A spate of recent decisions approving liquidators’ remuneration on an ad valorembasis had caused some trepidation amongst insolvency practitioners facing the prospect of court fee approval.

A recent decision by the Federal Court of Australia may be useful for liquidators faced with an application to commence or continue civil proceedings against a company in liquidation.

The decision – in brief

Addressing a circuit split over a trademark licensee’s rights following a debtor/licensor’s bankruptcy, the US Bankruptcy Appellate Panel (BAP) for the First Circuit held that, although trademarks and trade names are not included in bankruptcy law’s definition of “intellectual property,” the licensee’s rights to use the licensor’s trademarks as set forth in the agreement were not terminated by the debtor’s rejection of the agreement. Mission Prod. Holdings, Inc. v. Tempnology LLC, Case No. 15-065 (BAP, 1st Cir., 2016) (Hoffman, J).

Liquidators can rest assured that courts are reluctant to interfere in their commercial judgments or permit liquidators to be personally exposed to mandatory examinations under s596ACorporations Act 2001 (Cth) (Act).

Companies in distress often undertake a sales of assets to alleviate cash flow or debt repayment issues when other lines of credit or source of funds have been exhausted. Such decisions are not taken lightly, especially as the disposal of assets is likely to detrimentally impact the underlying business or forecasts. Ultimately creditors’ demands and survival instincts will result in action being taken however it is often too late and to the detriment of the business.

Introduction

It is common for companies in distress to undertake a sales process of assets to alleviate cash flow or debt repayment issues. Often this course of action is the last resort after all other lines of credit have been exhausted or creditors have stopped providing extended terms of trade. Companies should not take such decisions lightly, especially if the sale will impact the underlying business or forecasts. However, ultimately creditors’ demands and survival instincts result in action being taken (often too late and to the detriment of the company).

“Top hat plans” have many attractive features, but a new court decision is a reminder that top hat plan participants have limited protections under ERISA – and that assets held in a rabbi trust are not protected from the claims of creditors upon the employer’s bankruptcy or insolvency.

December 2 marks the 15th anniversary of the Enron bankruptcy—a near cataclysmic event that ultimately led to a series of significant legislative, regulatory and public policy developments that inform governance practices to this day. The entire board would be well served by a brief overview of the governance impact of Enron, particularly since many directors were not in board service 15 years ago.

Two recent cases provide a timely reminder of the opportunities offered by creditor-funded litigation as a mechanism for bringing funds into what would otherwise be unfunded administrations. Both cases are examples of flexible and “light touch” exercises of judicial discretion which duly recognise the constraints and complex commercial considerations invariably encountered by liquidators in unfunded liquidations.

Approval of litigation funding agreements

Can liquidators disclose legal advice to creditors without waiving privilege? Common interest privilege may assist.

Common interest privilege

Legal professional privilege protects communications between a lawyer and client created for the dominant purpose of seeking or providing legal advice or for current or anticipated litigation.

If advice is disclosed to third parties, there may be a waiver of that privilege.