The ability of a bankruptcy court to reorder the priority of claims or interests by means of equitable subordination or recharacterization of debt as equity is generally recognized. Even so, the Bankruptcy Code itself expressly authorizes only the former of these two remedies. Although common law uniformly acknowledges the power of a court to recast a claim asserted by a creditor as an equity interest in an appropriate case, the Bankruptcy Code is silent upon the availability of the remedy in a bankruptcy case.

When a company that has been designated a responsible party for environmental cleanup costs files for bankruptcy protection, the ramifications of the filing are not limited to a determination of whether the remediation costs are dischargeable claims. Another important issue is the circumstances under which contribution claims asserted by parties coliable with the debtor will be allowed or disallowed in the bankruptcy case. This question was the subject of rulings handed down early in 2011 by the New York bankruptcy court presiding over the chapter 11 cases of Lyondell Chemical Co.

There is something positively Dickensian when looking at the anti-deprivation rule (the "rule") and images come up of scribes working in dark and dismal rooms scratching their quills by dim candle light. Indeed, the rule dates back to the nineteenth century and many lawyers would be hard-pressed to explain it even if they are able to grasp the contradictions and fine distinctions thrown up by the old cases. In essence, the rule provides that a contractual provision is void if it provides for the transfer of an asset from the owner to a third party upon the insolvency of the owner.

In previous editions of the Business Restructuring Review, we reported on a pair of highly controversial rulings handed down in late 2005 and early 2006 by the New York bankruptcy court overseeing the chapter 11 cases of embattled energy broker Enron Corporation and its affiliates. In the first, Bankruptcy Judge Arthur J. Gonzalez held that a claim is subject to equitable subordination under section 510(c) of the Bankruptcy Code even if it is assigned to a third-party transferee who was not involved in any misconduct committed by the original holder of the debt.

The Supreme Court’s Decision:

While most jurisdictions provide liquidators with wide investigative powers to locate and realise assets locally, the exercise of such powers becomes more complicated when the assets are situated overseas. As more and more businesses expand globally and corporate structures become equally more complex, the liquidators’ task becomes more problematic in winding up such companies.

Introduction

While most jurisdictions provide liquidators with wide investigative powers to locate and realise assets locally, the exercise of such powers becomes more complicated when the assets are situated overseas. As more and more businesses expand globally and corporate structures become equally more complex, the liquidators' task becomes more problematic in winding up such companies.

The UK Supreme Court judgment in the conjoined cases of Rubin and another v Eurofinance SA and others and New Cap Reinsurance Corporation (in Liquidation) and another v AE Grant and others [2012] UKSC 46, which provides vital clarification on the effect of foreign insolvency judgments on the UK courts.

Background & Court of Appeal

The UK Supreme Court has handed down an important judgment in the conjoined cases of Rubin and another v Eurofinance SA and others and New Cap Reinsurance Corporation (in Liquidation) and another v AE Grant and others [2012] UKSC 46, which provides vital clarification on the effect of foreign insolvency judgments on the UK courts. The judgment was handed down yesterday.

Background & Court of Appeal

In the present fi nancial climate, customers are increasingly asking for business critical software or other assets to be transferred to the customer should the supplier become insolvent, for the legitimate reason that the customer needs security of supply. Two recent Court of Appeal cases remind us that customers who outsource to and contract with potentially vulnerable service providers need to take account of the “anti-deprivation principle” when doing this.