The short answer to the title question is “no.” However, under the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank” or the “Act”), the Federal Deposit Insurance Corporation (“FDIC”) has limited “back-up” authority to place into liquidation an insurance company that (i) meets certain criteria as respects the nature of its business and (ii) is essentially “too big to fail.” This liquidation proceeding would, however, still be under the relevant state insurance liquidation laws.1  

On February 22, 2011, Judge James M. Peck of the United States Bankruptcy Court for the Southern District of New York issued a decision declining to modify the September 20, 2008 Sale Order that approved the sale to Barclays PLC (“Barclays”) of assets collectively comprising the bulk of the North American investment banking and capital markets business of Lehman Brothers Holdings Inc. (“LBHI”), Lehman Brothers Inc. (“LBI”) and certain of their affiliates (together “Lehman”).

On April 26, 2011, the Supreme Court approved a number of amendments to the Federal Rules of Bankruptcy Procedure. In particular, the Supreme Court amended Bankruptcy Rule 2019 to clarify the disclosure required of certain parties in interest in a chapter 9 or 11 bankruptcy case.1 These amendments were drafted by a panel of bankruptcy judges and restructuring experts and are intended to resolve a split in decisions concerning the proper application of the current Bankruptcy Rule 2019.

Under the laws of the UK and Bermuda, solvent insurance companies that had ceased to write new policies have long been able to implement an orderly and expeditious run off of their businesses through court approved schemes of arrangement.

Under section 363 of the Bankruptcy Code, a trustee or debtor-in-possession may sell property free and clear of “any interest in such property of an entity other than the estate.” Thus, a buyer can generally acquire assets from a bankruptcy estate without subjecting itself to liability or claims based on the seller’s prior actions. InMorgan Olson, LLC v. Frederico (In re Grumman Olson Indus., Inc.), No. 02-16131, 2011 WL 766661 (Bankr. S.D.N.Y.

In general, substantive consolidation allows for the assets and liabilities of affiliated debtor entities to be consolidated and disbursed as if the assets were held and the liabilities were owed by a single legal entity. Unlike joint administration, which promotes procedural convenience and efficiency without affecting the substantive rights of creditors, substantive consolidation can force creditors of a solvent debtor to share in the debtors’ aggregate asset pool in parity with creditors of less solvent debtors.

Introduction

In a decision entirely consistent with its ruling in the “Perpetual” adversary proceeding last year, on May 12, 2011, the United States Bankruptcy Court in the Lehman chapter 11 cases endorsed a strict interpretation of certain Bankruptcy Code provisions to the benefit of Lehman, which will result in Lehman having more leverage in its negotiations with derivatives counterparties. See Lehman Brothers Special Financing Inc. v. Ballyrock ABS CDO 2007-1 Limited and Wells Fargo Bank, N.A., Trustee, Adv. Proc. 09-01032 (Bankr. S.D.N.Y. May 12, 2011).

It is important that directors and officers insurance provide the necessary protections. In times of financial turmoil, it is especially advisable for companies to review their D&O insurance coverage to ensure that their directors and officers are adequately protected. Although not exhaustive, set forth below are some of the critical issues to be considered in the context of D&O insurance policies.

The Extent of Coverage

On November 7, 2014, the City of Detroit’s historic Chapter 9 municipal bankruptcy case culminated with the confirmation of the City’s proposed plan of adjustment (after eight amendments), and the approval of various related settlements. Although little more than a month has passed, a great deal of ink has already been spilled on what the City’s bankruptcy case means, particularly from the viewpoint of the municipality and its citizens.