The recent decision of the Federal Court in Strawbridge, in the matter ofVirgin Australia Holdings Ltd (administrators appointed) [2020] FCA 571 provides an example of the Court granting flexibility to administrators performing their functions through the challenges presented by the COVID-19 pandemic.
The COVID-19 pandemic has caused unprecedented economic disruption, creating sudden financial distress across industries. Companies are now facing impacts ranging from a dramatic decline in revenue of uncertain duration, to potential setbacks to M&A transactions, to delayed or canceled financing rounds.
With even some previously well-performing companies potentially entering the so-called zone of insolvency, it’s important to review the fiduciary duties owed by directors and officers and how discharging those duties may change in the face of financial distress.
Boensch v Pascoe [2019] HCA 49
The High Court has recently considered the question of whether, and in what circumstances, property held by a bankrupt on trust for a third party vests in the trustee in bankruptcy pursuant to s 58 of the Bankruptcy Act 1966 (Cth): Boensch v Pascoe [2019] HCA 49. The decision was handed down late last year, providing further guidance for trustees following Carter Holt Harvey Woodproducts Australia Pty Ltd v The Commonwealth (2019) 93 ALJR 807.
Each year amendments are made to the rules that govern how bankruptcy cases are managed — the Federal Rules of Bankruptcy Procedure. The amendments address issues identified by an Advisory Committee made up of federal judges, bankruptcy attorneys, and others. The rule amendments are ultimately adopted by the U.S. Supreme Court and technically subject to Congressional disapproval.
Only A Few Rule Amendments This Year. Unlike previous years, there are only four rule amendments expected to take effect on December 1, 2019. Here they are:
Facts
Mr Lock and Mr Sheahan (the liquidators) performed their roles as administrators, and then as liquidators, of three companies.
The liquidators carried out numerous tasks across four work streams: (1) investigating the identities of a creditor and shareholders of one of the companies; (2) potential claims against the companies’ directors and a bank; (3) issues arising under the Proceeds of Crime Act 2002 (Cth); and (4) applications relating to receivers that had been appointed.
A Big Answer To A Big Question. After dividing the courts for a number of years, we finally have the answer to the big question of whether rejection of a trademark license by a debtor-licensor deprives the licensee of the right to use the trademark. Here’s the question on which the Supreme Court granted certiorari in the Mission Product Holdings, Inc. v Tempnology, LLC case:
The US Supreme Court decided what the International Trademark Association (INTA) called "the most significant unresolved legal issue in trademark licensing" when it ruled on May 20, 2019, that bankrupt companies cannot use bankruptcy law to revoke a trademark license.
In its 8-1 decision, the court resolved a circuit split by holding that a debtor's rejection of a trademark license under Section 365 of the Bankruptcy Code, which enables a debtor to "reject any executory contract" (a contract that neither party has finished performing), amounts only to a breach of the license.
As discussed in an earlier post called “Moving Up: Bankruptcy Code Dollar Amounts Will Increase On April 1, 2019,” various dollar amounts in the Bankruptcy Code and related statutory provisions were increased for cases filed on or after today, April 1, 2019.
King (Trustee); In the matter of Zetta Jet Pte Ltd v Linkage Access Limited [2018] FCA 1979 is the latest in a series of decisions, across multiple proceedings, dealing with the dogged attempts of a United States bankruptcy trustee to recover a luxury yacht moored in Australian waters.
The Supreme Court held oral argument earlier today in the Mission Products v. Tempnology case, on the issue of the effect of rejection by a licensor of a trademark license on the licensee’s rights.