Bankruptcy Court Gives And Then Takes Away In Latest Stern-Related Ruling

What are the limits of a bankruptcy court’s authority to issue final orders and judgments?  Does a bankruptcy court have authority under Article III of the U.S. Constitution to enter final orders in quintessential bankruptcy matters such as fraudulent transfer claims, or are the court’s powers more constrained?  While the Supreme Court’s rulings in Stern v. Marshall, 546 U.S. 462 (2011), Executive Benefits Ins. Agency v. Arkison, 573 U.S. 25 (2014) and Wellness International Network, Ltd. v. Sharif, 135 S. Ct. 1932 (2015) laid a framework for answering these questions, confusion still exists.

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Beware SoLR Power in Energy Administrations

Electric power lines at sunset

With the gradual opening of energy supply markets allowing new energy providers to challenge the established providers and bring increased competition to the market, the last two decades have seen an increase in smaller energy providers entering the market and sharing a growing customer base. But what happens to the customers when an energy provider becomes insolvent?

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Seventh Circuit Keeps The Door Open After Asset Sale And Limits The Scope of Section 363(m)

Section 363 of the Bankruptcy Code provides a debtor with the power to sell its assets during the bankruptcy case free and clear of all interests.  This permits the debtor to maximize the value of its assets and hence the recovery for creditors.  But that is not always the end of the story.  In Trinity 83 Development, LLC v. ColFin Midwest Funding, LLC, the Seventh Circuit Court of Appeals faced the issue of whether a debtor can attempt to claw back the proceeds from a section 363 sale even though the sale had already been consummated.  In its March 1, 2019, opinion, the Seventh Circuit held that the debtor’s appeal presented live issues and that section 363(m) of the Bankruptcy Code did not bar the debtor’s claims.

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High Court finds administrator breached his duty- to the tune of £750,000

It was a painful outcome for the administrator of ARY Digital UK Limited (“ARY”) when he was found in breach of duty and liable to pay £743,750.

The case of Brewer and another (as joint liquidators of ARY Digital UK Ltd) v Iqbal [2019] EWHC 182 (Ch) reminds office holders of the importance of understanding what assets they are selling, ensuring that correct marketing processes are employed and obtaining proper valuations.

It also highlights the importance of administrators exercising their own judgment and independence and of the duty to act in the best interest of creditors.  Whilst this might sound obvious to an experienced office holder; the case does highlight the financial consequences of failing do this.  Simply going through the motions with a marketing and sales process without proper consideration of the nature of the asset being sold, could have serious monetary consequences, as the administrator of ARY discovered.

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Landlord’s Rights: Enforcement options in insolvency

When dealing with a debtor or a tenant that has fallen behind with its payment obligations, one of the most cost effective ways of a creditor/landlord reducing its exposure against that entity will be to take advantage of a “self-help” remedy, such as taking possession of the entity’s assets and selling them in repayment of the sums owed.

However, when the entity is the subject of insolvency proceedings, the availability of the various self-help remedies varies depending on:

  1. Which enforcement method the creditor intends to take;
  2. Which specific insolvency procedure the debtor is in; and
  3. At what point during that insolvency process the creditor seeks to take that step.

We have prepared a table summarising each of the variables identified above, which can be accessed here.

Depending on the type of “self help” remedy exercised and when it is exercised will determine whether the landlord can retain the benefit of it.  For example, monies received following the sale of goods may have to be paid over to the insolvent estate for the benefit or all creditors if the sale occurs post insolvency.

In most cases, the earlier the decision to take advantage of and exercise the “self help” remedy the better the outcome for the landlord.

HMRC versus Company Rescue: HMRC issues consultation paper on the proposed return of Crown Preference

Crown prerogative dates back to the Magna Carta entitling the monarch to absolute priority for revenue related debt. Come 6 April 2020 will we really be heading back to feudal times and 1215?

The proposal to reinstate Crown preference was announced as part of the Autumn Budget last year and came as a surprise to many.   The expected consultation paper published by HMRC this week seeks the views of individuals, shareholders, directors, lenders, companies and insolvency practitioners on the proposal to reinstate Crown preference in part.

However whilst this is a consultation, one might conclude from the language of the paper that the decision to introduce this change is a foregone conclusion. The paper glosses over several important considerations: the impact on funders, the culture of business rescue and the impact on unsecured creditors which we consider further below.

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The Real Estate Problem of Retail

The retail sky is falling.  At least that is how it appears from recent and unprecedented number of retailers filing for bankruptcy. From iconic stores such as Sears and Toys ‘R’ Us, to department stores such as Bon Ton, to mall stores including Brookstone, The Rockport Company, Nine West, among others.  The reasons given for such filings vary as much as their products but one theme seems to be constant — the inability of retailers to maintain “brick and mortar” operating expenses in the era of online shopping.  Accordingly, it appears that what some retailers actually have is a real estate problem.

Another troubling theme of many retail filings is the use of bankruptcy courts to achieve a quick liquidation of the company, rather than a reorganization.  Chapter 11 filings over the past several years have shown a dramatic shift away from a process originally focused on giving a company a “fresh start” to one where bankruptcy courts are used for business liquidation.  The significant increase in retail Chapter 11 cases and the speed at which assets are sold in such cases is disturbing and provides a cautionary tale for developers and landlords alike.  Indeed, such parties need to be extremely diligent in protecting their rights during initial negotiations as well as when these cases are filed, starting from day one, lest they discover that their rights have been extinguished by the lightning speed of the sale process.

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Brexit proof your holiday

For those already making European holiday plans for summer 2019, or for those hesitantly waiting to see the results of ‘B’ day on 29 March there are still questions about what might happen to travel plans after this date. The Association of British Travel Agents (ABTA) has issued practical guidance to reassure travellers at this time of uncertainty.

If a Brexit deal is agreed, the UK will enter a transition period meaning travel laws and regulations will stay largely the same until 2020. However, deal or no deal we have been assured that flights will still operate between the UK and EU and a visa should not be required.

ABTA has identified actions that travellers may wish to take in advance to help avoid unnecessary future disruption in the event of no-deal: https://www.abta.com/tips-and-advice/brexit-advice-for-travellers. The advice also features practical guidance on the expiry of passports, recognition of driving licences, EHIC’s and data roaming charges should there be a hard Brexit.

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Pensions versus Insolvency: changes to The Pension Regulator’s powers

There has always been a tension between protecting the interests of defined benefit pension schemes and insolvency given on the one hand The Pensions Regulator (TPR) seeks to protect the interests of pension scheme members and the Pension Protection Fund and on the other, the insolvency regime seeks to protect the interests of creditors as a whole.

We published an article in July 2018 reporting on a consultation paper issued by The Department for Work and Pensions.  In that, we highlighted our concerns about proposed changes to the notifiable events framework and the impact that increasing TPR’s powers might have on the insolvency profession and the rescue of companies with defined benefit pension schemes.

The Government has now published its response to that consultation which we consider below.

To read our previous article click here.

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Trade Talks: the UK’s trade relationship with its key international partners post-Brexit

Over the last 12 months Squire Patton Boggs have been involved in video interviews and roundtable meetings with experts from our global network of business leaders, to enable us to provide guidance to our clients on the economic and political issues they are likely to face in trading internationally post Brexit. The key jurisdictions that we have looked at are the USA, China, the EU, India and the Commonwealth generally.

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