The Third Circuit recently took a “pragmatic approach” when affirming lower court orders denying a stay of bankruptcy settlement distributions pending appeal. In re S.S. Body Armor I, Inc., 2019 WL 2588533 (3d Cir. June 25, 2019). After holding that the district court’s “stay denial order” was “final” for jurisdictional purposes, it also confirmed “the applicable standard of review” on motions for stays pending appeals.

Relevance

Gurbinder Grewal and Michael Wright in the UK Construction Team explain the knock on effects of insolvencies and the mitigating steps that can be taken. Early warning signs of looming insolvency can be spotted.

Key points

When a Chapter 11 debtor never sought “court approval to assume” an executory service contract, it “did not assume” the contract, held the U.S. District Court for the Eastern District of Virginia on June 28, 2019. In re Toys “R” Us, Inc., 2019 WL 271305, *1 (E.D. Va. June 28, 2019).

Background

The Third Circuit recently took a “pragmatic approach” when affirming lower court orders denying a stay of bankruptcy settlement distributions pending appeal. In re S.S. Body Armor I, Inc., 2019 WL 2588533 (3d Cir. June 25, 2019). After holding that the district court’s “stay denial order” was “final” for jurisdictional purposes, it also confirmed “the applicable standard of review” on motions for stays pending appeals.

Relevance

On May 20, 2019, the U.S. Supreme Court issued a ruling of key significance for trademark licensing and for acquisitions, investments, financings and other transactions in which trademark licenses are a key value driver. In Mission Product Holdings, Inc. v. Tempnology, LLC,[1] the Court held, 8-1, that where the licensor of a trademark rejects a trademark license in bankruptcy, the rejection does not deprive the licensee of its rights to use the licensed trademark(s).

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

A bankruptcy court decision recently detailed how courts applying Bankruptcy Code (“Code”) § 303(i) can sanction creditors who “abuse… the power given to [them]… to file an involuntary bankruptcy petition.” In re Anmuth Holdings LLC, 2019 WL 1421169, * 1 (Bankr. E.D.N.Y. Mar. 27, 2019).

A bankruptcy trustee was “not entitled to avoid” a secured lender’s “lien under the Bankruptcy Code” (“Code”), held the U.S. Court of Appeals for the Seventh Circuit on Sept. 11, 2019. In re 180 Equipment, LLC, 2019 WL 4296751, *6 (7th Cir. Sept. 11, 2019). The court rejected the trustee’s argument that the lender’s “lien [was] avoidable because the [lender’s] financing statement failed to properly indicate the secured collateral.” Id., at 1.