In recent years some high profile (and controversial) court decisions have swelled the list of liabilities that must be paid as expenses of an administration. Administration expenses enjoy "super priority", being payable out of floating charge realisations ahead of the claims of preferential creditors and floating charge holders. So, when an otherwise unsecured claim ranks as an administration expense, it clearly benefits the relevant creditor, but at the expense of the floating charge holder.

A federal district court has ruled that a distressed debt fund is not a “financial institution” for purposes of the assignment provisions of a loan agreement.

Background

The UK Treasury and Financial Conduct Authority (FCA) have been drip-feeding the industry rules and practical details of the transfer of consumer credit (CC) regulation to FCA. FCA has now published the final form of its detailed rules in its Consumer Credit Sourcebook (CONC), with feedback and practical advice. The rules apply from 1 April 2014 with limited grace periods only. It is critical that all firms carrying on credit-related regulated activities know what the changes mean for them.

The case concerning the Game group of companies' administration has now been played out in the Court of Appeal and the eagerly anticipated judgment has been handed down.

The issue at stake concerned a landlord's ability to recover rent as an expense of administration (and therefore payable before other creditors) where such rent is payable in advance but where the tenant's administration occurs immediately before a quarter day's rent falling due.

When structuring a complex debt financing, financiers need to consider whether unsecured and structurally subordinated “mezzanine” debt ought to be replaced in the capital hierarchy with secured second lien credit. The relatively lower financing cost for second lien credit is based on the assumption that the second lien lenders might obtain some equity value from the liens on the residual collateral which would not otherwise be available with such “mezzanine” debt.

Ruling description

In its judgment of January 15, 2014, the Provincial Administrative Court (WSA) in Warsaw (case no. III SA/Wa 1928/13) ruled that a bankruptcy receiver was not required to correct input tax under the procedure set forth in Art. 89b (1) of the VAT Act (in the version which took effect on January 1, 2013) if the creditor cannot correct output tax under the “bad debt relief” procedure due to the debtor being bankrupt.

Introduction
'Frivolous or vexatious' test
'Strong prima facie case' test
Applying the same test for leave
Receiver's appointment and discharge orders
Comment

A & F Enterprises, Inc. v. IHOP Franchising LLC (In re A & F Enterprises, Inc.), 2014 WL 494857 (7th Cir. 2014)

On February 4, 2014, the United States Bankruptcy Court for the District of New Jersey in In re Surma, 2014 WL 413572 (Bankr. D.N.J. Feb. 4, 2014), held that rents were not property of the debtor’s bankruptcy estate because they were subject to an absolute and unconditional assignment of rents in favor of the secured lender. As a result, the court concluded that the debtor may not, through his Chapter 11 plan of reorganization, use or allocate rents.

Background

In In reLehman Brothers Inc., two creditors recently made an unsuccessful attempt to infuse Section 510(b) of the Bankruptcy Code with ambiguity and avoid the subordination of their claims.  In re Lehman Brothers, Inc., 2014 WL 288571 (Bankr. S.D.N.Y.