The United States Court of Appeals for the Seventh Circuit issued its much anticipated decision in In Re River Road Hotel Partners, LLC, __ F.3d __ (7th Cir., June 28, 2011). In the closely watched case, the Seventh Circuit declined to follow the Third Circuit’s decision in Philadelphia Newspapers, 599 F.3d 298 (3d Cir. 2010), holding instead that secured lenders have the right to credit bid in “free and clear” asset sales where their liens are being stripped, whether those sales occur under section 363 of the Bankruptcy Code or under a chapter 11 plan.

Enron seems like ancient history but the Second Circuit has just issued an important decision in an Enron appeal confirming that the redemption of commercial paper made through DTC is entitled to the Bankruptcy Code § 546(e) exemption for “settlement payments” and, therefore, exempt from attack as preferential transfers. The Second Circuit held that this is so even though the Enron redemption payments were made prior to stated maturity, becoming the first Circuit Court of Appeal to address this issue. Enron Creditors Recovery Corp. v. Alfa, S.A.B. de C.V.

Make whole premiums sound simple; they are prepayment premiums that are supposed to “make you whole.” More precisely, make whole premiums are intended to protect noteholders (or other debt holders) from the loss of future fixed coupon interest payments due to the early repayment of debt if market interest rates have declined in the interim.

Judge Gold of the United States District Court for the Southern District of Florida entered an Order today granting the motions of the First and Second Lien Lenders (the Lien Lenders) to intervene in the appeal involving the Transeastern Lenders to the 11th Circuit Court of Appeals (the Transeastern Appeal). In so doing, Judge Gold accepted the proposition that the 11th Circuit’s decision on the issue of reasonably equivalent value (the REV Issue) would bind the Lien Lenders.

In Canada, as in the US, corporate debtors are permitted with court approval to obtain DIP financing on a super-priority basis. The Order typically provides protections as hard as a nutshell, including that pension claims cannot crack the shell of protection and are subordinated to the new DIP loan. A recent Canadian decision, however, held that certain pension claims could crack the nut wide open and should be paid ahead of a DIP loan. Re Indalex Limited, 2011 ONCA 265 (Apr. 7, 2011).

A clause in a settlement agreement, which provided that an indemnity would cease on a company's insolvency, infringed the anti-deprivation principle as it deprived the insolvent company's administrators of an asset for distribution to creditors. A purported "contracting out" of the insolvency legislation was contrary to public policy and the clause was void (Folgate London Market Ltd v Chaucer Insurance Plc www.bailii.org/ew/cases/EWCA/Civ/2011/328.html).

This was conclusion of the Court in the case of Nicola Jane Haworth v Donna Cartmel and Revenue & Customs Commissioners. The case was an application by Ms Haworth to annul or rescind a bankruptcy order on the grounds that she lacked capacity when a statutory demand and bankruptcy petition were served on her personally.

With effect from 6 April 2011, the London Insolvency District (General London County Court) Order 2011 gives the Central London County Court jurisdiction over bankruptcy cases where the bankrupt resides, or carries on business, in the London insolvency district. The High Court used to have jurisdiction over all London's bankruptcy cases.

The Court of Appeal has confirmed the High Court's decision that the "Balance Sheet Test" (for whether a company is unable to pay its debts under Section 123(2) of the Insolvency Act 1986) cannot be reduced to a single formula or set of principles that apply to all companies.

The Balance Sheet Test forms part of the provisions that regulate when a company may be compulsorily wound up by the Court.

While the construction press seems to be full of speculation over which contractors are currently facing financial difficulties, coverage in relation to consultants' insolvency seems relatively minimal.