No Right, No Power, No Claim: Anti-Assignment Provision Voids Claim Trader’s Proof of Claim

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On September 11, 2019, the Delaware district court affirmed the bankruptcy court’s decision to expunge a proof of claim filed by a claims trader in the Woodbridge Group of Companies, LLC bankruptcy case.  The court’s holding was based on three primary legal conclusions:  (1) the anti‑assignment provisions in the underlying loan agreements and promissory notes were enforceable under Delaware law; (2) the debtors’ pre-petition breach of the loan agreements did not bar the debtors from relying on the anti-assignment provisions; and (3) the Uniform Commercial Code (“UCC”) did not render the anti-assignment provisions unenforceable.  This decision could have a major impact on the claims trading business and should be closely examined and analyzed by claims traders.

I.  Background

Prior to the petition date, the debtors executed three promissory notes and loan agreements in favor of Elissa and Joseph Berlinger, each of which contained anti-assignment provisions.  Specifically, the provisions held that none of the documents could be assigned without the debtors’ written consent and that any assignment without the debtors’ consent would be null and void.  Approximately two months after the debtors filed their voluntary petitions, Contrarian Funds, LLC (“Contrarian”) purchased the notes and loan agreements, executed a transfer of claim agreement and filed a transfer notice in the bankruptcy cases.  Approximately two weeks later, Contrarian filed a proof of claim in the amount of the outstanding notes.  Soon thereafter, the debtors filed an objection to Contrarian’s claim, which was sustained by the bankruptcy court without prejudice to the right of the Berlingers to file a proof of claim related to the notes.  Contrarian timely appealed the decision to the district court.

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Thomas Cook – the financial impact of failure beyond the holidaymakers

Since the news of Thomas Cook’s demise a lot of focus has been on its travel customers. But beyond repatriating stranded holiday makers, the impact of large scale insolvencies such as Thomas Cook, Carillion and British Steel can be far reaching.

Those relying on the likes of Thomas Cook for business may also face financial distress as the impact of its insolvency ripples down the supply chain.  Potentially impacting suppliers of goods and services, those who relied on Thomas Cook’s business outside of the UK, employees and landlords.

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The court confirms that landlords have the right to forfeit a lease if its tenant enters a CVA. What practical impact does this have on landlord claims?

Can a CVA bind a landlord in respect of future rents? Is the landlord a creditor in respect of future rent? What about the right to forfeit; can a CVA modify that right? Is compromising rent under a CVA automatically unfair to landlords when other trade creditors are paid in full?

These were some of the points considered by the Court in determining whether the Debenhams’ CVA (which had been challenged by landlords) should fail.

One point of particular interest is whether reducing rents below market value in a CVA is automatically unfair to landlords?

We consider the answer to these questions and the implication for (i) landlords; (ii) corporates considering a CVA and (iii) practitioners following the ruling in the Debenhams case last week.

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What caused the collapse of Thomas Cook?

Thomas Cook is the latest holiday company and high street retailer to hit the headlines with its collapse into liquidation. It comes at a huge cost to the Government and Civil Aviation Authority who bear the cost of repatriating an estimated 150,000 holidaymakers. In addition, over 22,000 worldwide jobs are now at risk and there is highly likely to be a knock-on effect for companies that have been suppliers to Thomas Cook and quite possibly into Thomas Cook’s non-UK operations.

Was its failure caused by failing to adapt to change?

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Can you serve a statutory demand for monies payable under an “on demand” guarantee?

The recent case of Martin v McLaren Construction [2019] EWHC 2059 (Ch) reminds practitioners to make sure that the debt which forms the basis of a statutory demand pursuant to s268(1) of the Insolvency Act 1986, is due and payable.

You might assume that a statutory demand under s268(1) is a demand for payment and therefore monies payable under an “on demand” guarantee can be demand by a statutory demand. However, the Court in Martin v McLaren confirmed otherwise.

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Bankruptcy Court Tells Debtors They Must Choose Between Bankruptcy Or Being Able To Buy Medical Marijuana

We have written before about the virtual dead end faced by marijuana companies who try to seek protection in the bankruptcy courts.  Almost uniformly, bankruptcy courts have shut their doors on marijuana companies, including their landlords and suppliers.  These courts have held that although marijuana use may be legal in a majority of the States, it is still illegal under the federal Controlled Substances Act, and the bankruptcy courts cannot provide relief to debtors who are violating federal law.

These prior cases dealt with debtors whose income was, in whole or in part, derived from legal marijuana businesses.  But, what about an individual who uses some of his or her income to legally purchase marijuana and who also needs bankruptcy protection?  Are the bankruptcy courts off limits to those individuals as well?  Recently, a bankruptcy court in Colorado addressed whether the cost of medical marijuana can be deducted from an individual debtor’s monthly disposable income for plan distribution purposes.  Unfortunately for individuals who both use medical marijuana and who need to file bankruptcy, the court’s answer was a succinct “no”.

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Small Business Reorganization Act Signed Into Law—A New Frontier for Small Business Bankruptcies

On August 26, 2019, President Trump signed the Small Business Reorganization Act (SBRA”)  into law.  The SBRA is scheduled to take effect on February 22, 2020.  As we previously reported, the SBRA offers small businesses with aggregate liabilities that do not exceed $2,725,625 the opportunity to resolve their outstanding debts through a condensed and price‑conscious chapter 11 bankruptcy proceeding.  This new proceeding is to be governed under subchapter V to chapter 11 of the United States Bankruptcy Code.

Once a small business files under the SBRA, and throughout the plan of reorganization payment period (which lasts between three to five years), a “standing trustee” is appointed to oversee the case.  Some examples of a standing trustee’s duties include reviewing the company’s financial condition and business operations, reporting any fraud or misconduct to the court and supervising the company to ensure distributions are made in accordance with the company’s plan of reorganization.

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Will director/shareholders always be liable to repay unlawful dividends?

When can an insolvency practitioner pursue directors for declaring unlawful dividends?

Does an insolvency practitioner need to demonstrate that the directors knew, or ought to have known, that the dividend was paid unlawfully, or is it a strict liability issue?

Can director/shareholders rely on professionally prepared accounts to avoid liability?

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Defining cryptocurrency in Russia: does it form part of the bankruptcy estate?

We recently published a blog identifying issues which cryptocurrency pose in insolvencies; not least identifying and classifying it, how to take control of it and realising value for the insolvency estate.

Given cryptocurrencies are global, the question of how to classify cryptocurrency on insolvency is not limited to just one jurisdiction.

We consider a recent Court of Appeal decision and whether that helps clarifies the uncertain legal status of cryptocurrency in Russia.

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Prepare for a no deal Brexit or prepare to fail? Practical steps for UK businesses

Prime Minister Boris Johnson promises that the UK will leave the EU on 31 October with “no ifs or buts”. With three months left until the UK is due to leave the EU, the Prime Minister states that he hopes to negotiate a better deal, but concern remains that the UK will leave the EU with no deal. Are UK businesses prepared for that? The majority are not.

The Confederation of British Industry (“CBI”) has recently published a report setting out practical steps that UK businesses can take to reduce the harm of a no deal Brexit.

We look at the issues businesses face, why they need to prepare and what steps they can take. The consequences of failing to prepare may see many businesses in many different industries struggling and in financial distress.

The CBI reports that whilst businesses have already spent billions preparing, the business community, smaller businesses in particular are not ready for no deal.

With 4 out of 10 SMEs that trade internationally having no contingency plans, and thousands of small companies unable to divert resources to prepare, the impact of no a deal Brexit may, in the short term at least, see UK businesses under intense financial pressure.

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