Gowling WLG's finance litigation experts bring you the latest on the cases and issues affecting the lending industry.

Uncrystallised pension pot remains protected following bankruptcy

An agreement with a company has gone into arrears. The vehicles may or may not have been sold. The company has placed itself into voluntary liquidation. Can the finance company take steps to protect itself if it suspects that there has been mismanagement or misappropriation of funds within the company? Yes. Where "prejudice" will be suffered by a creditor, the court can order a compulsory liquidation, where the activities of the company will be more vigorously examined than might otherwise be the case with a voluntary liquidation.

An intervening bankruptcy will not defeat a charging order where the bankruptcy was entered into in an attempt to frustrate the charge.

The court will not assist a former bankrupt to enforce his interests under an unlawful trust where the purpose of the trust initially had been to deprive the trustee in bankruptcy of the bankrupt's interest.

On Monday, May 16, 2016, the Supreme Court issued its decision in the case of Husky Int’l Elecs., Inc. v. Ritz, — S. Ct. —, 2016 WL 2842452 (2016) resolving a split between the Fifth and Seventh Circuit Courts of Appeal regarding the scope of the “actual fraud” exception to an individual debtor’s bankruptcy discharge. In relevant part, Section 523(a)(2)(A) of the Bankruptcy Code prohibits debtors from discharging “any debt . . . for money, property, [or] services . . . to the extent obtained, by . . .

The recent case of Singularis Holdings Ltd v Daiwa Capital Markets Europe Ltd [2017] EWHC 257 (Ch) (Singularis) is an important decision affecting any institution that handles client payments, including banks. It decided that a stock broker was liable in negligence for having breached its duty of care to its customer, Singularis Holdings Ltd (in liquidation) (Singularis), by paying monies out of its client account on the instruction of one of Singularis' directors and its only shareholder, Mr Al Sanea.

Background

So-called “red flags” were not “sufficient to impose a duty on [a gambling casino (‘Casino’)] to investigate” a Chapter 11 debtor’s pre-bankruptcy fraudulent transfers to its insiders who gambled at the Casino, held the U.S. Court of Appeals for the Seventh Circuit on Oct. 13, 2015. In re Equipment Acquisition Resources, Inc., 2015 WL 5936354, at *6 (7th Cir. Oct. 13, 2015).

The U.S. Court of Appeals for the Fourth Circuit, on Feb. 21, 2014, affirmed the dismissal of a bankruptcy trustee’s fraudulent transfer complaint against a “warehouse” lender who had been paid by a distressed home mortgage originator several months prior to the originator’s bankruptcy. Gold v. First Tennessee Bank, N.A., 2014 U.S. App. LEXIS 3279 (4th Cir. Feb. 21, 2014) (2-1). Affirming the lower courts, the Fourth Circuit held that “the bank accepted the payments” from its borrower “in good faith.” Id., at *2.

The United States Court of Appeals for the Fifth Circuit, on Oct. 22, 2012, held that $1.6 million in political contributions made to five different political committees by Ponzi scheme defendants between 2000 and 2008 were fraudulent transfers made “with actual intent to hinder, delay, or defraud creditors” under the Texas version of the Uniform Fraudulent Transfer Act. Janvey v. Democratic Senatorial Campaign Committee, Inc., et al., 2012 WL 5207460 ___ F.3d ___ (5th Cir. 2012).

A settlement has been announced in the Tronox Securities Litigation,^[1] making it one of the first cases where the failure to publicly disclose environmental liabilities has resulted in a substantial settlement.