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.

Unless you have been hiding in an igloo in Antarctica for the last year you could not possibly have missed the media furore over the huge pension liabilities of eminent companies that have become insolvent. BHS, a venerable British retailer, is the most high profile after recently entering administration with an estimated pensions deficit of £571m.

In a decision last month in Whyte v. SemGroup Litig. Trust (In re Semcrude L.P.), No. 14-4356, 2016 U.S. App. LEXIS 7690 (3d Cir. Apr. 28, 2016), the United States Court of Appeals for the Third Circuit held that proving that a debtor was left with unreasonably small capital will not turn on either hindsight or a “speculative exercise” based on what might have happened if certain things were known at the time.

From 6 April 2016, debtors in England and Wales who wish to enter bankruptcy will need to apply online and will no longer be able to petition the Court. The final form statutory instruments to introduce the necessary changes were published on 22 February 2016.

Under the Bankruptcy Code, a reorganization plan may be approved if (1) proposed in “good faith” under  § 1129(a)(3), and (2) accepted by at least one class of creditors whose interests are impaired by the plan, see 11 U.S.C. § 1129(a)(10). In Village Green I, GP v. Fed.

During the previous UK government’s tenure, in March 2015 a call for evidence was launched to understand better the employee consultation process when an employer faces insolvency, restructure or other form of company rescue (Call for Evidence on Collective Redundancy Consultation for Employers facing Insolvency).

The call for evidence sought views on the following areas:

The Need for Reform

Insolvency figures bring into stark light the reality of business in the construction industry. In the last financial year, 13% of companies entering external administration in the Northern Territory were from the construction sector.

Significant causes of contractor failure include inadequate cash flow, poor strategic management of the business, inadequate contract administration skills and a lack of working capital to see a project or a dispute through.