Washing Away Actual Fraud? One Court Says You Can.

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.

In Holber v. Nikparvar (In re Incare, LLC), the Chapter 7 Trustee (the “Trustee”) sought to avoid approximately $750,000 in alleged actual fraudulent transfers that had been made by the debtor Incare, LLC (“Incare”) to Advanced Urgent Care P.C. (“Advanced”).  Advanced was an emergency medical services provider that was wholly-owned by Incare’s principal, Dr. Mehdi Nikparvar (“Nikparvar”). Continue Reading

Employees – why they may be out of a job and out of pocket on corporate failures

P45It is no great surprise that following the collapse of Carillion and with other retail businesses teetering on the edge, insolvency and corporate recovery is back in the news.

Some of the biggest casualties of entities like Carillion are the employees.  Luckily, in the Carillion failure many jobs have been saved, but there is still a residual cost to employees who have to submit claims to the National Insurance Fund and the liquidator to recover payments for unpaid wages, holiday and sick pay. Continue Reading

Taking advice from professionals is not a “get out of jail free” card for directors in the event of insolvency

TightropeDirectors of a company in financial distress will often turn to their professional advisors to assist in making decisions about the company’s future; whether that be their lawyers, accountants, bank, tax advisors or insolvency professionals.

It is often a period of high pressure, where the right or wrong decision may have far-reaching consequences for an individual director or board later down the line should the company fail.  Thoughts of transactions at undervalue, claims of preference and threats of possible misfeasance proceedings loom in the shadows at this time.  It is therefore no surprise that directors will (and should) seek advice and guidance from professionals in such troubled times.

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Supermarket wars or sweep?

Shopping TrolleyIn a retail world that is ever changing, could the big four supermarket giants become the big three? Sainsbury’s and Yorkshire-based supermarket Asda (the second and third largest supermarkets in the UK) have announced they are at an ‘advanced’ stage in proposed merger talks. The merger could result in approximately 2,800 stores and represent over 30% of the UK grocery market. (Note that these figures are dependent on the Competition and Markets Authority review and so the eventual combined portfolio could be less).

The big supermarket brands have been trading outside the traditional food and drink market for some time, with supermarket giants becoming your ‘one stop shop’ for all things ranging from clothing and electrical goods to home furnishings. The leaders in the market are constantly looking for new sources of growth and ways to adapt to changing consumer demands.

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Interests and Good Faith Under Section 363 – A New Decision Explores the Limits of Both

A recent decision from the Bankruptcy Court for the District of Montana highlights the limits of the term “interests” under section 363(f) of the Bankruptcy Code, and the limits of “good faith” under section 363(m).

In In re Mountain Divide, LLC, Case No. 16-61015-11 (Bankr. D. Mont. 2016), the debtor filed a Chapter 11 petition, and shortly thereafter, filed a motion to sell substantially all of its assets to Deep River Operating, LLC (“Deep River”) and Future Acquisition North Dakota, LLC (“FAC”).  Deep River and FAC were considered a joint stalking horse bidder.  Deep River, however, failed to provide the debtor with the financial information necessary to demonstrate its ability to close the sale.  As a result, FAC stepped into Deep River’s position in accordance with the bidding procedures order, and was ultimately determined to be the successful bidder at the auction. Continue Reading

Insolvency Practice Direction 2016 now in force

The new Insolvency Practice Direction 2016 has finally been given approval by the Lord Chancellor and came into force yesterday (25 April) bringing with it changes to reflect the new Insolvency Rules 2016 and recent changes to the CPR.  The new practice direction replaces that of 2014 with immediate effect.  Key changes include:

  1. clarity on the various routes to appeal in insolvency matters;
  2. changes to how bankruptcy petitions can be served where personal service is not practicable;
  3. provisions regarding e-filing in light of the current e-filing pilot scheme; and
  4. new guidance on unfair prejudice petitions.

A link to the Practice Direction is available to read here.

Tax abuse and insolvency – an HMRC consultation

HM Revenue & Customs (“HMRC”) has issued a consultation entitled “Tax Abuse and Insolvency: A Discussion Document” on how it proposes to confront those who misuse insolvency law as a means of avoiding or evading their tax liabilities.

