Feasibility of a bankruptcy plan is always a tough issue.

Think about it:

• debtors are in bankruptcy because they can’t make their payments when due; and
• in bankruptcy, a debtor must propose a plan for paying creditors—that will work this time.

We now have a new plan feasibility opinion—from the Eighth Circuit BAP—that provides guidance to us all.

A Hong Kong court has reminded debtors of the need to present a credible and realistic restructuring proposal when facing creditors threatening winding up actions. In Re Jiayuan International Group Limited (佳源國際控股有限公司) [2023] HKCFI 1254, the Honourable Madam Justice Linda Chan warned that it is not enough for a debtor company to merely point to commercial discussions with some of the creditors when seeking an adjournment.

The Bankruptcy Code’s Subchapter V provides hope to formerly successful entrepreneurs. It’s a hope that never before existed.

I’ll try to explain.

Formerly Successful Entrepreneurs – A Historical Problem

The Bankruptcy Code became effective in October of 1979. And I’ve been practicing under the Bankruptcy Code from the beginning: licensed in 1980.

Here’s an observation that’s been true throughout my career, until enactment of Subchapter V:

Answers to these two questions can get tricky:

1. When should a previously successful business engage distress-debt counsel?
2. What is the role of the business’s general counsel once that happens?

Second Question: Role

Here’s the answer to the second question first:

The hits keep coming for student loans in bankruptcy.

This time the hit is this:

• student loans for attending medical school do not qualify as “commercial or business” loans for Subchapter V eligibility.

The central finding, for a medical student who worked as an employee for ten years before becoming an entrepreneur, is this:

• “the gap between incurring the debt and actually engaging in . . . commercial or business activity as an owner is simply too great.”

Background

Is a debtor “engaged in commercial or business activities” for Subchapter V eligibility?

Such question has been addressed on many occasions and by many courts.

The trend seems to be toward a conclusion that the nature and quantity of “commercial or business activities” required for Subchapter V eligibility is this:

• Nature = “easily met”; and
• Quantity = “not much.”

The latest opinion to confirm the trend is In re Robinson, Case No. 22-2414, Southern Mississippi Bankruptcy Court (issued April 17, 2023; Doc. 90).

Oral arguments occur on April 24, 2023, before the U.S. Supreme Court in Lac Du Flambeau Band of Lake Superior Chippewa Indians v. Coughlin, Case No 22-227. Here is a link to the oral arguments transcript.

What follows is an attempt to, (i) summarize the facts and issue in the case, and (ii) provide a sampling of questions and comments from the justices during oral arguments.

Facts

Here’s what happened:

The administrators of Avanti Communications Limited (the “Company”) sought directions from the High Court as to whether purported fixed charges in favour of the secured lenders to the satellite operating business should be recharacterised as floating charges (In the matter of Avanti Communications Limited (In administration) [2023] EWHC 940 (Ch)).

Summary of decision

“within three (3) business days of termination of the mediation, the Debtors shall publicly disclose the terms of the last offers extended by each of the Mediation Parties, respectively.”[Fn. 1]

Say what!?

Whoever heard of such a thing—a requirement that the “last offers” of the mediating parties be publicly disclosed?

And this requirement is in a “consensual” mediation order entered in the Genesis Global Holdco, LLC, bankruptcy.[Fn. 2]

Context

Here’s the context.[Fn. 3]

The Hong Kong Court of Final Appeal (CFA) has confirmed a Court of Appeal finding that the court should respect the effect of an exclusive jurisdiction clause in bankruptcy proceedings, just as it does in ordinary civil actions.