Zone of Insolvency

Zone of Insolvency

Tag Archives: Safe Harbors

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

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

Posted in US

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

Second Circuit Applies Safe Harbor to Protect Withdrawals Made by Madoff Customers

Posted in US

pictureFocusing on the plain language provided in Bankruptcy Code section 546(e), the Court of Appeals for the Second Circuit this week held that customers of the now defunct Bernard Madoff Investment Securities LLC can retain funds they had withdrawn from their customer accounts before the Madoff firm was placed into liquidation.  Irving Picard, the trustee appointed under the Securities Investor Protection Act of 1970 (SIPA) to liquidate the Madoff investment firm, had sought to “avoid” or unwind customers’ withdrawals of funds that exceeded the amounts that the customers had deposited with the investment firm–their “profits”. Avoiding these transfers would have … Continue Reading

Creditors’ Trusts Continue to Sidestep the Section 546(e) Safe Harbor

Posted in US

CoinStack_154141152On the heels of the New York District Court’s decision in the Tribune Company fraudulent conveyance litigation, the New York Bankruptcy Court has similarly held that section 546(e) of the Bankruptcy Code, which protects settlement payments from fraudulent transfer claims brought by a bankruptcy trustee under the Bankruptcy Code, does not preclude individual creditors, or their designees, from recovering a fraudulent transfer under state law.  See Weisfelner v. Fund 1, Case No. 10-4609 (Bankr. S.D.N.Y. Jan. 14, 2014).  Accordingly, former shareholders may be required to return payments received on account of their equity holdings to creditors under state law, … Continue Reading

Surprise! A Good Decision for Derivatives Counterparties in the Lehman Cases

Posted in US

Those active in the derivatives market may be familiar with the Bankruptcy Code’s “safe harbor” provisions. These provisions are intended to protect derivatives participants from some of the debtor-friendly effects of bankruptcy, all in the name of ensuring market stability if a large derivatives market firm were to fail. The safe harbor provisions have been put to the test in the Lehman bankruptcy cases, with several market-affecting decisions issued over the last four years. Last week, the bankruptcy court issued another important decision addressing the safe harbors. See Michigan State Housing Development Authority v. Lehman Brothers Derivative Prods. Inc., et Continue Reading

Sidestepping the Section 546(e) Safe Harbor

Posted in US

154228083A recent decision issued by the U.S. District Court for the Southern District of New York multi-district litigation In re Tribune Company may have altered the landscape for litigating avoidance actions and narrowed the Bankruptcy Code’s “safe harbor” protections against the avoidance of settlement or swap payments.

Section 546(e) of the Bankruptcy Code prevents a debtor from unwinding, or “avoiding,” certain securities and/or commodities transactions. This protection is referred to as a “safe harbor.” Most courts have interpreted this safe harbor broadly, protecting an ever-expanding scope of transactions. However, Tribune cuts against that trend, holding that individual creditors can sidestep … Continue Reading