As of 1st October 2017, debt recovery and collections in both the commercial and consumer world is going to see a big change with the introduction of the debt recovery Pre-Action Protocol (‘PAP’).

There has been a previous pre-action protocol, introduced in 2014, which was in many ways accepted as a sensible approach to collection of all debts.

Ever since the introduction of the ‘out of court’ procedure to appointment an administrator, there has been a practice of filing successive Notices of Intention to Appoint an Administrator. This practice has been the topic of much discussion and its legality was recently addressed by the Court of Appeal in the case of JCAM Commercial Real Estate Property XV Limited –v- Davis Haulage Limited [2017] EWCA Civ 267.

Introduction

“… [A]ny sale of [a foreign] debtor[’s] property [in the U.S.] outside of the ordinary course of business can be approved by the bankruptcy court only after notice, hearing, and a finding of good business reasons to permit the sale,” held the U.S. Court of Appeals for the Second Circuit on May 22, 2017. In re Fairfield Sentry Ltd. (“Sentry II”), 2017 U.S. App. LEXIS 8860, at *11 (2d Cir. May 22, 2017).

The Bankruptcy Code (“Code”) “requires the use of replacement value rather than a hypothetical [foreclosure] value … that the reorganization is designed to avoid,” held a divided U.S. Court of Appeals for the Ninth Circuit on May 26, 2017.

“[T]he debtor … did not retain sufficient rights in the assigned rents under Michigan law for those rents to be included in the bankruptcy estate,” held the U.S. Court of Appeals for the Sixth Circuit on May 2, 2017. In re Town Center Flats LLC, 201 U.S. App. LEXIS 7733, *2 (6th Cir. May 2, 2017). Relying on Michigan law and the language of the relevant documents, the court reversed the bankruptcy court’s holding that gave the Chapter 11 debtor access to the assigned rents as operating funds during its reorganization.

Relevance

Claims held by employees of a Chapter 11 debtor based on “restricted stock units (‘RSUs’) … must be subordinated [under Bankruptcy Code § 510(b)] to the claims of general creditors because … (i) RSUs are securities, (ii) the claimants acquired them in a purchase, and (iii) the claims for damages arise from those purchases or the asserted rescissions thereof,” held the U.S. Court of Appeals for the Second Circuit on May 4, 2017. In re Lehman Brothers Holdings, Inc., 2017 U.S. App. LEXIS 7920, *6 (2d Cir. May 4, 2017).

Today, thanks to the high-cost of current court fees, small to medium-sized enterprises (SMEs) face the problem of not getting paid by a customer and then, subsequently, not being able to go to court to get paid.

The U.S. Bankruptcy Court for the Southern District of New York, after a lengthy trial, dismissed on April 21, 2017 a litigation trustee’s multibillion-dollar bankruptcy-related claims arising out of a December 2007 merger, finding that:

On 6 April 2017, the Insolvency Rules 2016 came into force. The new rules aim to modernise the insolvency process; and make it more efficient. Physical meetings, as the default decision making process, have been abolished. Where the debtor ‘customarily’ communicated with a creditor by way of email notices can be served by email under deemed consent, rather than through the post. The rules also introduce the use of websites to publish notices, without the need to inform creditors of any postings.

When someone is made bankrupt, all property owned by them, at the date of bankruptcy, forms part of the bankruptcy estate. Property not only includes physical assets, such as goods, land and money, but also intangible assets, such as a cash balance with a bank, debts, benefits under contracts, legacies and causes of action. These assets are known as ‘things in action’. The bankruptcy estate vests in a trustee in bankruptcy upon appointment.