Misled or defrauded shareholders may rank equally with creditors in liquidations of insolvent funds

Introduction
Fiduciary duties
Duty of care to creditors
Realising cause of action

Introduction

The continued fall-out of the high-profile collapse of the Three Arrows crypto fund has seen another development, with the BVI Court permitting alternative service by Twitter after the collapsed fund's directors failed to appear for examination before the BVI Court.(1)

Directors and officers should take note of a recent decision from the US Bankruptcy Court for the Southern District of New York concerning access to D&O insurance policy proceeds. In In re SVB Financial Group, Case No. 23-10367 (Bankr. S.D.N.Y.

Introduction
Background
Facts
Decision

Introduction

The Royal Court has recently handed down the final decision in the matter of Eagle Holdings Limited (in compulsory liquidation).[1] In this decision, the Royal Court of Guernsey provided guidance and assistance to the joint liquidators regarding a distribution of surplus funds.

In a highly anticipated decision issued on May 30, 2023, the Second Circuit Court of Appeals rendered its opinion in Purdue Pharma LP v. City of Grand Prairie (In re Purdue Pharma LP)¹ approving a Chapter 11 plan’s inclusion of a nonconsensual release of creditors’ direct claims against non-debtor third parties.

This client alert describes the history of the case, identifies some of the key takeaways from the decision and outlines where other jurisdictions in the country stand on nonconsensual third-party releases.

In an anticipated decision, on May 30, 2023, the Second Circuit Court of Appeals issued its decision approving a Chapter 11 plan’s inclusion of a nonconsensual release of direct claims against non-debtor third parties. Purdue Pharma LP v. City of Grand Prairie (In re Purdue Pharma LP), No. 22-110 (2d Cir. May 30, 2023).

Currently, the British Virgin Islands has no legislative framework for regulating third party litigation funding. Until recently, the absence of such a framework led many to believe that the rules against maintenance and champerty still operated so as in practice to prevent litigants from raising funds from third parties to prosecute or to defend claims. In Crumpler v Exential Investments Inc (BVIHC(COM) 2020/0081; 29 September 2020) Jack J clarified that third party funding arrangements were enforceable in the BVI.

On May 2, 2023, the US District Court for the Southern District of Indiana reversed a bankruptcy court’s ruling that read limitations into the application of Bankruptcy Code Section 546(e)’s safe harbor to a stock purchase transaction. Specifically, the District Court relied on the plain language of Section 546 in determining that a chapter 7 trustee could not avoid the transfer of $24.9 million by the debtor to repay a bridge loan in connection with a financed acquisition of the debtor’s stock two years prior to its bankruptcy filing.