Zone of Insolvency

Zone of Insolvency

Eleventh Circuit rules doctrine of equitable mootness applies in chapter 9

Posted in U.S.

On August 16, 2018, the United States Court of Appeals for the Eleventh Circuit issued an opinion in the chapter 9 case of Jefferson County, Alabama, reversing the decision of the District Court and ruling that the doctrine of equitable mootness applies in municipal bankruptcies.

In Jefferson County’s chapter 9 case, the bankruptcy court confirmed the County’s chapter 9 plan over the objection of a group of sewer ratepayers, which provided for the issuance of approximately $1.8 billion of new sewer warrants with maturities that ranged up to 40 years. The chapter 9 plan included a provision that the bankruptcy court would retain jurisdiction throughout the life of the new sewer warrants to enforce a covenant that the county must raise sewer rates in sufficient amounts to cover debt service of the new sewer warrants. On December 1, 2013, two days before the effective date of the chapter 9 plan, the ratepayers filed a notice of appeal to the District Court but did not file a stay pending appeal or request that the appeal be expedited. On Dec. 3, 2013, pursuant to the bankruptcy court’s confirmation order, the County issued the new sewer warrants and creditors received distributions on their prepetition claims.

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Chapter 15 does not provide back door for appeals of confirmed foreign restructuring plans

Posted in U.S.

It is common for a foreign debtor with assets or other connections to the U.S. to request an order enforcing its restructuring plan in the U.S. under Chapter 15 of the Bankruptcy Code. U.S. courts will generally grant comity to a foreign plan if it has been confirmed by a foreign court with jurisdiction and enforcement of that plan in the U.S. would not prejudice the rights of U.S. citizens or otherwise violate domestic public policy. Resolution of all appeals in the foreign jurisdiction is not a pre-requisite to enforcement of that plan by  the U.S. court under Chapter 15. See In re Oi S.A., Case No. 16-11791 (Bankr. S.D.N.Y. July 9, 2018). Continue Reading

Australian law reform: the new ‘safe harbour’ for directors and stay on enforcement of ‘ipso facto’ clauses

Posted in Australia

Australian insolvency laws recently underwent the most comprehensive review and reform since the early 1990s.  Part of those reforms included the introduction of:

* a ‘safe harbour’ for directors in respect of the insolvent trading offence; and

* a stay on the exercise of certain rights (including termination rights) for counterparties (or ‘ipso facto’ clauses).

The New ‘Safe Harbour’ for Directors

Directors of Australian companies are liable for any debts incurred while the company is, or is likely to become, insolvent. The reforms introduce a safe harbour for directors to somewhat temper the onerous insolvent trading provisions. Continue Reading

In a 5-4 decision, SCOTUS levels the retail playing field

Posted in U.S.

Brick and mortar retail businesses have been experiencing financial distress, with retail defaults at an all time high. In 2018 alone, there have been over a dozen retailers filing for bankruptcy protection, several of which, including Toys “R” Us and The Bon-Ton Stores, have been forced to liquidate. However, while many traditional “mall tenants” and other brick and mortar retailers have been struggling, online retailers have been flourishing. The convenience and speed of online retail, coupled with ongoing advances in technology and delivery distribution capabilities, have led to a consistent increase in e-commerce customers. Further fueling the divide between e-commerce retail success and brick and mortar retail failure has been the different tax obligations imposed against each group. Specifically, brick and mortar retailers are required to collect and remit sales tax, which currently exists in 41 states, while online retailers have largely been exempt from this requirement. In today’s highly competitive market, this taxing requirement has placed traditional retailers at a significant pricing disadvantage compared to e-commerce retailers. Continue Reading

AAT approves registered liquidator application of non-resident and provides important clarification in respect of the new registration regime

Posted in Australia

Norton Rose Fulbright represented Mitchell Mansfield, an Australian citizen but who now resides in and works in Singapore, of Borelli Walsh in a successful appeal before the Administrative Appeals Tribunal (AAT) in relation to his application for registration as a liquidator.

The appeal raises significant issues about the new statutory regime for the registration of liquidators following the reforms introduced by the Insolvency Law Reform Act 2016 (Cth) (ILRA) and is the first case before the AAT where the operation of the new regime has been considered. Deputy President J Redfern (Redfern DP) handed down her decision and reasons for decision on 5 June 2018.

New statutory scheme for registration of liquidators

Pursuant to the reforms introduced by ILRA, an applicant seeking to become a registered liquidator is required to apply to the Australian Securities and Investments Commission (ASIC). ASIC in turn refers the application to a specially convened committee (Committee) under section 20-10 of the Insolvency Practice Schedule (Corporations) (Corporations Schedule) for determination of the application against criteria specified in subsection 20-20(4) of the Corporations Schedule.

