When considering whether or not to bring a legal action, it is important to establish if it is competent and commercially worthwhile to do so. The ability to bring, or continue with, legal proceedings against a company can be restricted if that company enters into a formal insolvency process. The position of creditors may be improved now that the Third Party (Rights Against Insurers) Act 2010 has at last been brought into force.

Bankruptcy made clearer: One of the bastions of old-style Scots terminology, guaranteed to perplex Southern audiences, is the law of bankruptcy in Scotland as it applies to individuals and assorted others.

But maybe for no longer. The Bankruptcy (Scotland) Act 2016 has reached the statute book. It’s a consolidating act, encompassing statutes from 1985, 1993, 2002, 2007, 2012 and 2014. It introduces a new and fairly modern framework, the aim being to make it less cumbersome and easier to use by those who do not have intimate knowledge of it (most of us!).

The Bankruptcy (Scotland) Act 2016 (the “Act”) received Royal Assent on 28 April 2016 and is expected to come into force by the end of the year.

The Act is only the second piece of primary consolidation legislation to have passed through the Scottish Parliament and brings together the various laws on personal insolvency into a single piece of legislation.

At the moment, the law is rather unwieldy and difficult to follow in practice.

Case #1. An equipment lease or a disguised financing?

Lyon Fin. Servs., Inc. v. Illinois Paper and Copier Co.

US District Court, Northern District of Illinois, Eastern Division

2015 U.S. Dist. Lexis 169946 (December 21, 2015)

Background

Recently, we've been seeing debtors try to confirm cram down plans of reorganization that are unfavorable to the secured creditor by "gerrymandering" the class of unsecured claims. The typical situation finds the secured creditor holding an undersecured loan. Under Section 506(a) of the Bankruptcy Code, the secured creditor's claim is automatically bifurcated into a secured claim in an amount equal to the value of the collateral and an unsecured claim for the balance of the debt.

Are golf course revenues "rents"?

A golf course may look like a solid piece of collateral. After all, golfers will pay good money to play and the green fees and driving range fees golfers pay to play the course will generate a revenue stream. This revenue stream can be pledged to a lender and used to support loans to the owner of the course. Lenders love to finance a business that generates a steady revenue stream, making a golf course look like an attractive form of collateral.

A golf course may look like a solid piece of collateral. After all, golfers will pay good money to play and the green fees and driving range fees golfers pay to play the course will generate a revenue stream. This revenue stream can be pledged to a lender and used to support loans to the owner of the course. Lenders love to finance a business that generates a steady revenue stream, making a golf course look like an attractive form of collateral.

Assignments for the benefit of creditors (ABC's as they are called) are known for their speed and flexibility. In California, the practice of an ABC occurring followed seconds later by a sale of the assignor's assets is well established. The buyer's ability to take over the failing business quickly in a seamless transition is a principal benefit of the ABC process. The speed and the seamless transition help preserve going concern values for the benefit of creditors.

Unless you are a specialized lender who makes loans to debtors-in-possession, you do not make a loan with the expectation that your borrower is going to file bankruptcy. Although the number of bankruptcy filings in California and nationally is trending slightly lower, filings remain at higher than normal levels. Nearly every lender has received the notice of a bankruptcy filing that was unexpected and then faced decisions as to what to do next.

This past quarter end once again reminded us that the economy remains weak and borrowers who have managed to hang on for the past three or four years are running out of staying power. The topic again arose - what to do when a borrower files bankruptcy? Faced with the prospect of throwing good money after bad, some lenders bury their head in the sand and simply wait it out, often with terrible results. Others charge ahead aggressively and run up large legal bills that are not justified by the amount of the obligation or the difficulty of recovery.