Borrowers who file a bankruptcy petition are always looking for creative new challenges to claims asserted by their bank creditors.  In recent years, debtors have argued that a bank’s issuance of an Internal Revenue Code form 1099-C “Cancellation of Debt” has the effect of waiving the bank’s claims against the borrower, and should preclude the bank from having an allowed claim in the bankruptcy case.  Fortunately, some recent court opinions state that a bank’s issuance of a 1099-C does not constitute a waiver, and the bank remains entitled to enforce its claim in a subsequent bank

Now everything will be better! The new ESUG legislation which entered into force on 1 March 2012 has generated huge expectations. The somewhat unwieldy title of “Law for the Further Facilitation of the Restructuring of Businesses” covers a raft of significant changes to the Insolvency Act and existing restructuring regulations. Its objectives are ambitious. The ESUG is intended to make business restructuring easier, more effective and faster – thus a press release from the Federal Ministry of Justice dated 23 February 2012.

In insolvency proceedings, claims for repayment of shareholder loans – particularly if granted to a company limited by shares or a limited commercial partnership – are generally subordinate. In its judgment of 15 November 2011 (II ZR 6/11), the Federal Court of Justice (Bundesgerichtshof, BGH) addressed whether and for what period this also applied to corresponding claims by former shareholders.

The Federal Court of Justice (Bundesgerichtshof, BGH) pronounced on double securities in its eagerly anticipated judgment of 1 December 2011 (IX ZR 11/11). The practice was controversial even before the Act for the Modernisation of Limited Liability Company Law and for the Prevention of Abuse (Gesetz zur Modernisierung des GmbH-Rechts und zur Bekämpfung von Missbräuchen, MoMiG) came into force. “Double security” arises where security is provided over a creditor‘s claim both by the company itself and by its shareholders.

On 27 October 2011, the German parliament adopted the Law for Further Facilitation of the Restructuring of Businesses (Gesetz zur Erleichterung der Sanierung von Unternehmen, ESUG), which entered into force on 1 March 2012. In particular, legislators have increased the importance of debtequity swaps as part of this reform. Significant practical obstacles that previously often caused debt-equity transactions to fail have now been removed.

Previous legal framework

By order issued on February 23, 2012, the United States District Court for the Eastern District of North Carolina vacated the bankruptcy court’s decision in In re Mammoth Grading, Inc.  This decision and the companion decision in In re Harrelson Utilities, Inc. held that the lien rights of construction subcontractors and suppliers cannot be perfected once a bankruptcy petition is filed by a party higher in the contract chain. 

As real estate-related bankruptcy filings remain steady, courts continue to see debtors challenging the validity of deeds of trust and mortgages due to minor scriveners’ errors.  The United States Bankruptcy Court for the Eastern District of North Carolina is viewed by debtors as a favorable venue in which to bring such challenges due to a string of prior rulings starting with In re Head Grading in 2006, which invalidated a North Carolina deed of trust that incorrectly cited the date of the related note by one day.  The latest chapter in this saga involves an effort by a

What information does the insolvency administrator have to provide to creditors?

Introduction

The German Federal Court of Justice (Bundesgerichtshof - BGH) in its decision of 17 February 2011 (IX ZR 131/10) has been dealing with the issue which – since the Act to Modernise the Law Governing Private Limited Companies and to Combat Abuses (Gesetz zur Modernisierung des GmbH-Rechts und zur Bekämpfung von Missbrauchen - MoMiG) came into effect – is being controversially discussed as to whether loans by family members (in particular the shareholder’s siblings, spouse and children) in insolvency proceedings will be given subordinate ranking.

The risks facing a lending bank if the borrower becomes insolvent are often twofold. Not only are outstanding repayments in jeopardy, but, in the case of debtor`s insolvency, there is also a risk of voidable preference (Insolvenzanfechtung), where the insolvency administrator may challenge repayments already received and loan collateral granted before the insolvency filing.