On May 20, 2019, the United States Supreme Court ruled that a debtor-licensor’s ‘rejection’ of a trademark license agreement under section 365 of the Bankruptcy Code does not terminate the licensee’s rights to continue to use the trademark. The decision, issued in Mission Product Holdings, Inc. v. Tempnology, LLC, resolved a split among the Circuits, but may spawn additional issues regarding non-debtor contractual rights in bankruptcy.
The Court Tells Debtors, “No Take Backs”
The Court of Appeal has considered whether interim dividends paid to a shareholder at a time when the company did not have sufficient distributable reserves, making the payments unlawful, could later be reclassified as salary payments.
Facts
The Court of Appeal has given guidance on when the duty of directors to have regard to the interest of creditors arises. This is an important point, as the general statutory duty of a director to promote the success of the company for the benefit of the company's members is expressly subject to the rules on creditors' interests. The court's decision also considers whether a dividend payment can be challenged as a transaction at an undervalue under section 423 of the Insolvency Act 1986.
Facts
Delivering on the announcement in the Autumn Budget, HMRC issued its consultation "Protecting your taxes in insolvency" on 26 February 2019. The consultation proposes legislation that will give HMRC the elevated status to secondary preferential creditor in a company's insolvency. If this is implemented, HMRC will have priority to recover certain taxes from insolvent businesses ahead of other creditors from 6 April 2020.
Receivables financiers, lenders taking security assignments over contractual rights, participants in the secondary loan market and others have an interest in:
In a decision to be welcomed by ratepayers, the Court of Appeal in Rossendale Borough Council and others v. Hurstwood Properties (A) Limited and others [2019] EWCA Civ 364 has confirmed that certain types of mitigation schemes are not sufficient to pierce the corporate veil and transfer liability for business rates to the beneficiaries of those schemes.
Liability for business rates
A year after its collapse, Carillion's insolvency continues to haunt both its supply chain and the wider UK construction industry. Many of those left unpaid had spent months chasing Carillion for payment, all the while staving off payment demands from others. Overnight, their debts became unsecured. The flow of cash from Carillion that would have paid its supply chain dried up. A cascade of consequential insolvencies was inevitable.
Tolstoy warned that “if you look for perfection, you’ll never be content”; but Tolstoy wasn’t a bankruptcy lawyer. In the world of secured lending, perfection is paramount. A secured lender that has not properly perfected its lien can lose its collateral and end up with unsecured status if its borrower files bankruptcy.
In the recent High Court judgment in VTB Bank (Public Joint Stock Company) v Anan Group (Singapore) Pte Ltd,(1) the plaintiff successfully obtained a winding-up order on a debtor company six weeks after the service of a statutory demand for an underlying debt of $250 million.
In its ruling in FTI Consulting, Inc. v. Sweeney (In re Centaur, LLC), the United States Bankruptcy Court for the District of Delaware addressed the Supreme Court’s recent clarification of the scope of Bankruptcy Code Section 546(e)’s “safe harbor” provision, affirming a more narrow interpretation of Section 546(e).