The U.S. Supreme Court’s decision in Wellness International Network Ltd. v. Sharif confirms the long-held and common sense belief that “knowing and voluntary consent” is the key to the exercise of judicial authority by a bankruptcy court judge.1 In short, the Supreme Court held that a litigant in a bankruptcy court can consent—expressly or impliedly through waiver—to the bankruptcy court’s final adjudication of claims that the bankruptcy court otherwise lacks constitutional authority to finally decide.

On May 6, 2015, the Court of Appeals for the Ninth Circuit considered whether so-called“Deprizio waivers,”¹ where an insider guarantor waives indemnification rights against a debtor, can insulate the guarantor from preference liability arising from payments made by the obligor to the lender. The Ninth Circuit held that if such a waiver is made legitimately—not merely to avoid preference liability—then the guarantor is not a “creditor” and cannot be subject to preference liability.

In In re Filene’s Basement, LLC,¹ the United States Bankruptcy Court for the District of Delaware considered the rejection damages a landlord claimant was entitled to pursuant to Section 502(b)(6) of the Bankruptcy Code after the debtor rejected its lease as part of its reorganization plan.

On 13 May 2015, the Government announced that it intends to give the courts the power to overrule the rejection by secured creditors of arrangements under the Personal Insolvency Act 2012 (the “Act”).

There is scant detail in the announcement save that it is intended to “support mortgage holders who are in arrears” and that legislation is to be brought forward before the Summer recess. How is such legislation likely to work and what potential frailties could it have?

The Issue

Bankruptcy courts appear to be increasingly sending state law claims to the district court for final review, as illustrated by a recent decision from the bankruptcy court for the Southern District of Texas. In Gomez v. Lone Star National Bank (In re Saenz), Jose Gomez financed his acquisition of a restaurant from Humberto Saenz. When the restaurant failed, Gomez sued his lender and Saenz on various claims, but Saenz filed for bankruptcy protection. The lender then moved for summary judgment against Gomez’s claims for common-law fraud and negligence.

On March 10, 2015, the United States District Court for the Middle District of Alabama issued a memorandum decision in the case of Harrelson v. DSS, Inc. (No. 14-mc-03675), declining to withdraw the reference from the bankruptcy court and holding that the existence of an arbitration agreement and a class action waiver in that arbitration agreement did not require substantial consideration of the Federal Arbitration Act (FAA).

Facts

The Eleventh Circuit’s recent opinion in SE Property Holdings, LLC v. Seaside Engineering & Surveying, Inc. (In re Seaside Engineering & Surveying, Inc.), No. 14-11590 (11th Cir. March 12, 2015), clarifies the circuit’s stance on the authority of bankruptcy courts to issue nonconsensual, non-debtor releases or bar orders and the circumstances under which such bar orders might be appropriate. In addition, the court gave a broad reading of what it means for a plan to have been proposed in good faith.

The Eleventh Circuit’s recent opinion in SE Property Holdings, LLC v. Seaside Engineering & Surveying, Inc. (In reSeaside Engineering & Surveying, Inc.), No. 14-11590 (11th Cir. March 12, 2015), clarifies the circuit’s stance on the authority of bankruptcy courts to issue nonconsensual, non-debtor releases or bar orders and the circumstances under which such bar orders might be appropriate. In addition, the court gave a broad reading of what it means for a plan to have been proposed in good faith.

The Court of Appeal commenced its operations on 5 November 2014.

The reason for the establishment of the Court of Appeal was the huge backlog which had built up in the Supreme Court, where it could take up to four and a half years for a case to be heard.

Mr. Justice Sean Ryan is President of the Court which is comprised of nine judges in addition to the President. Six of these nine positions were filled by previous High Court Judges such as Mr. Justice Kelly, Ms. Justice Finlay Geoghegan and Mr. Justice Peart.

Changes may be coming to the Bankruptcy Code that may affect secured creditors.^[1] In 2012, the American Bankruptcy Institute established a Commission to Study the Reform of Chapter 11 (the “ABI Commission”). The ABI Commission is composed of many well-respected restructuring practitioners, including two of the original drafters of the Bankruptcy Code, whose advice holds great weight in the restructuring community.