Marijuana Businesses Barred from the Bankruptcy Courts: But How Far Will the Bar Extend?

As more and more states pass laws allowing the sale of marijuana, whether for medicinal or recreational purposes, investors will try to claim their share of what is certainly going to be a lucrative market. However, even in a growing market, private enterprises fail or need restructuring. This raises the question of whether distressed marijuana businesses, and those doing business with marijuana businesses, can seek relief under the Bankruptcy Code.

Since the George W. Bush Administration, the Office of the United States Trustee (the “UST”) has taken the position that marijuana businesses cannot seek bankruptcy relief. This position was reaffirmed in Congressional testimony given in June 2017 by Clifford White, the Director of the Executive Office for U.S. Trustees, and more recently in an article written by Mr. White and John Sheahan, a trial attorney for the UST, which was published in the December 2017 edition of the American Bankruptcy Institute Journal. Continue Reading

We wish you a profitable Christmas

Introduction

Cute puppy english bulldog

With Christmas fast approaching and black Friday/Cyber Monday having passed, retailers will be hoping for a big spike in sales this December to add some sparkle to another challenging year. The uncertain political environment both domestic and abroad has had a visible impact on consumer confidence and, coupled with rising prices and a weak pound, is adding to the costs of doing business for many UK retailers. Unfortunately, there is no end in sight to this continued strain on the retail trading environment. Many retailers increasingly rely on a seasonal increase in sales, particularly in the lead up to Christmas, as vital to balancing their books for the rest of the year. However, even increased Christmas sales may not be enough to save some retailers who are increasingly being met with flat or declining sales and higher costs, forcing some to plan or implement strategies to reduce their costly store networks. Traditional retailers who are trying to increase their omnichannel offering whilst simultaneously maintaining brick and mortar stores will continue to be hit hardest when competing against purely online retail giants.

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A Fight over the Runway II – Monarch Successful on Appeal

Paper AeroplaneFollowing on from our previous blog A Fight Over the Runway – Monarch Administrators Lose High Court Battle, the latest development in the saga is the recent Court of Appeal decision in Monarch Airlines Ltd v Airport Coordination Ltd [2017] EWCA Civ 1892. Overturning the decision of the High Court, the Court of Appeal held that Monarch was entitled to be allocated take-off and landing slots (the “Slots”) at Luton and Gatwick airports for the summer of 2018. As a result of this, the administrators have been able to press on with the sale of the Slots, to Wizz Air and British Airways respectively, and realise further value for creditors. Continue Reading

“But I Didn’t DO Anything – – Passive Conduct and the Automatic Stay

One of the fundamental elements of the American bankruptcy system is the automatic stay under section 362 of the bankruptcy code. The stay protects the debtor and its assets from creditor activity, in order to facilitate equitable treatment of creditors in the collective bankruptcy process. The remedies provided for violations of the stay allow the estate to enforce the protections provided by section 362.

Two recent cases from the 10th Circuitexamine the degree to which some affirmative conduct on the part of a creditor is required in order to violate the automatic stay. In the first case, WD Equipment v. Cowen (In re Cowen), 849 F.3d 943 (10th Cir. 2017), the debtor sought to recover a truck that had been repossessed by a creditor prior to the debtor’s bankruptcy filing. The creditor refused the debtor’s request to return the truck. Continue Reading

EU Proposals for Harmonisation of Insolvency Practitioners and Judges

Gavel and a Law Book - European UnionMuch has already been written about the proposal for the “Second Chance” directive (“Proposal“) published in November 2016 which is still being debated by the EU bodies – and rightly so. Harmonisation of insolvency law across the EU is needed as one in four insolvency proceedings is a cross-border insolvency and creditors need to know what to expect in other EU countries and that the courts and practitioners cooperate in an efficient way.

