Greylag Goose Leasing 1410 Designated Activity Company v P.T. Garuda Indonesia Ltd

In a decision that appears to be the first of its kind, the NSW Court of Appeal has found that a national airline should be afforded foreign State immunity against a winding up application.

Key points:

Recently, in In re Moon Group Inc., a bankruptcy court said no, but the district court, which has agreed to review the decision on an interlocutory appeal, seems far less sure.

Das Bundesarbeitsgericht (BAG) hatte darüber zu entscheiden, wann eine Sozialplandotierung durch die Einigungsstelle für ein Unternehmen außerhalb der Insolvenz wirtschaftlich unvertretbar ist. Dies sei der Fall, wenn die Erfüllung der Sozialplanverbindlichkeit zu einer Illiquidität, einer bilanziellen Überschuldung oder einer nicht mehr hinnehmbaren Schmälerung des Eigenkapitals der Gesellschaft führe. Liege danach eine wirtschaftliche Unvertretbarkeit vor, sei das Ermessen der Einigungsstelle überschritten und der beschlossene Sozialplan unwirksam.

In recent years much ink has been spilled opining on the so called 'Quincecare' duty of care, and the limits of it (see links to our recent insolvency law updates covering the topic below). The judgment in Barclays Bank plc v Quincecare Ltd [1992] 4 All ER 363 was a first instance decision on Steyn J, in which he found that a bank has a duty not to execute a payment instruction given by an agent of its customer without making inquiries if the bank has reasonable grounds for believing that the agent is attempting to defraud the customer.

Subchapter V eligibility requires a debtor to be “engaged in” commercial/business activities.

Case Law Consensus

Case law consensus is that such activities must exist on the petition filing date. That means a debtor cannot utilize Subchapter V when:

• business assets are fully-liquidated;
• unpaid debts are the only remnant of the failed business; and
• prospects for resuming such activities are nil.

So . . . here’s the question: Is that the right eligibility standard?

I say, “No.”

A Hypothetical

Earlier this year, the English Court refused to sanction two Part 26A restructuring plans ("RPs") which sought to bind HMRC, the UK tax authority, into restructurings via "cross-class cram down".

A company must apply for insolvency in Germany if it is either illiquid and/or over-indebted. Illiquidity must be confirmed where the debtor is not capable of meeting at least 90 % of all claims with its liquid assets within 3 weeks (section 17 of the German Insolvency Code).

Real estate assets – effect on liquidity

The Court of Appeal in Braunschweig has recently considered whether a debtor was insolvent due to illiquidity where it owned extensive real estate assets.

One of the benefits the US Bankruptcy Code offers debtors is the ability to assign freely contracts under which the debtor has ongoing performance obligations, even if the underlying contract contains a restriction or prohibition against such assignment. Section 365 of the Bankruptcy Code has its limits and does impose certain conditions to such assignment, such as the curing of defaults under the contract (other than so-called “ipso facto” defaults) and the requirement that the assignee be capable of future performance under the contract.

Bankruptcy is Not an Option

Bankruptcy can be a very helpful tool for a distressed business. Bankruptcy allows a business to stop collection actions, discharge certain debts, cancel unfavorable contracts, and provides breathing room to restructure the business.

As far as they go, restructuring plans have worked well since they were first introduced 3 years ago. This is reflected in the most recent review of CIGA published by the Insolvency Service which reflects favourably on this new insolvency measure. However, there are still some barriers to its use.