In Mission Product Holdings, the Supreme Court Endorses “Rejection-as-Breach” Rule and Interprets Broadly the Contract Rights that Survive Rejection

Last year, the Supreme Court issued its decision in Merit, unanimously ruling that a buyout transaction between private parties did not qualify for “safe harbor” protection under Bankruptcy Code section 546(e), on the basis that a “financial institution” acted as an intermediary in the overarching transaction.

On March 18, 2019, Judge Stuart M. Bernstein of the United States Bankruptcy Court for the Southern District of New York issued a decision enforcing a mortgage lender’s claim for a prepayment premium (a/k/a make-whole or yield maintenance premium) notwithstanding the lender’s prepetition acceleration of the loan due to the debtor’s default.

We are all accustomed to seeing change of control as a mandatory prepayment event, if not an event of default, under subscription line facilities. Even the strongest sponsors accept that a lender’s analysis of a transaction is based on the current management of the fund, such that any change in control should trigger at least the right to prepayment and cancellation. While there are often points for negotiation, this premise is almost universal.

On November 30, 2018, Judge Nelson S. Román of the United States District Court for the Southern District of New York issued a decision affirming the dismissal of certain claims brought by senior secured creditors against junior secured creditors concerning the alleged breach of standstill and turnover provisions in an intercreditor agreement that governed the creditors’ relationship as creditors with recourse to common collateral. SeeIn re MPM Silicones, LLC, No. 15-CV-2280 (NSR), 2018 WL 6324842 (S.D.N.Y. Nov. 30, 2018) (“Momentive”).

On November 8, 2018, Judge Vyskocil of the U.S. Bankruptcy Court for the Southern District of New York issued a decision dismissing the involuntary petition that had been filed against Taberna Preferred Funding IV, Ltd. (“Taberna”), a non-recourse CDO, thus ending a nearly seventeen-month-long saga that was followed closely by bankruptcy practitioners and securitization professionals alike. SeeTaberna Preferred Funding IV, Ltd. v. Opportunities II Ltd., et. al., (In re Taberna Preferred Funding IV, Ltd.), No. 17-11628 (MKV), 2018 WL 5880918, at *24 (Bankr.

The Supreme Court has again urged the legislature to consider whether the outright prohibition on professional litigation funding and the assignment of bare causes of action continues to be warranted as the ever-increasing cost of litigation is putting access to the courts beyond the reach of many.

While the Court accepted that this is an area in need of careful and considered legislative reform, it warned that unless a real effort is made by the legislature to improve access to justice, it will have "no option" but to step in, "undesirable and all as unregulated change might be."

Can we learn sufficient lessons from Carillion to avoid construction related insolvency closer to home?

1. PUTTING INSOLVENCY ON THE AGENDA

Following a High Court decision of 1 November 2017 , it seems that the High Court will assess an objection by a secured creditor to a personal insolvency arrangement (PIA) differently depending on whether the creditor is a bank (or other originating lender) or a loan purchaser that is not a bank.

In this regular briefing, we summarise recent cases, developments and trends relevant to the ongoing efforts to resolve the mortgage arrears crisis.

CASELAW

Personal Insolvency

A series of recent cases have shed further light on factors that a Court will take into account when hearing a debtor’s appeal of a secured creditor’s decision to reject a proposed Personal Insolvency Arrangement (PIA) under the Personal Insolvency Act 2012 (the 2012 Act).