The Supreme Court (“SC”) in the case of M. K. Rajagopalan v. Dr. Periasamy Palani Gounder & Anr., has held that, while commercial wisdom of the Committee of Creditors (“CoC”) must be respected, certain factors having a material bearing on the process of approval of the resolution plan should also be borne in mind.
In a recent decision, Anchorage Capital Master Offshore Ltd v Sparkes [2023] NSWCA 88, lenders to the Arrium Group, a company that collapsed, have lost their appeal regarding the personal liability of the Chief Financial Officer and Group Treasurer. The NSW Supreme Court had previously dismissed the lenders' claims, and the Court of Appeal has now affirmed that decision.
The characterisation of a charge as fixed or floating can have significant ramifications for the chargee on chargor’s insolvency. This is because the holder of a fixed charge enjoys significant advantage, in terms of the order of priority of distributions to creditors, over a floating charge holder.
Federal Deposit Insurance Corporation (“FDIC”) Chair Martin Gruenberg gave remarks to the Cities for Financial Empowerment Fund 2023 Bank On National Conference yesterday in which he said that the FDIC “shares the Bank On movement’s commitment to advancing Americans’ economic inclusion in the banking system.”
The High Court has held that certain assets sold by a company around the time of its administration were subject to a fixed charge rather than a floating charge and as such, the sale proceeds were not to be distributed to preferential creditors or unsecured creditors: Avanti Communications Ltd, Re [2023] EWHC 940 (Ch).
City Gardens Ltd v DOK82 Ltd [2023] EWHC 1149 (Ch) was a successful appeal against the decision of the district judge below to dismiss a winding up petition on several bases: first that the court had no jurisdiction to make an order because arrangements between the parties were subject to an exclusive jurisdiction clause, secondly because they provided for the application of Hong Kong law rather than English law, thirdly by reason of disputes regarding certain other contractual terms, and finally by reason of an issue as to whether the company had a viable cross claim.
Answers to these two questions can get tricky:
- When should a previously successful business engage distress-debt counsel?
- What is the role of the business’s general counsel once that happens?
Second Question: Role
Here’s the answer to the second question first:
The Supreme Court of India, in its recent judgment passed in the case of M. Suresh Kumar Reddy v Canara Bank and Ors., has held that the existence of a financial debt and proof of default on the part of Corporate Debtor are the only factors to be considered by the Adjudicating Authority to admit an Application filed under Section 7 of the Insolvency and Bankruptcy Code, 2016 (“Code”).
In this week’s TGIF, we consider the Court of Appeal’s decision in Anchorage Capital Master Offshore Ltd v Sparkes [2023] NSWCA 88 and the challenges faced by lenders in accepting representations as to solvency and the financial position of borrowers.
Key takeaways
As the economic outlook remains uncertain, businesses of all sizes and their boards are experiencing mounting pressure from various sources. In particular, directors of companies in financial difficulty face a number of challenges. Primarily, they must decide what they can do to keep the company in business without running the risk of committing an offence or incurring personal liability, and at what stage they must stop trading.
This article outlines some key issues and strategies that directors should consider when times are tough.