A bankruptcy discharge “does not discharge an individual debtor from any debt– . . . for fraud or defalcation while acting in a fiduciary capacity.” 11 U.S.C. § 523(a)(4).
The effect of this “fiduciary capacity” statute is newly before the U.S. Supreme Court on a petition for certiorari in Spring Valley Produce, Inc. v. Forrest, Case No. 22-502.
The question presented in Spring Valley is this:
It’s often hard to persuade a bankruptcy court to grant a motion for substantial contribution. Any attorney thinking about making a motion should first ask herself two questions. First, has my work benefitted both my client and other creditors? Second, did my work result in more than an incidental benefit to the bankruptcy estate? If the answer to either question is no, then the attorney should forget about making the motion. The time spent on it will be wasted, and the motion will be denied.
On September 8, 2022, a three-judge panel in the United States Court of Appeals for the Second Circuit (the “Second Circuit”) reversed the United States District Court for the Southern District of New York (the “District Court”) when it determined that lenders of a syndicated loan facility to Revlon, Inc.
We have identified four judgments from 2022 which are significant for those in the private equity sector and may have particular relevance for sponsors, shareholders, management teams and/or appointees to boards. In this overview we summarise the key points and some of the practical implications.
The decisions we address are:
The UK Supreme Court has handed down its judgment in Stanford International Bank Ltd (In Liquidation) (Appellant)v HSBC Bank PLC (Respondent) [2022] UKSC 34, striking out a significant claim (£116m) for breach of the Quincecare duty on the grounds that the claimant had suffered no loss.
In times of economic uncertainty, fraud typically increases. And these are certainly economically uncertain times. Fraud has been on the rise over recent years and that trend is set to continue. The motivation and opportunity to commit fraud increases as financial pressures loom over individuals and businesses. We are also set to see a continued increase in insolvencies as the impact of the pandemic and other global events set in. The appointment of insolvency practitioners means frauds which might have otherwise continued or remained concealed are more likely to be uncovered.
Further to sanction of the DeepOcean restructuring plans on 13 January 2021, on 28 January 2021 Mr Justice Trower (Trower, J) handed down his judgment setting out why – for the first time – the court had exercised its discretion to sanction a restructuring plan in the face of a dissenting class of creditors.
Finance companies in Slovakia have felt endangered since 2019 when the Regional Court in Košice, acting as a second instance court confirmed a lower-court ruling that a financial party could be qualified as a related party in the eventual insolvency of the borrower as debtor.
In this client alert we set out some of the key lessons from the recent judgment in ABT Auto Investments Ltd v Aapico Investment Pte Ltd [2022] EWHC 2839 (Comm), which considers the validity of appropriation as an enforcement power pursuant to Regulation 17 of the Financial Collateral Arrangements (No. 2) Regulations 2003 (“FCARs”), the duty imposed on a collateral-taker by Regulation 18 of the FCARs in connection with the valuation of a collateral subject to appropriation, and provides useful guidance on what is “commercially reasonable” in this context.
Summary
In the recent case of Re Unity Group Holdings International Limited [2022] HKCFI 3419, the Hong Kong Court of First Instance sanctioned a scheme of arrangement between Unity Group Holdings International Limited and its creditors. This case confirms that the guarantor’s scheme can discharge debts owed by principal obligors who are members of the same group.