The Bankruptcy Code (“Code”) “does not limit the allowability of unsecured claims for contractual post-[bankruptcy] attorneys’ fees,” held the U.S. District Court for the District of Delaware on Nov. 26, 2018. In re Tribune Media Company, 2018 WL 6167504 (D. Del. Nov. 26, 2018). In a short and sensible opinion, the district court reversed the bankruptcy court’s disallowance of an undersecured lender’s fees.

“… Ponzi scheme payments to satisfy legitimate antecedent debts to defendant banks could not be avoided” by a bankruptcy trustee “absent transaction-specific proof of actual intent to defraud or the statutory elements of constructive fraud – transfer by an insolvent debtor who did not receive reasonably equivalent value in exchange,” held the U.S. Court of Appeals for the Eighth Circuit on Nov. 20, 2018. Stoebner v. Opportunity Finance LLC, 2018 WL 6055636 at *4 (8th Cir. Nov. 20, 2018), citing Finn v. Alliance Bank, 860 N.W. 2d 638, 653-56 (Minn. 2015).

The latest decision in the external administration ofMirabela is a reminder of the utility of the section 424 directions process for receivers, and an example of the steps to be taken in the face of competing asset claims.

The Court directed that the receivers of Mirabela were justified in distributing sale proceeds of approximately US$59.5 million in the face of a third party claim to the proceeds, provided the receivers first gave 21 days’ notice of intent to do so.

The case is a timely reminder that:

A license agreement “deemed rejected by operation of law” could not be acquired under a court-approved asset purchase agreement, held the U.S. Court of Appeals for the Fifth Circuit on Oct. 29, 2018. In re Provider Meds LLC, 2018 WL 5317445, *2 (5th Cir. Oct. 29, 2018). Although the acquirer claimed “that it purchased a patent license from [the] debtors in bankruptcy sales of their estates,” the court explained that “a rejected executory contract … could not have been transferred by the bankruptcy sales in question … .” Id., at *1.

The Federal Court has confirmed that there is no difference between liquidation and deed administration of a corporate trustee in relation to dealings with trust assets and the distribution of proceeds of those assets for the benefit of creditors.

Background

Manpak operated as the trustee for the MP Unit Trust, which carried on the business of a product wholesaler. Under the Trust Deed, Manpak would be disqualified from holding office if it suffered an Event of Default, which included the appointment of an administrator.

The Court of Appeal - Supreme Court of Western Australian has delivered a decision confirming that a statutory set-off under s 553C of the Corporations Act can still be available to a creditor where a general security interest has attached to the amounts it is seeking to set-off (provided those amounts are circulating assets of the insolvent company), whilst leaving the door open for creditors to rely upon set-off rights at general law in those instances where set-off under s 553C is unavailable.

“The right of setoff … allows entities to apply their mutual debts against each other to avoid the pointless exercise of ‘making A pay B when B owes A.’” held the Seventh Circuit on Aug. 17, 2018. Berg v. Social Security Administration, 900 F.3d 864, 868 (7th Cir. 2018). But the Bankruptcy Code (“Code”) limits “a creditor’s right of setoff during the ninety-day period prior to the” date of bankruptcy, said the court. Id.

The High Court recently handed down its much anticipated judgment in Mighty River International Limited v Hughes, confirming that deeds of company arrangement which have the effect of extending the administration period can be valid under the Corporations Act 2001 (Cth) (the Act).

Key takeaways

The High Court has refused to grant the Queensland State Government (Qld Government) special leave to appeal the Queensland Court of Appeal’s March 2018 decision in favour of the liquidators of Linc Energy, concerning the liquidators’ obligations to cause Linc Energy to comply with an Environmental Protection Order (EPO).

A defendant creditor in a preference suit may offset (a) the amount of later “new value” (i.e., additional goods) it gave the Chapter 11 debtor against (b) the debtor’s earlier preferential payment to the creditor, held the U.S. Court of Appeals for the Eleventh Circuit on Aug. 14, 2018. In re BFW Liquidation LLC, 2018 WL 3850101 (11th Cir. Aug. 14, 2018). Even when the creditor was paid for the new goods, stressed the court, Bankruptcy Code (“Code”) “§ 547(c)(4) does not require new value to remain unpaid.” Id., at *5.