Two recent court decisions may result in a broadening of the range of options available to an equity sponsor in respect of an insolvent portfolio company. The first decision may provide increased flexibility in structuring asset sales in certain chapter 11 settings, by utilizing escrows and other techniques to potentially avoid the need to apply asset-sale proceeds strictly in accordance with creditor priorities under the U.S. Bankruptcy Code.

In Stevensdrake Ltd v Hunt and others ^[1] the liquidator of Sunbow Limited, Mr Hunt, had brought a claim against Sunbow's former administrators. Mr Hunt entered into a conditional fee agreement (CFA) with the solicitors instructed to pursue the claim (Stevensdrake). The CFA stated "if you [Mr Hunt] win your claim, you pay our basic charges, our disbursements and a success fee". A settlement was agreed but one of the former administrators failed to pay the agreed sum.

The definition of a contract for the sale of goods under the Sale of Goods Act 1979 (SOGA) is one in which the seller transfers the property in the goods to the buyer for money consideration, i.e. the price.

Under section 49 of SOGA, an unpaid seller can claim for the price of the goods if either: (1) the property in the goods has passed to the buyer; (2) or payment of the price is expressed to be payable on a certain day irrespective of delivery

In Brooks and another v Armstrong ^[1], joint liquidators applied for orders against directors of the insolvent company (the Company) under section 214 of the Insolvency Act 1986 (the Act) (the wrongful trading provision) and for remedies to be awarded against delinquent directors under section 212 of the Act.

On 1 April 2015, an estimated 5,000 private landlords across Liverpool were affected by the implementation of a city-wide selective licensing scheme. Whilst Liverpool is the first major city to introduce the scheme city-wide, several local authorities have adopted selective licensing for their boroughs including the London Boroughs of Newham, Hackney, Croydon and Brent. 

It is a basic feature of sales under section 363 of the U.S. Bankruptcy Code, that the purchaser takes free and clear of all claims and interests, such claims and interests attach to the proceeds of the sale in accordance with their priorities.

When a portfolio company underperforms, a sponsor may consider various options to address the perceived performance issues, including changes to a portfolio company’s management team, cost structure, capital structure or other parameters, depending on the nature of the issue(s) at hand. When changes in capital structure may be desirable, often in the context of excessive debt and related liquidity issues, a sponsor’s choices may include a consensual workout outside of bankruptcy, or a court-supervised restructuring under Chapter 11 of the U.S.

Bankruptcy courts in the U.S. are widely viewed as favorable fora for debtors, trustees and creditors’ committees to pursue creative and difficult causes of actions against deep-pockets lenders and others in an attempt to augment the resources available for distributions to creditors. In yet another case, however, the District Court for the Southern District of New York (after withdrawing the litigation from the bankruptcy court), recently dismissed many of the claims asserted by the Lehman debtors against J.P. Morgan Chase Bank, N.A.

Following on from our earlier advice on enforcing money judgments, Walker Morris’ banking litigators answer some more frequently asked questions.

Client Question 3

I have heard that I can enforce a money judgment via a third party debt order or an attachment of earnings.  What are these and what are the advantages/disadvantages?

Walker Morris Answer

The U.S. Supreme Court held that a secured creditor in a chapter 7 bankruptcy case is protected from having its lien “stripped off” even if the collateral securing its claim is worth less than the claims asserted by a senior secured creditor; i.e.the junior creditor’s secured claim is completely "out of the money.” The June 1, 2015 decision, Bank of America, N.A. v. Caulkett, reaffirmed the Court’s prior holding in Dewsnup v.