So far, the Bulgarian economy has encountered various COVID-19-related effects, but a surge in insolvencies is not yet one of them. Although the Bulgarian state was slow in implementing measures to help companies affected by the pandemic – which measures turned out to be insufficient – there has been no visible increase in bankruptcy proceedings since 2020.

The Bankruptcy Court for the District of Delaware recently expressed its view regarding the reach of the “solvent debtor exception” in In re The Hertz Corp., et al. The solvent debtor exception is an equitable doctrine which supports the proposition that creditors are entitled to the full suite of their contractual rights if the debtor in bankruptcy is solvent.

There has been a longstanding need in Hungary for a legal instrument to rescue distressed companies. The only legal solution so far for such companies was the unpopular and inflexible bankruptcy procedure, which is also risky for the debtor, as failure will automatically turn into a liquidation proceeding and the company will cease to exist. Bankruptcy, with its formalistic procedures and limited involvement of creditors in the decision-making, has done more harm than good. It also usually stigmatised the debtor.

As of 17 July 2021 the EU restructuring directive¹ was implemented in Austria by the new Austrian Restructuring Code (ReC). The ReC allows debtors to enter formal restructuring proceedings before actually becoming insolvent. To minimise the disruption to debtor's operations, the proceedings are not public, a ban on enforcement of collateral can be implemented and the rights of counterparts to amend or terminate existing contracts are significantly curtailed.

Article 9 of the Uniform Commercial Code, adopted in all fifty states plus the District of Columbia with relatively few variations, sets out, among other things, the rules to be followed when obtaining a security interest in personal property collateral to secure a loan. The basic premise of Article 9 is that if the lender follows the rules, it should be protected against third parties, including other creditors or a bankruptcy trustee, who would seek to challenge the lender’s security interest or the priority of the security interest.

In its much-discussed decision, City of Chicago v. Fulton, 141 S. Ct. 585 (2020), the Supreme Court ruled that the City of Chicago (“City”) was not in violation of Section 362(a)(3) of the Bankruptcy Code for failing to release an impounded car to a debtor in bankruptcy.

Periodically courts remind corporate directors that their decisions to act or to refrain from acting during the course of managing the affairs of a corporation are not without limitations. It is well established that corporate directors owe fiduciary duties, and more specifically, a duty of care and a duty of loyalty to corporate shareholders. Those duties should always be at the front of mind of every director when any action or inaction is contemplated, but in particular, when addressing challenging issues facing the corporation.

Each week, Crowell & Moring’s State Attorneys General team highlights significant actions that State AGs have taken. Here are this week’s updates.

Monday, November 8, 2021

Antitrust

With the confirmation of Carlson Travel’s plan of reorganization within 24 hours from the company’s filing, expedited confirmations took another step toward normalization. Carlson Travel (better known as Carlson Wagonlit Travel) together with 37 affiliated entities filed bankruptcy in the Southern District of Texas (Houston Division) on the evening of Thursday, November 11, 2021. The debtors managed to schedule a joint hearing on the approval of their disclosure statement and confirmation of their prepackaged plan for Friday morning, the next day.

Section 363 of the Bankruptcy Code includes an important protection for lenders confronting a sale of their collateral in a borrower’s bankruptcy proceeding – the right to “credit bid" the outstanding amount of their loan. This right also affords opportunistic investors a powerful tool for use in acquiring the assets of a distressed target. For the traditional lender, the right to bid its debt in a sale of its collateral is a backstop that preserves value if no better options present themselves for recovery.