On May 20, 2019, the U.S. Supreme Court issued an 8-1 ruling in the case of Mission Product Holdings, Inc. v. Tempnology, LLC. The decision resolves a circuit split, holding that a licensee may retain its right to use licensed trademarks, notwithstanding the debtor-licensor’s rejection of the contract in bankruptcy. The Supreme Court’s decision has potentially far-reaching implications.
On April 23, 2019, Ropes & Gray, representing a large group of shareholder defendants, won a decision in the U.S. District Court for the Southern District of New York that provides potential fraudulent transfer protection for payments made to shareholders in leveraged buyouts, stock redemptions and other securities transactions.
Constructive Fraudulent Transfer Claims and the Securities Safe Harbor
On February 27, 2018, the U.S. Supreme Court issued a ruling that will make it easier for bankruptcy trustees, creditors’ committees, and other bankruptcy estate representatives to claw back payments made to shareholders in leveraged buyouts and dividend recapitalizations.
Constructive Fraudulent Transfer Claims and the Securities Safe Harbor
On June 27, 2017, the U.S. Supreme Court agreed to hear an appeal brought by Ropes & Gray of the Fourth Circuit’s decision in PEM Entities LLC v. Eric M. Levin & Howard Shareff. The Supreme Court’s decision in the case will have significant implications for business owners making debt investments, including rescue loans, and purchasing the distressed third-party debt of their companies.
In a December 9, 2016 ruling, in In re Motors Liquidation Co.,2 the United States Bankruptcy Court for the Southern District of New York denied the motion of a group of creditor private funds and registered funds (the “Funds”) seeking to redact or seal the names of parties holding 10 percent or more of the Funds’ equity interests from their corporate ownership statements and required them to disclose the ownership information in a public filing without redactions.
The Supreme Court has boosted the rescue culture by ruling that Financial Support Directions (FSDs) issued by the UK Pensions Regulator after commencement of insolvency proceedings are not an expense of the administration and, instead, rank on a par with unsecured claims. This decision in the Nortel and Lehman administrations will be reassuring to creditors and insolvency and restructuring practitioners.
Key Points
In normal circumstances, a director’s primary duty (owed to the company, not the company’s shareholders or the corporate group) is to promote the success of the company for the benefit of its shareholders as a whole. When a company enters a period of financial distress (the so-called “zone of insolvency”) there is a shift of emphasis in the duties of the directors: directors must consider the interests of the company’s creditors and, depending on the extent of the financial distress, may need to prioritise such interests over those of its members.
In a much-followed case given the recent publicity surrounding collapsed Ponzi schemes, the U.S. District Court for the Southern District of New York on September 17, 2010 reversed a decision of the Bankruptcy Court from the Southern District of New York that had broadened the scope of those facts and circumstances that may trigger inquiry notice under the "good faith" defense to a fraudulent conveyance claim. In re Bayou Group, LLC, 2010 U.S. Dist. LEXIS 99590 (S.D.N.Y. September 17, 2010).
In chapter 11 bankruptcy cases, creditors and equity holders with common interests often find it advantageous to pool resources and form an ad hoc group or committee. Because the committee represents a larger amount of claims or interests, it speaks with more authority in the bankruptcy case, and the members are able to save money by sharing the cost of legal and financial advisors.