There is a common misconception that lender liability is a thing of the past. However, a recent decision provides a warning to lenders that they can be held liable and face substantial damages if they exercise excessive control over a debtor’s business affairs.

The recent decision of Mr Justice Harris in Nuoxi Capital Ltd v Peking University Founder Group Co Ltd [2021] HKCFI 3817 shows the tension between the Hong Kong’s courts willingness to recognise foreign insolvency proceedings and the contractual rights of creditors who sought to enforce exclusive jurisdiction clauses in favour of Hong Kong.

This past year was marked by extraordinary deal activity. Record breaking M&A activity drove record breaking private credit activity. Private equity M&A activity was at a substantial high, with over 8,500 deals worth $2.1 trillion, a 60% increase over 2020. Not surprisingly, in this environment, defaults were at all-time lows. The Proskauer Private Credit Default tracker showed an active default rate of approximately 1% at the end of 2021, compared to 3.6% in 2020.

In brief

The courts were busy in the second half of 2021 with developments in the space where insolvency law and environmental law overlap.

In Victoria, the Court of Appeal has affirmed the potential for a liquidator to be personally liable, and for there to be a prospective ground to block the disclaimer of contaminated land, where the liquidator has the benefit of a third-party indemnity for environmental exposures.¹

The merchant cash advance (“MCA”) industry recently provided two different bankruptcy courts with an opportunity to consider the characterization of MCA funding transactions as either “true sales” of receivables or “disguised loans”.

A recent decision by Bankruptcy Judge Stacey Jurnigan in the U.S. Bankruptcy Court for the Northern District of Texas is being touted as the new Farah Manufacturing lender liability opinion for the 2020s.

Background

When the validity of an agreed interest rate is the subject of a dispute between the parties to a loan agreement in Germany, the insolvency courts do not have jurisdiction to deal with the dispute. This is something only the civil courts can do.

Impact

If lenders provide sufficient evidence of the loan interest amount, ie usually the loan agreement, the debtor is required to prove that the interest rate contradicts public policy or is unreasonably high.

Introduction

Can the foreclosure of a property tax lien on real estate be avoided as a fraudulent transfer under § 584 of the Bankruptcy Code?

That’s the issue before the District Court, on a bankruptcy appeal, in Duvall v. County of Ontario, New York, Case No. 21-cv-06236 in U.S. District Court, WDNY (issued 11/9/2021).

Courts have gone both ways on the issue.

The Difficulty

On 21 October 2021, the Cayman Islands' legislature gazetted the Companies (Amendment) Bill 2021 (Bill) which introduced a new corporate restructuring process in the Cayman Islands (Cayman). The Bill represents a welcome development to the restructuring regime in the Cayman Islands and once again fortifies the Cayman Islands' standing reputation as a leading offshore financial hub and a popular destination for foreign investment opportunities.