To assist businesses dealing with the economic impact of the coronavirus (COVID-19) pandemic, on March 28, 2020, the UK government followed in the footsteps of countries including Spain, Germany and Australia and announced certain changes to UK insolvency law.
This article summarises the key changes the UK government is proposing to existing insolvency laws, and considers the key restructuring tools available to assist companies during this unprecedented and challenging time.
Wrongful Trading Suspension
Barely a month after Bankruptcy Code amendments providing a cheaper, more efficient path to chapter 11 relief for small businesses took effect under the Small Business Reorganization Act of 2019 (“SBRA”), Congress has nearly tripled the debt-eligibility threshold from roughly $2.7 to $7.5 million in response to economic fallout from the COVID-19 shutdown.
Executive Summary
In any bankruptcy, there are inevitably winners and losers. The winners do not always do virtuous acts to win and the losers are not necessarily evil. Rather, dividing up a limited pie, the bankruptcy courts must leave some creditors short-changed. A good example is the recent 7th Circuit case involving a supplier and a lender. (hhgregg, Inc. et al. (Debtor). Whirlpool Corporation v. Wells Fargo Bank, National Association, and GACP Finance Co., LLC, 7th Circuit Court of Appeals, No. 18-3363, February 11, 2020) |
A Texas bankruptcy court recently ruled that dedication clauses in gas-gathering agreements run with the land and cannot be rejected by a debtor. That decision, In re Alta Mesa Resources, Inc., affirms an industrywide practice that faced an uncertain future following the ruling in In re Sabine Oil & Gas Corp. from the Southern District of New York, which was upheld by the 2nd U.S. Circuit Court of Appeals in 2018.
Secured creditors filing a UCC financing statement under Article 9 must include a description of the collateral. (UCC 9-502) UCC Article 9 adopts a “notice filing” system, under which the purpose of the filing is to provide notice of a security interest in the specified collateral. UCC Article 9 does not require a precise (e.g., serial number) description. Even so, there has been much litigation over the sufficiency of the collateral descriptions in UCC financing statements.
The bankruptcy court in Delaware recently ordered the Centers for Medicare & Medicaid Services (CMS) to resume making post-petition Medicare payments to chapter 11 debtor True Health Diagnostics LLC. CMS had been withholding payments in light of a pre-petition fraud investigation.
On May 20, 2019, the U.S. Supreme Court issued its long-awaited decision in Mission Products Holdings, Inc. v. Tempnology, LLC nka Old Cold LLC, (Case No. 17-1657, U.S. Supreme Court, May 20, 2019) ("Tempnology"). The U.S. Supreme Court decided that a trademark licensee can continue to use a trademark license even when a bankrupt trademark licensor rejects the license agreement.
Introduction
In light of the decisions made in the case of BTI 2014 LLC v Sequana SA [2019] EWCA Civ 112 (the Sequana case), consideration may need to be given to the interests of creditors when declaring a dividend. The Court of Appeal in the Sequana case concluded that the payment of an otherwise lawful dividend constituted a transaction defrauding creditors under section 423 of the UK’s Insolvency Act 1986 (IA 1986).
Background to the Sequana Case
Does a creditor’s good-faith belief that a discharge injunction does not apply to its debt preclude a finding of civil contempt? Due to a circuit split, the U.S. Supreme Court was asked to decide this issue.
Are a licensee’s rights to use a trademark safe if the licensor files for bankruptcy and rejects the trademark license? This is a question the U.S. Supreme Court may resolve later this year.