The global crisis and the rights of foreign creditors of Sovereign States

The global financial crisis has been well documented in the press, with one recent headline in The Times reading “Like Iceland, Ireland can refuse to pay up”. Claims that States face bankruptcy not unnaturally raise the alarm bells for the financial markets. Can States be sued if they default in payment? RPC recently enforced a claim against assets of an EU State, as discussed below...

Bankrupt States: A misnomer

In BNY Corporate Trustee Service v Eurosail UK1, the Court of Appeal rejected a “mechanical” definition of balance sheet insolvency.

There remains much economic uncertainty ahead and it seems that insolvency practices are likely to continue to remain important drivers in accountancy firms. However, insolvency practitioners are facing increased regulation and public scrutiny. They need to remain on top of their game to navigate safely through stormy waters, as Ross Goodrich reports.

Background

The much awaited EAT decision inOTG Ltd v Barke and others (formerlyOlds v Late Editions Ltd) was delivered on 16 February. As expected, the EAT has taken the view that an administration cannot amount to “bankruptcy” or “analogous insolvency proceedings” for the purposes of Regulation 8(7) of TUPE. So, on a sale by an administrator (even in a pre-pack administration) TUPE will apply.

In more detail

The full force of TUPE is relaxed in relation to insolvent transfers as follows:

The US Court of Appeals for the Ninth Circuit recently held that a creditor of a bankrupt corporation may assert alter ego claims against the corporation’s sole shareholders. The California Court of Appeals for the Second Appellate District not only supports the Ninth Circuit’s decision but has recently taken it one step further, holding that alter ego allegations are not even subject to the automatic bankruptcy stay.

Reclamation claimants have long enjoyed special protections under Bankruptcy Code section 546(c), which recognizes that “the rights and powers of a trustee... are subject to the right of a seller of goods,” including reclamation rights under Section 2-702 of the Uniform Commercial Code. At a minimum, Section 2-702 clearly requires that a reclamation claimant must make demand upon its buyer in order to reclaim its goods and protect its rights. However, Paramount Home Entertainment Inc. v. Circuit City Stores, Inc., 2010 WL 3522089 (ED Va., Sept.

On 21 May 2010, Justice Floyd handed down his judgment in Bloomsbury International Ltd (in administration) v Mark Alan Holyoake.1 The case sheds light on the circumstances in which it is appropriate for a cross-undertaking provided by administrators on behalf of an insolvent company to be fortifi ed by a bank guarantee.

Facts

• On August 4, 2010, the US Court of Appeals for the Seventh Circuit affirmed in part and reversed in part a Wisconsin federal district court’s ruling on the Wisconsin bankruptcy court’s disposition of three of Telephone and Data Systems’ (TDS) claims, and the FCC’s objections thereto, filed in Airadigm’s Chapter 11 reorganization plan. The principal assets at issue were a series of C- and F-block spectrum licenses for mobile phone service in certain areas of Wisconsin, Iowa, and Michigan that Airadigm had won at auction in the late 1990s.

With the August 4, 2010 auction of the division leading Texas Rangers looming and the memory of last year's bankruptcy sale of the Phoenix Coyotes fresh in our minds, there has been a lot of discussion among bankruptcy professionals about the unique issues that arise when a sports club files for bankruptcy. Generally, sports clubs file bankruptcy for the same reasons as other businesses — as a last resort to save going concern value and/or to avail themselves of some strategic advantage under the Bankruptcy Code.

The case of Poulton v Ministry of Justice was decided by the Court of Appeal at the end of last month. The Court decided that a trustee in bankruptcy was left without a remedy against the Court Service when a bankrupt's estate suffered loss following an oversight by the Court Service to notify the Land Registry that a bankruptcy petition had been presented (as it is required to do by rule 6.13 of the Insolvency Rules 1986).

The background