Months of anticipation culminated in a successful result for the Liquidators of Bilta (UK) Limited (in liquidation) on 22 April 2015 in a pivotal fraud case, whereby the Supreme Court unanimously dismissed an appeal involving the ‘illegality defence’, in the case of Jetivia SA and another v Bilta (UK) Ltd (in liquidation) and others [2015] UKSC 23.

Suppliers of good and services (“trade creditors”) generally have no duty to determine whether their customers are operating an illegal enterprise. However a recent Fifth Circuit opinion presents an unprecedented “claw-back” risk facing trade creditors who unknowingly provide goods and services to a “Ponzi-scheme” enterprise.

The Janvey Opinion

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

Last week, the U.S. Supreme Court in Husky International Electronics, Inc. v. Ritz held a chapter 7 debtor accountable for “actual fraud” despite the absence of a specific fraudulent misrepresentation. The Court’s expansive reading of section 523(a)(2)(A) of the Bankruptcy Code gives creditors a new weapon in their fight to attack the discharge of their debts.

The transition from a family business to a family office can be treacherous. In a family business, the family is still involved in the day-to-day operations of the business and is literally “watching the store.” In a family office, the day-to-day operation of the family business and other financial investments and endeavors of the family may be delegated to experts outside of the family. This should create an enhanced level of professionalism and provide institutional safeguards and protections for the family, but can backfire.

Can an individual debtor make an oral false statement about an asset to a creditor and get away with it by discharging the creditor’s claim in his or her bankruptcy? On June 4, 2018, the Supreme Court issued its opinion in Lamar, Archer & Cofrin, LLP v. Appling in which the Court unanimously answered this question in the affirmative.

Can the recipient of an actual fraudulent transfer effectively “cleanse” the transfer if the funds are returned to the debtor? In a recent opinion, the United States Bankruptcy Court for the Eastern District of Pennsylvania answered that question in the affirmative.

Earlier this month, the United States Supreme Court agreed to review a Seventh Circuit decision regarding the scope of the so-called “safe harbor” from avoidable transfers provided in Section 546(e) of the Bankruptcy Code. Many in the U.S. bankruptcy industry expect that the Supreme Court granted certiorari to hear Merit Management Group, LP v. FTI Consulting, Inc., Case No. 16-784, in order to resolve a long-running split among the 2nd, 3rd, 6th, 8th, and 10th Circuits, on the one hand, and the 7th and 11th Circuits on the other.

Although the bankruptcy world has long been acquainted with Ponzi schemes, the courts have not clearly answered the question of how to distribute investors’ funds after a scheme fails – especially in the scenario where certain investors profit. The United States Bankruptcy Court for the District of Utah recently weighed in on the issue in 

In relation to insolvent liquidations under U.K. law, one of the primary objectives will be the implementation of an efficient process to preserve and recover assets for the benefit of the creditors. This is particularly so where there is a need to instigate costly litigation or cross-border recognition proceedings and where the liquidator will want increased assurances as to the likelihood that those steps will generate positive returns.