In another judicial decision springing from Lehman Brothers, as a result of the likely surplus in the estate of Lehman Brothers International (Europe) (in administration) (LBIE) after all the provable debts have been paid, Mr Justice Richards has issued a ‘statement of conclusions’ in what is called the Waterfall Application. A more detailed judgement is expected in late March 2014. We summarise the conclusions below.

Ranking and Contributions of Shareholders of Inlimited Companies

Introduction

Does the ATO have priority over secured creditors in a liquidation? Is a receiver required to account to the ATO for any tax payable out of funds received on the sale of an asset before accounting to the secured creditor? Are receivers and liquidators personally liable for the tax payable from funds received by them? Can receivers and liquidators avoid such personal liability by distributing funds received to creditors before a tax assessment arises? These issues were at the centre of a Federal Court judgment handed down on 21 February 2014.

Two days before Christmas, the Supreme Court of New South Wales delivered a bonus for the general unsecured creditors of the collapsed discount giant Retail Adventures, and confirmed the requirements for deeds of company arrangement.

Deeds of Company Arrangement

Today the High Court of Australia handed down a decision which confirms a liquidator has the green light to disclaim leasehold interests in land (Willmott Growers Group Inc v Willmott Forests Limited (receivers and managers appointed)(in liquidation)).

Due to the way in which the case came before the Courts, the High Court did not consider the application of s568B of the Corporations Act 2001 (Cth) (Act). 

This section allows tenants to challenge in Court the liquidator’s disclaimer.

On April 9, 2013, Ambac Financial Group, Inc. (“Ambac”) submitted a proposed settlement with the United States to the U.S. Bankruptcy Court for the Southern District of New York. If approved, the proposed settlement would resolve more than two years of litigation concerning the tax treatment of losses sustained by Ambac in connection with credit default swap contracts entered into during the 2008 financial crisis. The settlement would result in a payment by Ambac to the Government of $101.9 million, as well as possible future additional payments of up to $14.9 million.

In another recent private letter ruling,¹⁹ the IRS ruled that an ownership change pursuant to a bankruptcy reorganization plan qualified for an exception to the general rule limiting net operating loss ("NOL") carryforwards under Section 382(a).

ASIC suspended the Australian Financial Services Licence of LM Investment Management Limited for two years this week for being an externally managed vehicle (voluntary administrators were appointed in March 2013). The practical effect of the suspension will mean that LM Investment Management won’t continue managing its nine funds. ASIC is also investigating the complex structure of the business and their related party transactions with the principal, Peter Drake.

On May 29, 2012, the United States Supreme Court resolved a split among the federal courts of appeals on an important bankruptcy issue, agreeing with arguments Morrison & Foerster advanced on behalf of Amalgamated Bank. In a unanimous opinion in RadLAX Gateway Hotel, LLC v. Amalgamated Bank,¹ the Court held that a Chapter 11 plan of reorganization that provides for a sale of a secured creditor’s collateral free and clear of liens must afford that secured creditor the right to credit bid.

On September 7, 2011, the FDIC announced the launch of a new initiative aimed at encouraging small investors and asset managers to partner with larger investors to participate in the FDIC’s structured transaction sales of assets from failed institutions.