In times of economic uncertainty, fraud typically increases. And these are certainly economically uncertain times. Fraud has been on the rise over recent years and that trend is set to continue. The motivation and opportunity to commit fraud increases as financial pressures loom over individuals and businesses. We are also set to see a continued increase in insolvencies as the impact of the pandemic and other global events set in. The appointment of insolvency practitioners means frauds which might have otherwise continued or remained concealed are more likely to be uncovered.
On October 12, the Honorable Robert D. Drain, U.S. Bankruptcy Judge for the Southern District of New York, issued his final decision from the bench in the bankruptcy cases of supermarket chain Tops Holdings II Corporation (“Tops”). The decision came in an adversary proceeding seeking to avoid four dividend payments totaling $375 million from 2009–2013 paid to the Tops’ private equity investors (the “PE Group”) as constructive and actual fraudulent transfers and also hold the director-defendants responsible for breaching their fiduciary duties.
While an insolvency process is not always welcomed with open arms, in fraud cases it can play a key role in uncovering frauds that might otherwise have remained concealed and may result in recoveries for victims. This is because an insolvency process paves the way for an independent investigation into the company's affairs and the directors' conduct to be carried out by an insolvency practitioner (IP).
In the recent case of LMN v Bitflyer Holdings Inc & Ors [2022] EWHC 2954, the High Court of England and Wales made orders directed at a number of cryptocurrency exchanges requiring them to provide information in relation to misappropriated crypto assets.
In the recent judgement of In the matter of SPARC Group Limited (en désastre) [2022] JRC 194 (SPARC Group), the Royal Court of Jersey considered the appropriate test for the making of a disqualification order against a director, with the stark nature of the facts justifying a lengthy term of disqualification.
Background
The application for a disqualification order was made by the Viscount, in respect of Andrew Jeremy Mills (Mr Mills), who was the sole director of SPARC Group Limited (the Company), a property development business.
On November 11, 2022, FTX, the world’s third-largest cryptocurrency exchange, filed for Chapter 11 bankruptcy protection in the United States. Reports suggest that the exchange might have a shortfall of as much as US$8 billion. The collapse has sent shockwaves through the cryptocurrency market, undermined investor confidence and led to renewed calls for authorities to accelerate the implementation of fit-for-purpose regulations.
Chapter 11 Bankruptcy
Following are this week’s summaries of the Court of Appeal for Ontario for the week of November 14, 2022.
Bursting the Crypto Bubble and the Financial Turbulence Ahead With the FTX Group’s recent Chapter 11 filing, on the heels of the recent Celsius Network LLC Chapter 11 filing, we have entered what could be described as a “Lehman Brothers moment” for the crypto industry. This observation, together with the recent awarding of the Nobel Prize in Economics to former Federal Reserve chair Ben Bernanke and professors Douglas Diamond and Philip Dybvig for their pioneering research on banks and financial crises, has caused some of us to experience a déjà vu moment.
As well as the Deka Legal Bake, last week witnessed the publication of the updated ASHE and a further judgment on the subject of jurisdiction, which seems to be a growth area in satellite litigation, perhaps unsurprisingly given the effect of Exit Day.
Special Purpose Acquisition Companies (SPACs) and the Outlook in India