A company in financial distress has three main rehabilitation and debt arrangement channels. Each of these channels entails advantages and disadvantages. Applying to the court for relief during the rehabilitation of a company in insolvency offers numerous advantages. However, it also entails a major disadvantage that many people are unaware of. Namely, the application is a one-way street.

In a unanimous decision Bartenwerfer v Buckley, No. 21-908, 598 U.S. (2023), the U.S. Supreme Court reviewed the breath of the U.S. Bankruptcy Code’s discharge provision – and exceptions thereto – and held that a debt resulting from fraud (even where the debtor was not directly involved) is, nevertheless, nondischargeable. While the Court’s principles provide a roadmap for analyzing potentially nondischargeable claims, it also expands what was originally thought to be a “narrow” exception to discharge.

The U.S. Supreme Court does not like bankruptcy benefits for individual debtors. It really doesn’t.

An example from a couple years ago is Fulton v. City of Chicago, where the U.S. Supreme Court finds a way to declare:

The Lac du Flambeau Band of Lake Superior Chippewa Indians (Lac du Flambeau Band) found support from law professors specializing in federal Indian law as well as an assemblage of tribes and Native American groups in its bid before the U.S. Supreme Court to assert sovereign immunity from suit regarding alleged violations of the automatic stay. While they acknowledge that tribal immunity may be abrogated, they insist Congress must do so expressly and unequivocally.

Once asserted, may a party alter it? Once claimed, may a party contradict it?

A party’s ability to abandon a previously taken position and champion its converse in a later case or proceeding often depends on one of the law’s more esoteric prohibitions: that kaleidoscopic smorgasbord of precepts collectively known as “judicial estoppel.”

What Is “Judicial Estoppel,” Precisely?

On February 13, 2023, Ultra Petroleum Corporation (“Ultra”) filed a petition for a writ of certiorari with the US Supreme Court seeking review of the Fifth Circuit’s October 2022 ruling that, in solvent-debtor cases, debtors must pay unsecured creditors applicable contractual make-whole premiums and postpetition interest at contractual default rates in order for such unsecured creditors to be considered unimpaired.

Material Chapter 11 cases have morphed to the point that the outcome is often predetermined at the “first day” hearing. Unsecured creditors with material credit exposure should engage early to protect their interests and reduce risk of loss.

Introduction:

On 5 October 2022, the Supreme Court delivered a landmark judgement in BTI 2014 LLC v Sequana SA [2022]. The decision is the first from the Supreme Court to address when, and in what circumstances, company directors owe a duty to consider the interests of the company’s creditors (‘’the creditor duty’’).

On February 22, 2023, the United States Supreme Court (“the Supreme Court”) issued its Opinion in the matter of Bartenwerfer v. Buckley, No. 21-908, LEXIS 943 (Feb. 22, 2023), holding that per 11 U.S.C. § 523(a)(2)(A), a partnership member is not entitled to discharge a debt incurred by the fraud of another partnership member, regardless of the fact the innocent member had no knowledge of the fraud.

Background

Although not directly concerned with directors' liabilities, the recent Supreme Court judgment in Stanford International Bank Ltd v HSBC Bank PLC provides further clarity on the circumstances in which a distressed or insolvent company may seek to make claims against its directors.

INTRODUCTION

The key aspects affecting directors' liabilities presented in the Supreme Court ruling are that: