Lender repossesses the equipment of its business borrower after it defaults on its secured loan agreement. Because borrower needs the equipment to run its business, it then files a Chapter 11 petition and promptly asks lender to return the equipment. Lender refuses because the equipment secures the defaulted loan. Depending on where the debtor sought bankruptcy relief (e.g., New York or New Jersey), lender may be subject to sanctions for holding on to the equipment. 

Re System Building Services Group Limited [2020] EWHC 54 (Ch)

Summary

A recent High Court ruling has considered the character and extent of directors’ duties in the context of insolvency.

In System Building Services, Insolvency and Companies Court Judge Barber (“ICCJ Barber”) considered, amongst other things, the nature of a director’s duties to a company and whether those duties survive the company’s entry into an insolvency process.

A bankruptcy trustee may sell “avoidance powers to a self-interested party that will abandon those claims, so long as the overall value obtained for the transfer is appropriate,” held the U.S. Court of Appeals for the Ninth Circuit on Jan. 15, 2020. Silverman v. Birdsell, 2020 WL 236777, *1 (9th Cir. Jan. 15, 2020).

Introduction

A secured lender’s “mere retention of property [after a pre-bankruptcy–repossession] does not violate” the automatic stay provision [§ 362(a)(3)] of the Bankruptcy Code (“Code”), held a unanimous U.S. Supreme Court on Jan. 14, 2021. City of Chicago v. Fulton, 2021 WL 125106, *4 (Jan. 14,2021). Reversing the Seventh Circuit’s affirmance of a bankruptcy court judgment holding a secured lender in contempt for violating the automatic stay, the Court resolved “a split” in the Circuits. Id., at *2. The Second, Eighth and Ninth Circuits had agreed with the Seventh Circuit.

“[A] secured creditor [has no] affirmative obligation under the automatic stay to return a debtor’s [repossessed] collateral to the bankruptcy estate immediately upon notice of the debtor’s bankruptcy,” the U.S. Court of Appeals for the Third Circuit held on Oct. 28, 2019. In re Denby-Peterson, 2019 WL 5538570, 1 (3d Cir. Oct. 28, 2019). Affirming the lower courts, the Third Circuit joined “the minority of our sister courts — the Tenth and D.C. Circuits” with its holding.

A bankruptcy court’s preliminary injunction was “not a final and immediately appealable order,” held the U.S. District Court for the District of Delaware on Dec. 10, 2019. In re Alcor Energy, LLC

Why are bankruptcy laws needed?

Over the past couple of years, there have been a wave of new insolvency and bankruptcy laws introduced in the GCC. With the exception of Qatar and Kuwait, all other GCC countries have now introduced new bankruptcy laws. As for Oman, its new bankruptcy law is due to come into effect on 1 July 2020.

An insolvent parent’s college “tuition payments… depleted the [debtor’s] estate and furnished nothing of direct value to the [debtor’s] creditors…,” held the U.S. Court of Appeals for the First Circuit on Nov. 12, 2019. In re Palladino, 2019 WL 5883721, *3 (1st Cir. Nov. 12, 2019). Reversing the bankruptcy court on a direct appeal, the First Circuit rejected its reasoning “that a financially self-sufficient daughter offered [the debtor parents] an economic benefit.” Id. at *2.

“[A] secured creditor [has no] affirmative obligation under the automatic stay to return a debtor’s [repossessed] collateral to the bankruptcy estate immediately upon notice of the debtor’s bankruptcy,” held the U.S. Court of Appeals for the Third Circuit on Oct. 28, 2019. In re Denby-Peterson, 2019 WL 5538570, *1 (3d Cir. Oct. 28, 2019). Affirming the lower courts, the Third Circuit joined “the minority of our sister courts – the Tenth and D.C. Circuits” with its holding.