The ability of a bankruptcy trustee or chapter 11 debtor-in-possession ("DIP") to obtain credit or financing during the course of a bankruptcy case is often crucial to the debtor's prospects for either maintaining operations pending the development of a confirmable plan of reorganization or facilitating an orderly liquidation designed to maximize asset values for the benefit of all stakeholders. In a chapter 11 case, financing (and/or cash infusions through recapitalization) also is often a key component of the reorganized debtor's ability to operate post-bankruptcy.
The ability of a bankruptcy trustee to avoid certain transfers of a debtor's property and to recover the property or its value from the transferees is an essential tool in maximizing the value of a bankruptcy estate for the benefit of all stakeholders. However, a ruling recently handed down by the U.S. Court of Appeals for the Tenth Circuit could, if followed by other courts, curtail a trustee's avoidance and recovery powers. In Rajala v. Spencer Fane LLP (In re Generation Resources Holding Co.), 964 F.3d 958 (10th Cir. 2020), reh'g denied, No.
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The Situation: With effect from 1 December 2020, Her Majesty's Revenue and Customs ("HMRC") ranks ahead of floating charge holders and unsecured creditors with respect to recovering certain pre-insolvency taxes from an insolvent business (Crown preference). Directors can also now incur personal liability for the unpaid taxes of an insolvent company where they are involved in tax avoidance, evasion or phoenixism.
The UK government has published draft regulations providing that sales by administrators to connected persons will be subject to compulsory scrutiny.
The EMEA Determinations Committee's recent bankruptcy determination involving Selecta CDS provides additional insight on the types of chapter 15 filings that are likely to trigger Credit Events.