HMRC often describes itself as an “involuntary creditor” because it does not choose to trade with debtors. Its debt arises automatically because the debtor trades with a third party over which HMRC has no control. Furthermore, the delay between a tax liability arising and when the debt is established by HMRC creates scope for a company to trade whilst insolvent after the tax liability has arisen but before it becomes enforceable. This provides the opportunity for a debtor to run up large tax liabilities before HMRC are able to take preventative action. Continue Reading

Bankruptcy Venue Reform: Are The District of Delaware And The Southern District Of New York At Risk?

How real is the threat to the District of Delaware and the Southern District of New York as the prime venue choices for corporate Chapter 11 bankruptcy cases?  It appears that both are safe, at least for now.

Venue for bankruptcy cases is governed by 28 U.S.C § 1408, which provides that corporations may file in the district (a) in which their “domicile, residence, principal place of business in the United States, or principal assets in the United States” have been located during a majority of the prior 180 days, or (b) in any district where an affiliate, general partner or partnership has filed using any of these provisions.  Because many companies are incorporated in Delaware, the District of Delaware has been a prime beneficiary of section 1408 and many of the countries’ largest bankruptcies have historically been filed in Delaware.  Similarly, because many companies have their principal assets in the Southern District of New York, many large cases have been filed there as well.  But what has caused the most controversy is the use of affiliates, even affiliates which are insignificant in size and in importance, to establish venue in the District of Delaware and the Southern District of New York for the entire corporate enterprise even when the enterprise, as a whole, has only tangential contact with these venues.  Often this appears to be done at the behest of debtors or lenders who view the judges or jurisprudence in those districts as more favorable to their positions.

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German Federal Civil Court strengthens Leasing Receivables Securitisation, Factoring and Asset Based Lending in the Lessor’s Insolvency

In Germany, securitization SPVs, factoring companies and asset based lenders take security over the leased assets owned by the leasing company by way of a security transfer of title. However, in all cases of a leasing company’s insolvency where the leasing company has still possession of the assets, the owner of the security in the leased assets was in the past not seen as being entitled to realise the value of the assets itself. This was because of the rule contained in the German Insolvency Code that any security transfer of a movable asset does not create a full segregation right of the secured party in case that the insolvency administrator has possession to the movable object. Instead, the insolvency administrator of the leasing company was seen to be entitled to dispose of the leased assets and the secured party was only entitled to a separate satisfaction out of the sale proceeds.Sign "Bundesgerichtshof"

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Failure to follow deemed consent procedure did not invalidate appointment

Approved StampIn the recent case of Cash Generator Limited v Fortune and others [2018] EWHC 674 (Ch), the Court determined that non-compliance with the deemed consent procedure for nominating liquidators did not invalidate their appointment. The case provides a useful summary on the relatively new provisions governing the deemed consent procedure and welcome relief to Insolvency Practitioners (“IPs”) that a failure to fully comply with such provisions will not necessarily invalidate their appointment.

Brief facts and arguments

Three companies (which were franchisees of the applicant) (the “Companies”) entered Creditors Voluntary Liquidation. Pursuant to the franchise agreements in place, should a franchise cease to carry on business, or a meeting be convened for a voluntary winding up, the applicant could terminate the agreements and require the Companies to give up possession of their premises and transfer their assets to the applicant. Six days before their liquidation the Companies assigned the leases to their business premises and the Liquidators sold the assets of the Companies two days later.

The applicant applied for the reversal of the nominations of the joint liquidators (the “Liquidators”) of three companies (the “Companies”) and/or the Liquidators’ removal from office and the appointment of others in their place.

The basis for the application was that the deemed consent procedure had not been carried out as the notices required to be sent to all creditors were not sent to the applicant, employees or the landlords. The applicant also requested that the Liquidators be replaced because investigations were required into the assignment of the leases and the sale of the assets and the Liquidators were either conflicted, otherwise too closely involved or did not wish to carry out the investigations.

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