But clear and harmonised rules for insolvency procedures are not enough for a successful, rapid and cost-effective restructuring of a company, if an incompetent or unprofessional trustee is handling the procedure and the courts take their time to act. Therefore, the Proposal also focuses on the qualification and training of insolvency professionals and the support for restructuring measures through the courts. This should result in procedures of better quality, more effective supervision, improvement of the residual value for creditors and, importantly, a reduction in the legal uncertainty creditors face, which is said to lead to low recovery rates at present. Continue Reading

There’s Gold in Them Thar Employee Benefit Trusts … Fool’s Gold

Gold ingotsEBTs – The Good

Employee Benefit Trusts (“EBTs”) have become prevalent in recent years. They were originally devised as a form of discretionary trust to benefit employees and in most cases continue to be operated as a legitimate part of employee incentive plans, such as to house shares for distribution to employees.

EBTs – The Bad

However, a second tier of “bad” EBT structures has evolved over time which have become increasingly more elaborate in nature as HMRC have increased their efforts to clamp down on their abuse. In some cases, these schemes have been shown to have no purpose at all other than to avoid the payment of Pay As You Earn tax (“PAYE”) and National Insurance (“NI”) contributions on income to key employees, and in some cases to benefit from Corporation Tax (“CT”) relief. This is clearly an issue for HMRC, but it is increasingly becoming an issue for insolvency practitioners too, not least due to the fact that HMRC as a major creditor in most of these cases will insist that action be taken against the directors by the office holder.  See our blog, Employee Benefit Trusts and insolvency – the next big thing?

If a company enters insolvency having made distributions through an EBT to a key employee whilst creating an unpaid tax liability and not paying other creditors, the insolvency office holder will have to consider carefully whether the director(s) could be liable to a claim for misfeasance or whether the transaction can be challenged as a transaction defrauding creditors under sections 212 and 423 respectively of The Insolvency Act 1986.

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Gawker Media: Hulk Hogan Body Slams Company Into Bankruptcy And Court Pins

The American Bankruptcy Institute Journal just published our article analyzing an important decision issued in the Gawker Media bankruptcy case.  As we discuss, the court’s decision is likely to have a dramatic impact on media-industry debtors because of the court’s refusal to apply the California anti-SLAPP statute to the Debtors’ claim objection.  But the decision is also important because of the court’s narrow interpretation of the “personal-injury tort” exception to core jurisdiction.

Click here to read the article.

Know the rules! Further changes to IR 2016 afoot

UK insolvency law has seen a number of significant changes over recent years, including the introduction of the Insolvency Rules 2016 (“IR 2016”) in April 2017. Further legislation has been expected in order to ensure that all of these changes apply consistently throughout the whole insolvency regime, after it became clear that IR 2016 did not apply to insolvent LLPs.

The latest changes come in the form of secondary legislation coming into force on 8 December 2017, being the snappily titled Insolvency (Miscellaneous Amendments) Regulations 2017 (the “Miscellaneous Amendments 2017”) and the Insolvency (England and Wales) and Insolvency (Scotland) (Miscellaneous and Consequential Amendments) Rules 2017 (the “Miscellaneous and Consequential Amendments 2017”). It is hoped that the Miscellaneous Amendments 2017 and the Miscellaneous and Consequential Amendments 2017 will unify the insolvency regime and tie up the loose ends resulting from the introduction of IR 2016, as highlighted in our previous blog Unfinished Business – Insolvency Rules 2016 and changes still to come. Continue Reading

SunEdison Court Strikes Down Third-Party Releases On Multiple Grounds

A recent decision by Bankruptcy Judge Stuart Bernstein, made in connection with plan confirmation in the SunEdison bankruptcy case, strikes down non-consensual third-party releases on a variety of bases. The decision analyzes issues regarding subject matter jurisdiction, the circumstances of deemed consent, and the applicable substantive requirements for a non-consensual release.

In their plan of reorganization, SunEdison and various affiliates included a broad release of a variety of third‑party claims. The releases extended to claims against (i) the debtors’ officers, directors, employees, financial advisors, attorneys and professionals, (ii) the DIP lenders, (iii) many of the debtors’ prepetition lenders, and (iv) each of those parties’ affiliates, advisors, principals, members, and professionals. The release purported to cover not only creditors voting in favor of the plan, but also those who were silent and neither objected nor voted.  Continue Reading

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