“But, we had a deal!” – Office Holders and Personal Liability for Costs

Fingers crossedThe recent Court of Appeal case of Stevensdrake Limited v Stephen Hunt [2017] EWCA Civ 1173 provides guidance on whether the office holder is liable to meet the legal costs in CFA cases where there are insufficient recoveries in the estate to meet those costs.

Central to costs assessments in litigation proceedings is what is known as the Indemnity Principle which effectively caps the sum of recoverable costs to the amount that a client is liable to pay their solicitor. Therefore, in order to recover costs from the defendant, office holders must accept personal liability for their solicitor’s costs, but are understandably reluctant to do so in nil asset cases. Equally, solicitors do not wish to incur substantial amounts of work in progress without some comfort that they will be paid for it, or will obtain a benefit of taking such a risk. Often solicitors will require a Conditional Fee Agreement (‘CFA’) as a prerequisite of acting as a result. This case deals with the situation where those interests collide. Continue Reading

Sentinel Management – The Seventh Circuit Sides With Trust Beneficiaries

In its fifth trip to the Seventh Circuit Court of Appeals, the Sentinel Management Group’s bankruptcy case recently explored complex issues bankruptcy practitioners often encounter in large chapter 11 cases with financial services debtors.  In a far-ranging opinion, the Seventh Circuit held that the Bankruptcy Court’s oral “clarification” of an earlier order, which had already been reversed on appeal, could not serve to collaterally estop parties under the mandate rule and the law-of-the-case doctrine.  The Seventh Circuit also reinforced that (i) assets subject to a statutory trust, in this case under the Commodities Exchange Act, are not property of the estate, (ii) tracing principles are applicable to determine whether certain assets are trust assets belonging to specific trust beneficiaries, and (iii) beneficiaries of a statutory trust can waive their rights to be treated as such through acquiescence to a reorganization plan.  Continue Reading

BVI liquidators battle lawyers over legal costs in London court

The recent case of Crumper v Candey Ltd [2017] EWCH 1511 (Ch) delivered an updated analysis of the operation of section 245 of the Insolvency Act 1986 (“s245”). Although the insolvency proceedings (and much of the litigation before and after the insolvency commenced) originated in the British Virgin Islands, they were recognised in England and Wales under the Cross Border Insolvency Regulations 2006. Accordingly, the BVI liquidators were entitled to apply for the same relief as would have been available had the liquidation been an English one. Indeed, it was the High Court in London which determined the central issues in the case, namely (1) the category and classification of certain charges, (2) the treatment of monies paid into court and (3) the interpretation of the constituent parts of s245. Continue Reading

Mass Layoffs When Section 363 Sales Fail and Cases Convert: Third Circuit Adopts Probability Standard for WARN Act Liability

Fired EmployeeOn August 4, 2017, the Third Circuit Court of Appeals issued its ruling in Varela v. AE Liquidation, Inc. (In re AE Liquidation, Inc.), 2017 U.S. App. LEXIS 14359 (3d Cir. 2017), holding that WARN Act liability is triggered only when a mass layoff becomes probable – “that is, when the objective facts reflect that the layoff was more likely than not.” In doing so, the Third Circuit joined the Fifth, Sixth, Seventh, Eighth and Tenth Circuits, which have unanimously adopted this heighted standard as well.

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Corporate Restructurings gaining ground in Poland

Before Polish insolvency law was significantly amended in January 2016,  restructurings were extremely rare, with corporate insolvencies ending in liquidation in more than 90% of all cases. At that point, the number of insolvencies ending in the liquidation of the debtor’s assets significantly exceeded successful restructurings – the focus had been mainly on satisfying the creditors – and allowing the debtor to continue his business was not a major priority for the legislator and the courts. The reasoning behind the reform, therefore, was to revive the largely dormant restructuring regulations and encourage a more debtor-friendly application.

As part of this major reform, the whole area of corporate restructuring was moved to a separate statute, leaving the existing law focusing exclusively on insolvency issues. The new Restructuring Law now offers a debtor four different ways of coming to an arrangement with creditors, with the purpose of giving his business a chance to survive the insolvency. Depending on his situation the debtor can choose the most appropriate restructuring procedure best suiting his situation. Continue Reading

Liquor Licences for Insolvency Practitioners: Recent Developments

Although figures revealed last year indicated that the number of pub closures had fallen, more recent data suggests that the restaurant sector is now at greater risk of insolvency due to Brexit. Empty Glasses in RestaurantThis is due to rising costs which has resulted in the stagnation of disposable income (accountants Moore Stephens, for example, warned of this at the end of last year). The pub sector is certainly not out of the woods yet either: CAMRA called this week for new business rate relief to assist pubs (see CAMRA press release).

Against this backdrop, Insolvency Practitioners (IPs) would be well advised to keep up-to-date with some recent changes to licensing laws, which may impact upon how they deal with the insolvency of a business licensed for the sale/supply of alcohol, regulated entertainment (including music, dance, films, plays, boxing and indoor sports) and/or late night refreshment (hot food/hot drink after 11pm or before 5am). Continue Reading

Lessees Left in Limbo

Do a lessee’s possessory interests in real property survive a “free and clear” sale of the property under section 363 of the Bankruptcy Code? In a recent decision, the Ninth Circuit Court of Appeals said “no,” holding that section 365(h) did not protect the interest of the lessee in the context of a section 363 sale when there had been no prior formal rejection of the lease under section 365. In so holding, the Ninth Circuit joined the Seventh Circuit Court of Appeals in rejecting the majority view that a sale of real property under 363(f) does not extinguish leasehold interests in that property. The Ninth Circuit’s decision undermines the notion that lessees enjoy special protections under the Bankruptcy Code and underscores the need for lessees to be proactive in protecting their interests when their lessors file bankruptcy. Continue Reading

Cross Border Insolvency Regulations 2006: Consideration of the public policy exemption and security for costs against Russian official receiver

In the recent case of Cherkasov & others v Olegovich [2017] EWHC 756 (Ch) the English courts considered the public policy exception set out in Article 6 Cross Border Insolvency Regulations 2006 (CBIR) and whether security for costs could be ordered against the official receiver of a Russian company (who had obtained recognition in England under CIBR) when he applied for an order for the production of evidence by some of the former managers of a Russian company under section 236 of the Insolvency Act 1986 (IA).

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Personal Insolvencies in England & Wales- a case of location, location, location?

On 13 July, the Insolvency Service published its annual review of personal insolvency statistics for England & Wales for the 2016 calendar year.  That annual review can be accessed here. This blog discusses some of the key findings contained within that report. Continue Reading

The Supreme Court Agrees to Resolve Recharacterization Circuit Split

Late last month, the Supreme Court granted a petition for certiorari review of the Fourth Circuit Court of Appeals’ decision in PEM Entities LLC v. Eric M. Levin & Howard Shareff.  At issue in PEM Entities is whether a debt claim held by existing equity investors should be recharacterized as equity.  The Supreme Court is now poised to resolve a split among the federal circuits concerning whether federal or state law should govern debt recharacterization claims.  The Court’s decision may have a significant impact on the likelihood of so-called rescue loans extended by existing equity. Continue Reading