Two recent Federal appeals court decisions — one issued by the Fifth, the other by the Second Circuit — illustrate the dangers of careless drafting of bankruptcy and reorganization plans. In the Fifth Circuit decision, a drafting error prevented a company reorganized under Chapter 11 from suing the administrators of its property during its bankruptcy for fraud, breach of fiduciary duty and negligence, thereby potentially depriving its creditors of bankruptcy assets.

A company attempting to reorganize its affairs in bankruptcy may seek to enjoin its creditors or other third parties from suing members of the company's senior management team during the course of the reorganization proceedings, so that the senior management members can devote their time and resources to the reorganization effort without distraction. Courts throughout the country have applied differing standards in determining when the granting of an injunction of proceedings against a non-debtor is appropriate.

On March 20, 2007, the United States Supreme Court ruled in Travelers Casualty & Surety Co. of America v. Pacific Gas & Electric Co., case docket no. 127 S.Ct. 1199 (2007), that federal bankruptcy law does not preclude an unsecured creditor from obtaining attorney’s fees authorized by a valid prepetition contract and incurred in postpetition litigation. In reaching this decision, the Supreme Court overruled the Ninth Circuit Court of Appeal’s ruling in Fobian v. Western Farm Credit Bank (In re Fobian), 951 F.2d 1149 (9th Cir.

The Federal Government has announced its largest insolvency reform package in over 30 years, which includes a simplified formal debt restructuring process for eligible small businesses.

The centerpiece of the reforms is the adoption of a US-style "debtor in possession" restructuring model, which closely mirrors the recently enacted small business restructuring provisions of subchapter V of the US Bankruptcy Code.

This article was published in a slightly different form in the November 2016 issue of Futures & Derivatives Law by The Journal on the Law of Investment & Risk Management Products.

Introduction

On August 2, 2010, Maru E. Johansen, in her capacity as the foreign representative (the “Foreign Representative”)1 in respect of Mexican insolvency proceedings regarding Compania Mexicana de Aviacion, S.A. de C.V. (“Mexicana”), filed a petition for recognition in the United States Bankruptcy Court for the Southern District of New York (the “Bankruptcy Court”), commencing a case under Chapter 15 of the United States Bankruptcy Code.2 Mexicana and its affiliates operate Mexicana Airlines, Mexico’s largest airline.

The Fifth Circuit recently issued an opinion addressing an important issue with respect to the preservation of a debtor's causes of action in a Chapter 11 plan of reorganization. The Fifth Circuit held that a reorganized debtor lacked standing to pursue certain common-law claims that were based on the pre-confirmation management of the bankruptcy estate's assets.

Can a United States bankruptcy court deny recognition of a foreign insolvency proceeding even if no one opposes such recognition? In a recent decision, Judge Burton Lifland, a highly respected bankruptcy judge and one of the authors of Chapter 15 of the Bankruptcy Code, says yes.

Liquidators of Bear Stearns Funds Seek Relief under Chapter 15

Recently, in In re Northwest Airlines Corp.,1 Bankruptcy Judge Allan Gropper issued an opinion requiring a group of hedge funds that had formed an ad hoc committee of equity security holders (the “Ad Hoc Equity Committee”) to disclose “the amounts of claims or interests owned by the members of the committee, the times when acquired, the amounts paid therefor, and any sales or other disposition thereof” in order to comply with Rule 2019 of the Federal Rules of Bankruptcy Procedure (the “Bankruptcy Rules”).

Background

The landmark decision in Design Studio¹ introduces the US rescue financing concept of "roll-ups" to Singapore. This is the first case to consider the appropriateness of the roll-up feature in Singapore and is a pragmatic decision that is guided by a careful balance between the protection of creditors' interests and the rehabilitation of the debtor. This case also clarifies that super priority is not solely for new money financings.

The Design Studio case and the super priority regime