Key Points: The fact that you're a very big company doesn't mean you needn't follow the legal rules for the execution of documents.

Background

A large insurance company claimed to be a creditor of Ungul, a property developer. Ungul was in voluntary administration.

A meeting of Ungul's creditors was called for 11 June. The insurance company's solicitors contacted the administrator and said that:

In our Distressed Investor Alert dated December 23, 2009, we wrote that Bankruptcy Rule 2019, an often ignored procedural rule in U.S. bankruptcies, had returned to the public eye in light of the controversial revisions to Rule 2019 (“Revised Rule 2019”)1 proposed by the Committee on Rules of Practice and Procedure of the Judicial Conference of the United States (the "Rules Committee").

Scenario:

The law of "shadow directors" means that a person who effectively controls a board of a company, even though that person is not a director, may find himself being legally classified as a director of the company. That carries with it the threat of legal liability for the company's insolvent trading debts in the event that the company goes into liquidation.

Lehman Brothers Holdings Inc. (“LBHI”) and its affiliate and subsidiary debtors (collectively, “Lehman”) filed their proposed chapter 11 plan of reorganization in their jointly administered chapter 11 proceedings on Monday, March 15, 2010 (Docket No. 7572). Monday was the last day for Lehman to file a plan pursuant to section 1121(d) of the Bankruptcy Code in order for Lehman to maintain the exclusive right to file and obtain confirmation of a plan.¹

On 25 January 2010, the United States Bankruptcy Court handed down its much anticipated decision in relation to an action brought in that court by two Lehman Brothers entities (the Lehman entities) against BNY Corporate Trustee Services Limited (BNY) (the US Decision).

It has taken 12 months, but new legislative provisions are now in place to deal with the problems for representatives of incapacitated entities arising from Logan J's decision in Deputy Commissioner of Taxation v PM Development Pty Limited [2008] FCA 1,886.

The new provisions go beyond merely addressing the outcome of PM Developments. They also introduce new obligations for representatives of incapacitated entities as well as some concessions and protections.

Bankruptcy Rule 2019, an often ignored procedural rule in U.S. bankruptcies, has returned to the public eye with a vengeance in light of a recent ruling by the influential Bankruptcy Court for the District of Delaware¹ and controversial pending amendments to Rule 2019 proposed by the Committee on Rules of Practice and Procedure of the Judicial Conference of the United States (the “Rules Committee”). The amendments will be the subject of a public hearing held in New York City on February 5, 2010.²

Courts are now being asked to examine transactions which were completed during the recent exuberant period. Despite the fact that the transactions in question may have been market standard at the time, because those transactions are being scrutinized during an unprecedented economic crisis, it appears that a disproportionate amount of finger pointing – and economic loss – is being directed at secured creditors. The result is a seeming erosion of secured creditors’ rights for the benefit of unsecured creditors.

Credit agreements typically provide that any amendment permitting the release of “all or substantially all” of the collateral requires the unanimous consent of the lenders. Many market participants expect that this provision provides protection against the agent and other lenders from consenting to the sale of the collateral and releasing the corresponding liens without the consent of all lenders.