Overview: The Fifth Circuit’s highly anticipated decision on December 31, 2024, in the Serta Simmons case has significant implications for borrowers and lenders in financial distress situations. The issue on appeal concerned an uptier transaction, a liability management exercise sometimes referred to as “lender-on-lender violence.” The Fifth Circuit’s opinion addresses the contractual viability of uptier transactions and the enforceability of related indemnities in bankruptcy plans, potentially reshaping the landscape for future financial restructurings.
An involuntary bankruptcy can be a powerful tool in a creditor's arsenal. Involuntary bankruptcies are rarely filed, however, because of the significant risk of liability for the petitioning creditor if the case is dismissed. A creditor considering filing an involuntary bankruptcy must understand the requirements for filing involuntary bankruptcy cases, which are strictly construed and applied, and be mindful of the associated risks.
When a company files for bankruptcy, its creditors often ask the same question: will I get paid? The answer, in part, depends on the priority and proposed treatment of each creditor's claim in the bankruptcy (i.e., who gets paid and in what order).1 In addition to the Bankruptcy Code's other provisions affecting the priority of a claim, the doctrines of recharacterization and equitable subordination can affect the priority of a challenged claim by effectively postponing or eliminating payment on the claim.
Recharacterization
Often, after filing a proof of claim, a creditor can go months, or even years, without hearing anything regarding their claim. Then, unexpectedly, the creditor's proof of claim faces an objection, possibly on multiple grounds, with a limited window to respond. A claim objection can raise several important strategic considerations for crafting the best response.
Key Issues
An assignment for the benefit of creditors (ABC) is a process by which a financially distressed company (referred to as the assignor) transfers its assets to a third-party fiduciary (referred to as the assignee). The assignee is responsible for liquidating those assets and distributing the proceeds to the assignor's creditors, pursuant to the priorities established under applicable law. From the perspective of a creditor, there are many important distinctions between an ABC and a bankruptcy case.
Key Issues
The recent Privy Council decision in Sian Participation Corp (In Liquidation) v Halimeda International Ltd[2024] (SPC) has overturned a principle of English law relating to the interaction between a contractual agreement to arbitrate and traditional insolvency measures where a debt is said to be disputed without substantial grounds.
10 years after the publication of Revision 6 (2014 edition) of the Model Form of Contract for the design, supply and installation of electrical, electronic and mechanical plant (MF/1), the Institution of Engineering and Technology (IET) has released Revision 7 (2024 edition), shortly followed by an erratum containing a summary of corrections.
Regular users of the MF/1 may be comforted to know that the risk profile of the contract has not changed though the door has been opened to extending the duration of liability for latent defects, as discussed below.
Another groundbreaking judgment from the ADGM Courts in the NMC matter 📢🇦🇪👨🏻⚖️ and another example of the ADGM Courts drawing important parallels between ADGM and English law.
English proceedings re NMC Health Plc are also ongoing. In his judgment at CFI on 8 July 2024, Sir Justice Andrew Smith found that:
1. The ADGM Courts can make an order in respect of the fraudulent carrying on of the business of a company prior to the time at which that company was continued in the ADGM.
Introduction
What happens when monies are loaned for a specific purpose but that purpose fails? Should those monies fall within the general assets of the recipient upon bankruptcy or insolvency?