We are pleased to share our latest instalment of ML Covered, our monthly round-up of key events relevant to those dealing with Management Liability Policies covering D&O, EPL and PTL-type risks.
Insolvency Service publishes its 2024/25 enforcement actions against directors
The Insolvency Service has published its enforcement outcomes for 2024-25, detailing the enforcement actions taken against directors. The information is not for the entire year but covers the period between April 2024 to December 2024.
Key developments in 2024
2024 has seen one of the most significant insolvency cases in recent years. In June, Justice Leech handed down his judgment on the claim brought by the liquidators of BHS against certain of its former directors for wrongful trading and misfeasance. This judgment is likely to have important consequences for the D&O market.
It was particularly noteworthy as it was the first time that the directors of a company had been found guilty of the novel claim of 'misfeasant trading'.
Manolete Partners Plc, an insolvency litigation finance company, has successfully claimed against the former director of Just Recruit Group Ltd (Just Recruit) and awarded £918,590. The Insolvency and Companies Court of the High Court found that the director of Just Recruit, Norman Freed, had breached his directorial duties to the company during the business's financial collapse.
Background
Welcome to the second edition of ML Covered, our new monthly round-up of key events that are relevant for those dealing with Management Liability Policies covering D&O, EPL and PTL-type risks.
Latest insolvencies figures & quantifying "trading misfeasance" claims
On 19 August 2024, the High Court handed down its quantum decision in Wright v Chappell [2024] EWHC 2166 (Ch), which for the first time sets out the method for quantifying loss relating to "trading misfeasance" claims.
Introduction
Frequently a debtor’s assets are sold out of bankruptcy “free and clear” of liens and claims under §363(f). While the Bankruptcy Code imposes limits on this ability to sell assets, it does allow the sale free and clear if “such interest is in bona fide dispute” or if the price is high enough or the holder of the adverse interest “could be compelled ... to accept a money satisfaction of such interest” or if nonbankruptcy law permits such sale free and clear of such interest.
On February 5, 2016 the IRS released Chief Counsel Advice Memorandum Number 201606027 (the IRS Memo) concluding that “bad boy guarantees” may cause nonrecourse financing to become, for tax purposes, the sole recourse debt of the guarantor. This can dramatically affect the tax basis and at-risk investment of the borrowing entity’s partners or members. Non-recourse liability generally increases the tax basis and at-risk investment of all parties but recourse liability increases only that of the guarantor.
A long-honored concept in real property, that of “covenants running with the land,” is finding its way into the bankruptcy courts. If a covenant (a promise) runs with the land then it burdens or benefits particular real property and will be binding on the successor owner; if that covenant does not run with the land then it is personal and binds those who promised but does not impose itself on a successor owner.
We are often asked what to do if you have an operating agreement and your operator or one of the other working interest owners files for bankruptcy. The Bankruptcy Code allows the debtor to assume or reject the JOA (it is usually an executory contract).
On November 13, 2015, the Federal Deposit Insurance Corporation (FDIC) issued Financial Institution Letter 51-2015 (FIL-51-2015), FDIC Seeking Comment on Frequently Asked Questions Regarding Identifying, Accepting and Reporting Brokered Deposits. FIL-51-2015 seeks comments on the proposed updates to the existing FAQ document on brokered deposits, which was initially released in January of 2015 in FIL-2-2015, after additional comments and questions have been received by the FDIC since the initial issuance.