In normal circumstances, a director’s primary duty (owed to the company, not the company’s shareholders or the corporate group) is to promote the success of the company for the benefit of its shareholders as a whole. When a company enters a period of financial distress (the so-called “zone of insolvency”) there is a shift of emphasis in the duties of the directors: directors must consider the interests of the company’s creditors and, depending on the extent of the financial distress, may need to prioritise such interests over those of its members.

Even under the most sympathetic of circumstances, courts are charged with respecting the integrity of deadlines and employing a cool, impartial approach to everyone, including the most desperate of late claimants.

When a company enters a period of financial distress, directors must consider the interests of the company’s creditors and, depending on the extent of the financial distress, may need to prioritise such interests over those of its members. In such distressed situations, the key current heads of liability directors may face (for which they may potentially incur personal liabilities) include wrongful trading, fraudulent trading, misfeasance and breach of duty.

On May 1, 2019, FERC denied Pacific Gas and Electric Company’s (“PG&E”) requests for rehearing of two prior orders in which FERC held that it and the bankruptcy courts have concurrent jurisdiction to review and address the disposition of wholesale power contracts sought to be rejected through bankruptcy. FERC’s order comes as the PG&E bankruptcy proceedings in the United States Bankruptcy Court for the Northern District of California (“Bankruptcy Court”) remain ongoing.

On April 23, 2019, Ropes & Gray, representing a large group of shareholder defendants, won a decision in the U.S. District Court for the Southern District of New York that provides potential fraudulent transfer protection for payments made to shareholders in leveraged buyouts, stock redemptions and other securities transactions.

Constructive Fraudulent Transfer Claims and the Securities Safe Harbor

In a win for lenders, on March 18, the U.S. Bankruptcy Court for the Southern District of New York held that an unambiguous make-whole provision in a loan contract was enforceable under New York law, despite the fact that the lender had accelerated the loan. In re 1141 Realty Owner LLC, 2019 WL 1270818 (Bankr. S.D.N.Y. Mar. 18, 2019).

Background

In a comprehensive report issued last week, the American Bankruptcy Institute Commission on Consumer Bankruptcy proposed recommendations that would allow student loans to be easier to discharge in bankruptcy, citing the staggering $1.5 trillion in student loan debt held in the United States and the current difficulties with discharging this type of debt in bankruptcy.

Last week, a Ninth Circuit panel held that plaintiffs in five related cases lacked standing to pursue their FCRA claims. Specifically, the Ninth Circuit held that the allegation that a credit report contained misleading information, absent any indication that a consumer tried to engage in or was imminently planning to engage in any transactions for which the alleged misstatements in the credit reports made or would make any material difference, does not constitute a concrete injury.

On March 11, 2019, a U.S. district court judge in California denied FERC’s motion to withdraw the reference of Pacific Gas and Electric’s (“PG&E”) adversary proceeding from the U.S. Bankruptcy Court in the ongoing jurisdictional dispute between FERC and the bankruptcy court. In his ruling, Judge Haywood Gilliam Jr. of the U.S.

A U.S. Bankruptcy Court has denied a creditor’s motion for sanctions against a law firm in the Middle District of Florida which the creditor alleged engaged in serial filings.