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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Cryptocurrencies: practical considerations in insolvencies

In a recent report by INSOL International, only 5% of insolvency practitioners (“IPs”) said that they had a “comprehensive or practical/working or understanding” of crypto-currency.

So with over 4,000 types of cryptocurrency now available and as payment technology continues to develop, we look at some issues facing IPs, including

    • How to identify cryptocurrency
    • How to categorise it
    • How to take control of it and sell it; and
    • What value does it have

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Green Finance: is your business ready? Future challenge or opportunity?

We recently commented on the Government’s Clean Air Strategy raising awareness of the potential impact on a wide range of businesses if they failed to plan ahead to ensure compliance.

Hot on the heels of this follows the Government’s Green Finance Strategy, launched on 2 July 2019.

This strategy, together with the Clean Air Strategy and other policies whose objective is to take the UK towards carbon neutral targets by 2050, may present significant challenges for many companies, particularly if they fail to plan ahead.

Businesses will have to consider the impact on the environment of business decisions, whether finance will be available to meet their business needs and the impact on the company’s financial position if asset valuations are affected.

The earlier companies start to consider how these changes may impact their business and how to address compliance; the best chance they have to survive, and for some, take an early opportunity to prosper.

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The Government fails to listen to lenders as it presses on with reforms which may stifle UK enterprise

 

We reported last week that the Government intends to proceed with its proposal to reinstate HMRC as a preferential creditor on insolvency, which could spell disaster for UK businesses, lenders and the UK economy.

The Government has failed to listen to lenders and others who responded to the Government’s consultation about the impact of its proposed changes to HMRC’s status as a creditor in insolvencies.

Squire Patton Boggs hosted a roundtable discussion in May with R3 and representatives from all corners of the lending and restructuring market. The industry as a whole was fiercely opposed to the proposal.

We know that arguments against the proposal, and the concerns and issues of lenders were relayed to HMRC. We also know that respondents to the Government consultation articulated those concerns in their responses, Squire Patton Boggs included.

The message to the government was clear, if HMRC is restored as a preferential creditor this will affect existing lending, this will affect new investment, this will affect business growth and this will affect the UK economy.   Have these been messages been taken seriously? It appears not.

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Draft Finance Bill published: HMRC preferential status on insolvency confirmed

Today the Government published draft provisions for inclusion in the Finance Bill which will amend the Insolvency Act 1986 and grant HMRC preferential status on insolvency. A status that was removed in 2003 but which will be re-instated (in part) from 6 April 2020.

Despite huge concern from the lending market, voiced in responses to the Government’s consultation on this measure, the only material change we can see is confirmation that preferential status will not apply to insolvency proceedings commenced before 6 April 2020.

Unfortunately for businesses and lenders, this does not address real concern about the impact of this change on existing facilities and future lending.

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Dubai Makes Moves Toward International Best Practices with New Insolvency Law

On May 30, 2019, Dubai’s ruler, Sheikh Mohammed bin Rashid al-Maktoum, signed DIFC Insolvency Law, Law No. 1 of 2019 (the “New Insolvency Law”) into law, thereby repealing and replacing DIFC Law No. 3 of 2009.  The New Insolvency Law, and supporting regulations (the “Regulations”), became effective on June 13, 2019, and govern companies operating in the Dubai International Financial Centre (the “DIFC”).

A full analysis of the New Insolvency Law is beyond the scope of this post.  However, there are many important provisions of the New Insolvency Law that will be very familiar to U.S. bankruptcy practitioners, as well as cross-border practitioners.

Voluntary Arrangements

First, Part 2 of the New Insolvency Law provides procedures for creditors and shareholders to agree to a voluntary arrangement of a company’s affairs.  The procedure for implementation of a proposed voluntary arrangement is relatively straightforward.  The proposal is considered at two meetings: (1) a meeting of the company’s creditors; and (2) a meeting of the company’s shareholders.  See Article 10(1).[1]  If the proposed arrangement is approved by both constituencies, no court involvement is required and the approved voluntary arrangement is binding on all creditors and shareholders.  See Article 11.

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