The ability to sell an asset in bankruptcy free and clear of liens and any other competing “interest” is a well-recognized tool available to a trustee or chapter 11 debtor in possession (“DIP”). Whether the category of “interests” encompassed by that power extends to potential successor liability claims, however, has been the subject of considerable debate in the courts. A New York bankruptcy court recently addressed this controversial issue in Olson v. Frederico (In re Grumman Olson Indus., Inc.), 445 B.R. 243(Bankr. S.D.N.Y. 2011).

Ever since the establishment of the U.K. Pensions Regulator (the "Regulator") by the U.K. Pensions Act 2004 (the "Act"), the Regulator's exercise of its authority has been of major importance to the U.K.'s restructuring and rescue business. The first judicial review of the Regulator's powers, however, hints that some of the procedures it has adopted may be curbed in the future.

The Pensions Regulator and the Restructuring Environment

President Barack Obama gave his imprimatur to the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 on July 21. Relatively few of the provisions in the new law implicate the Bankruptcy Code. However, among other things, the law does call on the Board of Governors of the Federal Reserve System, in consultation with the Administrative Office of the U.S. Courts (the "Administrative Office"), to conduct two bankruptcy-related studies.

When the United States Court of Appeals for the Third Circuit decided Thabault v. Chait, 541 F.3d 512 (3d Cir. 2008), in September 2008, it was the most significant accounting malpractice decision of last year and perhaps the most significant damages case in the last 20 years. Why? Accounting malpractice cases are filled with pitfalls for unsuspecting plaintiffs. Moreover, accounting firms tend to settle cases in which the plaintiffs survive motions predicated on tried-and-true legal defenses and factual hurdles. The result is that few auditing malpractice cases are tried.

Principles of corporate governance that determine how a company functions outside of bankruptcy are transformed and in some cases abrogated once the company files for chapter 11 protection, when the debtor's board and management act as a "debtor-in-possession" ("DIP") that bears fiduciary obligations to the chapter 11 estate and all stakeholders involved in the bankruptcy case.

The ability to sell assets during the course of a chapter 11 case without incurring transfer taxes customarily levied on such transactions outside of bankruptcy often figures prominently in a potential debtor’s strategic bankruptcy planning. However, the circumstances under which a sale and related transactions (e.g., recording of mortgages) qualify for the tax exemption have been a focal point of dispute for many courts, including no less than four circuit courts of appeal.

Entities doing business with a customer that files for bankruptcy protection generally have the right to refuse to continue providing goods or services to the chapter 11 debtor, unless such goods or services are covered by a continuing contract, in which case any forfeiture of the debtor’s rights under the agreement is generally prohibited to afford the debtor a reasonable opportunity to decide what to do with the contract.

Recent Developments

Order No. 2014-326 of March 12 (the "Order"), adopted pursuant to enabling legislation No. 2014-1 of January 2, significantly modernizes French distressed companies law.  

The primary objective of the Order is to encourage recourse to mediation proceedings and conciliation proceedings, the efficiency and success of which have been demonstrated consistently in recent major financial restructurings. 

Section 553 of the Bankruptcy Code provides, subject to certain exceptions, that the Bankruptcy Code “does not affect any right of a creditor to offset a mutual debt owing by such creditor to the debtor that arose before the commencement of the case under this title against a claim of such creditor against the debtor that arose before the commencement of the case.” Debts are considered “mutual” when they are due to and from the same persons or entities in the same capacity.