Under the common law and equity (together, general law), there is a gateway to applicability of the creditor duty in Australia.

BUSINESS RESTRUCTURING REVIEW VOL. 21 • NO. 5 SEPTEMBER–OCTOBER 2022 1 IN THIS ISSUE 1 Texas District Court: Bankruptcy Sale Break-Up Fee Satisfied Both Business Judgment Test and Administrative Expense Standard 2 Lawyer Spotlight: Gregory M.

Federal district courts, with the consent of the parties, are authorized by statute to refer "civil matter[s]" to magistrate judges for the purpose of conducting all proceedings and entering a judgment in the litigation. In the case of an appeal to a district court from a bankruptcy court, however, this statutory authority arguably conflicts with another statutory provision dictating that appeals from a bankruptcy court order or judgment be heard by a "district court" or a "bankruptcy appellate panel." This apparent conflict was recently addressed by the U.S.

In Short

The Situation: Bankruptcy courts have split on what rate of post-petition interest unimpaired creditors of a solvent debtor are entitled to receive. Bankruptcy courts have variously ruled that such creditors were entitled to the contractual rate of interest, interest at the federal judgment rate (about the rate on a one-year Treasury bill) as of the bankruptcy petition date, or an equitable rate. Another possibility is that no interest is payable at all.

In Short

The Situation: As businesses continue to grapple with realising the value of business and assets which are potentially impacted by sanctions related to Russia's war in Ukraine, an English company recently utilised an insolvency process to seek court approval for a proposed divestment.

WHITE PAPER An Update on Insolvency in the Australian Construction Industry The construction sector in Australia has long been affected by insolvency and broader liquidity issues. In the last year, construction companies accounted for 26% of businesses that entered into insolvency, and insolvencies in the construction sector more than doubled. This year, contractors have been further squeezed by inflation, supply chain issues and labour market shortages. As the federal government has wound back its COVID-19 economic stimulus packages, further collapses seem inevitable.

Part 1 of this two-part series explored potential legislative changes which could impact the Australian insolvency landscape in 2022 and beyond. Part 2 addresses the recent major developments in case law that have the potential to shape the insolvency landscape in Australia for many years to come.