Perhaps proving the maxim that people should be careful what they wish for, in a second significant ruling stemming from theJevic Holding Corp. bankruptcy case, on May 5, 2021, the US Bankruptcy Court for the District of Delaware found that Jevic’s Chapter 7 trustee, appointed following the conversion of the debtors’ cases from Chapter 11 to Chapter 7, did not have standing to continue claims originally brought against the debtors’ prepetition lenders by the Chapter 11 creditors’ committee.
s.271(3) Insolvency Act 1986 provides that:
“The court may dismiss the petition if it is satisfied that the debtor is able to pay all his debts or is satisfied—
(a)that the debtor has made an offer to secure or compound for a debt in respect of which the petition is presented,
(b)that the acceptance of that offer would have required the dismissal of the petition, and
(c)that the offer has been unreasonably refused..”
The Federal Court has clarified the ability of an assignee of a claim by a liquidator pursuant to s 100-5 of the Insolvency Practice Schedule to rely upon information and documents obtained from a public examination in private proceedings relating to the assigned claim: LCM Operations Pty Ltd, in the matter of 316 Group Pty Ltd (In Liquidation) [2021] FCA 324.
Takeaways:
Introduction1
In order to obtain a bankruptcy order upon either a creditors', or a bankrupt's own, bankruptcy application, it must be shown that a debtor:
This week’s TGIF looks at the decision of the Federal Court of Australia in Donoghue v Russells (A Firm)[2021] FCA 798 in which Mr Donoghue appealed a decision to make a sequestration order which was premised on him ‘carrying on business in Australia' for the purpose of section 43(1)(b)(iii) of the Bankruptcy Act 1966 (Cth) (Act).
Key Takeaways
Welcome to the next edition of the insolvency insight bulletin from the insolvency specialists at Quadrant Chambers. All cases link to the relevant judgments.
Legislation
On July 15, the U.S. Court of Appeals for the Second Circuit held that private student loans are not explicitly exempt from the discharge of debt granted to debtors in a Chapter 7 bankruptcy. According to the opinion, the plaintiff filed for Chapter 7, which led to an ambiguous discharge order as to how it applied to his roughly $12,000 direct-to-consumer student loans.
Due in large part to the challenges brought on by the pandemic, Chapter 11 bankruptcy filings last year hit the highest level since 2010—a trend expected to continue throughout this year.
Bankruptcy and restructuring is complex, full of twists and turns. Yet for all the expense, blame, negotiation, compromise and introspection involved, the process does provide an opportunity for distressed companies to get their businesses and finances back on track.
Some courts permit debtors to designate vendors crucial to their business as “critical vendors.” These vendors supply debtors with necessary goods or services. Debtors are permitted to pay them amounts owing when a bankruptcy case is filed. Accordingly, critical vendors often recover more on their pre-petition claims than other unsecured creditors. In other words, critical vendors could receive a full recovery, while other creditors only receive a fraction of what they are owed.
Beginning on February 13, 2021, something unprecedented happened in the state of Texas—a winter storm caused temperatures to dip well-below freezing. This event, dubbed the “Black Swan Winter Event,” caused Texas to experience a catastrophic energy crisis. As demand for energy soared, supply plummeted as power plants tripped offline and natural gas supply lines froze. The storm raged on, and on February 16, the Public Utility Commission of Texas (“PUCT”), which oversees the Electric Reliability Council of Texas, Inc.