A director who breaches the obligations and duties imposed on him by his office may be liable to compensate the company for breach of duty, may incur personal liability for the company’s debts, may also face criminal or civil penalties and may be disqualified from acting as a director. The position of the company director has never been the subject of more scrutiny than it is today.

Gowling WLG's finance litigation experts bring you the latest on the cases and issues affecting the lending industry.

Uncrystallised pension pot remains protected following bankruptcy

This article was first published on the Practical Law website and in the PLC Magazine in June 2016.

Challenger banks, which are set up to compete with the larger traditional banks, have seen rapid growth in the wake of increased openness to change in the banking sector and a desire for more consumer choice. Their clever targeting of niche markets is opening up plenty of scope for growth. While this opportunity does not come without difficulties, the rewards for challenger banks that succeed can be considerable.

LITIGATION, ARBITRATION, INVESTIGATIONS AND FINANCIAL CRIME

QUARTERLY UPDATE

Welcome to the latest issue of our Quarterly Update, in which we look at some of the recent highlights and developments in banking and finance disputes and financial crime.

IN THIS ISSUE WE LOOK AT:

A salutary lesson: if you do not intend to be bound by a letter of commitment, say so clearly

The United States Bankruptcy Court for the Southern District of New York issued an important ruling on March 1, 2010 in the Securities Investor Protection Act (SIPA) liquidation of Bernard L. Madoff Investment Securities LLC (Madoff Securities), adopting the trustee’s method of determining “net equity” for purposes of distributing “customer property” and Securities Investor Protection Corporation (SIPC) funds under SIPA.3

Securities Investor Protection Act

The automatic stay is one of the most fundamental bankruptcy protections. It enjoins the initiation or continuance of any action by any creditor against the debtor or the debtor’s property, including causes of action possessed by the debtor at time of the bankruptcy filing. The automatic stay offers this protection while bringing all of the debtor’s assets and creditors into the same forum, the bankruptcy court.

SCHLEICHER v. WENDT (August 20, 2010)

Conseco was a large financial services company traded on the New York Stock Exchange. It filed for bankruptcy in 2002 and successfully reorganized. This securities-fraud claim was filed against Conseco managers who are alleged to have made false statements prior to the bankruptcy. Then-District Judge Hamilton (S.D. Ind.) certified a class. Defendants appeal.

On September 14th, a Bankruptcy Court entered partial summary judgment in favor of defendants, brokerages through whom the debtor conducted a fraudulent stock lending scheme. The Chapter 7 bankruptcy trustee cannot avoid as fraudulent transfers funds and stock received by defendants directly from the victims of the scheme, margin interest paid to defendants by the debtor, and cash transfers that the debtor directly deposited into the brokerage accounts in the year prior to the bankruptcy filing.

Given the overarching Madoff Ponzi scheme as well as other mini-Madoff schemes that surfaced in its wake, many have been following issues arising from the ability of a trustee to claw back transfers (either as preferential or as fraudulent transfers) from investors who redeemed their interests in a private investment fund or managed account that turned out to be a Ponzi scheme. The law generally provides that an investor’s principal investment is protected so long as it is received in good faith and for value.

In a partial reversal of a decision from Bayou Group LLC's bankruptcy case, the US District Court for the Southern District of New York reconsidered a controversial ruling that sent shivers down the spines of institutional investors in 2008. See In re Bayou Group , LLC, No. 09 Civ. 02577 (S.D.N.Y. Sept. 17, 2010).