General corporate

ASIC reports on corporate insolvencies 2012–2013

On March 21st, 2012 the Spanish High Court rendered its Judgment in which stated that credits for supplies accrued before a company has been stated in bankruptcy, have to be paid as preferential credits, this means that they shall have priority over the rest of the credits, in those cases in which the Court who is dealing with the bankruptcy proceedings had ordered the supplier to continue with the respective supply in the interest of the bankrupt company.

The FDIC has recently appealed a loss it suffered at trial on the question of whether the debtor in bankruptcy (the holding company of a failed bank) made a “commitment” to maintain the capital of its subsidiary bank under Section 365(o) of the Bankruptcy Code.  After a week-long bench trial with an advisory jury, the Northern District of Ohio rejected the FDIC’s claim that a commitment had been made by the holding company to the Office of Thrift Supervision.  The F

According to a ruling of the High Court, Financial Support Directions and Contribution Notices issued by the Pensions Regulator once an English insolvency process has commenced rank as expenses of the insolvency process (and therefore take precedence over ordinary creditors). This ruling will cause huge practical difficulties for insolvency practitioners. The decision is subject to appeal.

In 1999 the Third Circuit Court of Appeals rendered its decision in Calpine Corp. v. O’Brien Environmental Energy, Inc. (In re O’Brien Environmental Energy, Inc.), 181 F.2d 527, denying Calpine Corporation’s request for the payment of a break-up fee after Calpine lost its effort to acquire the assets of O’Brien Environmental Energy out of bankruptcy.

In a recently published opinion, Judge John K. Olson of the United States Bankruptcy Court for the Southern District of Florida permitted the bankruptcy estates of TOUSA, Inc. and its debtor subsidiaries to avoid and recover more than $1 billion of liens and cash that the debtors had transferred to secured lenders in a transaction entered into six months prior to the debtors’ chapter 11 bankruptcy filing. Official Committee of Unsecured Creditors of TOUSA, Inc. v. Citicorp North America, Inc., 2009 Bankr. LEXIS 3311 (Bankr. S.D. Fla. Oct. 13, 2009).

In the current market turmoil, several banking and insurance names have already had to be rescued by government-brokered packages. It is therefore timely to review what rights institutional investors have in the event of counterparty insolvency. Unfortunately, the picture is complicated, not just because the question of how pension fund investors can get their money back may have an international dimension, but also because governments keep moving the goalposts on the availability and adequacy of compensation schemes.

Where does the claim arise?

In a judgment given on 25 January, the European Court of Justice has ruled in case C278-05 - Robins and Others v Secretary of State for Work and Pensions (2007) that the UK Government failed adequately to implement a European Insolvency Directive dating back to the 1980’s, which was designed to safeguard pension scheme members’ benefits in the event that their employers became insolvent. However, the ECJ also went on to rule that the United Kingdom Government need not necessarily fund the lost pension rights in full or in part.

There has been a significant increase in insolvencies in the construction, real estate, retail and wholesale sectors of the Russian economy, according to the statistics in the Competition Development Bulletin “Concentration on the Russian Markets: Trends in the Period of Recession” published in December 2015 by the Analytical Centre of the Government of the Russian Federation.

On May 4, 2016, the Court of Appeals for the Third Circuit held that a bankruptcy settlement in the form of a tender offer did not violate the principles of the bankruptcy process. See opinion here.