The Committee is comprised of a delegate of ASIC, a registered liquidator chosen by the Australian Restructuring Insolvency and Turnaround Association (ARITA) and an appointee of the Minister for Revenue and Financial Services. The Insolvency Practice Rules (Corporations) 2016 (Cth) (Corporations Rules) prescribe the standard of qualifications, experience, knowledge and abilities required for the purposes of 20-20(4)(a) of the Corporations Schedule. Continue Reading

AAT approves application of non-resident insolvency practitioner to become a registered liquidator

Posted in Australia

Partner Scott Atkins and senior associate Jonathon Turner acted for Mitchell Mansfield of Borelli Walsh Singapore in a successful appeal before the Administrative Appeals Tribunal (AAT) in relation to an application under the new statutory scheme for registration as a liquidator. Reasons for the decision were handed down on Tuesday.

The appeal raises significant issues about the new regime following the reforms introduced by the Insolvency Law Reform Act 2016, and is the first case before the AAT where the operation of the new regime has been considered.

We will be releasing a comprehensive analysis of the decision shortly.

Republic of Myanmar: new insolvency and restructuring laws

Posted in Australia

Sydney-based Financial Restructuring and Insolvency Partners of Norton Rose Fulbright, Scott Atkins and John Martin, together with Special Counsel Rodney Bretag, are close to finalising a new insolvency and restructuring law for the Republic of Myanmar.

The team from NRF are working with the Asian Development Bank and the Union Supreme Court. Their work is focussed upon strengthening and modernising the legal and institutional framework of Myanmar’s insolvency and restructuring regime as well as undertaking associated capacity development of institutions and the legal and accounting professions to support the introduction of the new laws. The overarching objective is to create a platform that matches not only the present circumstances with Myanmar’s broader legal and commercial systems, but is also sophisticated enough to maintain its relevance into the future as Myanmar’s economy develops.

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Rolling DIPs vs. Creeping DIPs

Posted in Canada

Has the law changed in Canada based on the September, 2017 decision of Justice Myers of the Ontario Superior Court of Justice in the Toys ”R” Us (Canada) Ltd. case? Section 11.2 of the Canadian Companies’ Creditors Arrangement Act (“CCAA”) allows the Court to create a charge to secure a DIP financing. However, that section provides that “the security or charge may not secure an obligation that exists before the order is made”. This had been interpreted in prior cases as a prohibition on using DIP proceeds to pay pre-filing secured loans. The Court would, however, permit post-filing receipts to be swept in favour of the pre-filing secured loan, so the wisdom in Canada was that a “creeping” DIP payment structure was fine, whereas using DIP proceeds to repay pre-filing secured debt was not permitted. Justice Myers focused on whether the DIP charge (in favour of the same group of lenders who had provided pre-filing financing) was “being used to improve the security of the pre-filing ABL lenders or to fill any gaps in their security coverage”. He concluded that it was not, so permitted the DIP proceeds to be used to repay the pre-filing secured loan in full. We think the Court was correct in focusing on whether priorities were being re-ordered, since it is our view that this is what the above-noted restriction in Section 11.2 of the CCAA was intended to prevent.

SCOTUS Determines That 546(e) Safe Harbor Does Not Protect Transfers Where Financial Institution Is A Mere Conduit

Posted in U.S.

In a decision significantly impacting the ability of a plaintiff to prosecute avoidance actions, the United States Supreme Court, in Merit Management Group, LP v. FTI Consulting, Inc., 583 U.S. ___ (2018), unanimously held that a transfer of funds, where a financial institution served as a mere conduit, does not entitle the recipient of the transfer to avail itself of the “safe harbor” defense provided for in section 546(e) of the Bankruptcy Code. Focusing on the construction and plain meaning of the statutory language, the Court’s ruling resolved the current split among circuits interpreting and applying section 546(e). Continue Reading

Chapter 11 Plan for a Group of Debtors May Be Confirmed if Approved by Creditors of a Single Debtor

Posted in U.S.


In a matter of first impression at the Circuit level, the United States Court of Appeals for the Ninth Circuit held that a court may confirm a plan filed on behalf of multiple debtors that has been approved by an impaired class of creditors of only one of the debtors. JPMCC 2007-C1 Grasslawn Lodging, LLC v. Transwest Resort Properties Inc. (In re Transwest Resort Properties, Inc.), 881 F.3d 724 (9th Cir. 2018). This ruling is in contrast with the Delaware bankruptcy court’s ruling in the Tribune Company Chapter 11 case, where as successfully advocated by Norton Rose Fulbright attorneys, the court held that a plan must be approved by an impaired class of creditors of each of the debtors party to the plan. The following is a brief description of the case background and the court’s analysis. Continue Reading