On Thursday, the Supreme Court in a 5-4 decision ruled in Stern v. Marshall[1] that the congressional grant of jurisdiction to bankruptcy courts to issue final judgments on counterclaims to proofs of claim was unconstitutional. For the litigants, this decision brought an end to an expensive and drawn out litigation between the estates of former Playboy model Anna Nicole Smith and the son of her late husband, Pierce Marshall, which Justice Roberts writing for the majority analogized to the fictional litigation in Charles Dickens’ Bleak House.

As reported in our recent e-update on the case of Echelon Wealth Management Limited (in liquidation), Lord Glennie has determined that liquidators who are removed from office have no right to retain assets as security for remuneration and costs.  Lord Glennie then went on to consider how the court, in determining the level of a liquidator’s remuneration, should view the conduct of the liquidator. 

In a recent case in relation to the liquidation of Echelon Wealth Management Limited ("E"), Lord Glennie has decided that upon removal as liquidator, a former liquidator may not retain from the assets of the liquidated company any sum as security for costs.

The Facts

S&C were appointed joint liquidators of E at a creditors meeting on 16 December 2008. At a creditors meeting on 22 July 2009, they were then removed from office with new joint liquidators being appointed.

In its ministerial statement this week in relation to its consultation on the proposals for a restructuring moratorium, the Government has indicated that it now proposes to consider implementing measures to tackle the unreasonable use of termination clauses in insolvencies.

What Are Termination Clauses?

Termination clauses are, of course, found in most commercial agreements and are a means by which a party may terminate an agreement on the occurrence of certain events (invariably including insolvency of the other party).

In In re Young Broadcasting, Inc., et al., 430 B.R. 99 (Bankr. S.D.N.Y. 2010), a bankruptcy court strictly construed the change-in-control provisions of a pre-petition credit agreement and refused to confirm an unsecured creditors' committee's plan of reorganization, which had been premised on the reinstatement of the debtors' accelerated secured debt under Section 1124(2) of the Bankruptcy Code.

In the recent English Court of Appeal case of Rubin v Coote, the court allowed a liquidator to settle litigation without having obtained the agreement of all creditors to the compromise.

The Facts

On February 11, 2011, the Hon Alan Gold of the United States District Court for the Southern District of Florida issued a 113 page opinion and order quashing the bankruptcy court's order requiring the lenders involved in TOUSA, Inc.'s Transeastern joint venture to disgorge, as fraudulent transfers under Section 548 of the Bankruptcy Code, settlement monies that they had received on July 31, 2007 in repayment of their existing debt and to pay prejudgment interest on such monies, for a total disgorgement in excess of $480 million.

The recent Court of Session case of Tayplan Limited (in administration) v Smith, is particularly interesting as it is a case where the administrator chose to pursue directors for breach of fiduciary duties rather than using any of the more common statutory remedies.

The Facts

Tayplan Limited was a family business with two directors - Mr Smith senior and Mr Smith junior. Mr Smith senior and his wife each held 50% of the shares in the Company.

1 Loranger v Jones, 184 Cal App 4th 847 (3d Dist May 2010)

Jones, a licensed contractor, had a workers' compensation policy covering his employees. Jones unknowingly used an unlicensed subcontractor and knowingly permitted two minors without work permits, and another person without a contractor's license, to help perform work for Loranger. Loranger refused to pay the final invoice and Jones filed suit for breach of contract. Loranger cross-complained alleging defects and sought disgorgement of monies paid.  

The Insolvency Service ("IS") has published a consultation on proposed reform to the regulation of insolvency practitioners. The consultation responds to various recommendations made last year by the Office of Fair Trading ("OFT") in their study entitled, "The Market for Corporate Insolvency Practitioners".