The decision in In re SemCrude, L.P., et al. prohibiting parties from contracting around Bankruptcy Code section 553’s mutuality requirement may disrupt customary business practices, including those widely used in the energy, natural gas and crude oil markets, because it rules that contracting for cross affiliate netting does not “create” the mutuality required for setoff.
Sellers should be proactive in taking steps to protect themselves from a distressed buyer’s non-payment.
In the current economic downturn, sellers are dealing with many formerly good customers whose financial health is deteriorating. To protect their interests, sellers should assess their rights under applicable contracts and law and develop a strategy to minimize their exposure.
Step 1 – Assess the Parties’ Contractual Rights
The European Commission has approved the plan by the Italian authorities to sell the assets of the airline Alitalia, which had entered into financial difficulties, under a special insolvency procedure. The Commission concluded that the sale of the assets would not constitute a subsidy prohibited under EU State aid rules provided the assets are sold at market value and other conditions have been satisfied. An independent trustee has been appointed to oversee the sale by the administrator assigned under the special insolvency procedure.
Two recent decisions by the Delaware Supreme Court clarify the fiduciary duties owed to creditors by directors of Delaware corporations that are insolvent or operating in the zone of insolvency. First, in North American Catholic Educational Programming Foundation, Inc. v. Gheewalla, the Delaware Supreme Court, in a case of first impression, addressed the ability of creditors to assert claims for breach of fiduciary duty against directors of a Delaware corporation that is insolvent or operating within the zone of insolvency.
We look at the recent case of Barlow Clowes International Ltd & Ors v Henwood [2008] EWCA Civ 577 which considers when a domicile of origin can be revived.
Background
In its judgment in Haine v Sec of State for BERR and the liquidator of Compounds Section Ltd the Court of Appeal has decided an important question on employer insolvency.
Re Cheyne Finance PLC
The UK courts recently interpreted the definition of insolvency in a way which can lead to an insolvency default being triggered earlier than before.
In Dynamex Friction Ltd v Amicus an administrator had dismissed the entire workforce immediately on being appointed because the company had no money to pay its debts. At that time no transferee of the insolvent business had been identified and there was no prospect of a sale. However, the administrator did shortly afterwards agree a sale of the remaining company assets to a newly formed purchaser company that had links with the directors of the ‘old’ company.
The Commission has opened a formal investigation under EC Treaty state aid rules into a series of aids amounting to €40.7 million that Italy intends to grant to Legler S.p.A, a denim textile producer. The Commission doubts at this stage that the restructuring plan of Legler S.p.A. would restore the beneficiary's commercial viability and is concerned that the aid would create undue distortions of competition in this highly competitive market. The opening of the formal investigation gives interested parties an opportunity to comment on the proposed measures.
In a case involving a bankruptcy reorganization in which a trustee in bankruptcy was given the right to pursue claims of misappropriation or infringement (but not ownership of the bankrupt’s intellectual property), the U.S. Court of Appeals for the Federal Circuit reversed the district court finding that the no trustee had standing to bring suit. Morrow, et al. v. Microsoft Corp., Case Nos. 06-1512, -1518, -1537 (Fed. Cir., Sept. 19, 2007 (Moore, J.; Prost, J., dissenting).