Caplin & Drysdale, Chartered updates

Supreme Court to consider statutory safe harbour for debtors' pre-petition securities transactions
Caplin & Drysdale, Chartered
  • Insolvency & Restructuring
  • USA
  • September 29 2017

In an upcoming case, the Supreme Court will address the question of whether the Bankruptcy Code bars a bankruptcy trustee from avoiding a debtor's constructively fraudulent pre-petition securities transactions merely because the deal was executed through a financial intermediary with no stake of its own in the transaction. The issue turns on the meaning of Section 546(e) of the Bankruptcy Code.

Chapter 15 at 11: threshold requirements for recognition
Caplin & Drysdale, Chartered
  • Insolvency & Restructuring
  • USA
  • March 24 2017

Recognition of a foreign proceeding opens the door to mandatory or discretionary relief from the bankruptcy court, depending on whether the foreign proceeding is a foreign main proceeding or a foreign non-main proceeding. Two threshold requirements for obtaining recognition under Chapter 15 of the Bankruptcy Code, which took effect 11 years ago, are the existence of a duly designated foreign representative and a foreign proceeding.

Chapter 15 at 11: Chapter 15 provides provisional relief in Hanjin Shipping
Caplin & Drysdale, Chartered
  • Insolvency & Restructuring
  • USA
  • January 06 2017

Following a Chapter 15 petition to recognise Korean insolvency proceedings as foreign main proceedings, the Bankruptcy Court for the District of New Jersey recently granted an order of provisional relief that includes application of the automatic stay to block the enforcement of maritime liens and the seizure of shipping company Hanjin's vessels. The case demonstrates how essential provisional relief can be for foreign debtors to preserve the status quo and maintain business operations before a recognition ruling.

Chapter 15 at 11: Bankruptcy Code's cross-border insolvency law approaches 11th anniversary
Caplin & Drysdale, Chartered
  • Insolvency & Restructuring
  • USA
  • September 30 2016

Chapter 15 of the Bankruptcy Code, which deals with cross-border insolvency cases, took effect nearly 11 years ago. Congress enacted Chapter 15 in 2005 to replace Section 304 of the code, which previously addressed transnational insolvencies. Chapter 15 largely incorporates the United Nations Commission on International Trade Law Model Law on Cross-Border Insolvency.

Supreme Court to review priority-skipping settlement and structured dismissal of Chapter 11 case
Caplin & Drysdale, Chartered
  • Insolvency & Restructuring
  • USA
  • August 05 2016

The Supreme Court will soon consider whether a Chapter 11 debtor in dire straits can settle claims of the bankruptcy estate, receive court approval to distribute the settlement proceeds to junior creditors without paying priority claims and then obtain dismissal of the bankruptcy case on terms that leave the priority-skipping settlement intact, or whether such a resolution violates essential aspects of the Bankruptcy Code.

Supreme Court nixes Puerto Rico insolvency law, but Congress legislates new path
Caplin & Drysdale, Chartered
  • Insolvency & Restructuring
  • USA
  • July 22 2016

The Supreme Court has ruled that the US Bankruptcy Code pre-empts the Recovery Act, which Puerto Rico enacted in 2014 to address its mounting debt crisis. The question before the Supreme Court was whether the pre-emption provision contained in Chapter 9 applied to bar Puerto Rico from enacting its own bankruptcy scheme for restructuring the debts of its municipalities and public utilities.

Do Bankruptcy Code clawback provisions reach transactions occurring in other countries?
Caplin & Drysdale, Chartered
  • Insolvency & Restructuring
  • USA
  • June 17 2016

In a world of free-ranging capital and cross-border transactions, the question of whether US courts will apply US law to transactions taking place in other countries is important. It is therefore a matter of both interest and concern that judges in the Southern District of New York have reached opposite conclusions when asked to give extraterritorial effect to the avoidance or 'clawback' provisions of the Bankruptcy Code.

Court holds that Bankruptcy Code pre-empts state laws invoked by creditors to avoid LBO payments
Caplin & Drysdale, Chartered
  • Insolvency & Restructuring
  • USA
  • May 06 2016

The US Court of Appeals recently decided in In re Tribune Co Fraudulent Conveyance Litigation that Section 546(e) of the Bankruptcy Code impliedly pre-empts state fraudulent conveyance laws that creditors might otherwise use to unwind payments made by a corporate debtor to public shareholders in a pre-bankruptcy leveraged buy-out. The court so held even though Section 546(e) in terms applies to claims only by a bankruptcy 'trustee'.

Seventh Circuit rules on authority to temporarily stay non-debtor litigation
Caplin & Drysdale, Chartered
  • Insolvency & Restructuring
  • USA
  • March 25 2016

The US Court of Appeals for the Seventh Circuit recently reviewed a bankruptcy court's denial of a trustee's motion for a temporary injunction staying litigation between non-debtors. The court accepted the premise that the bankruptcy proceeding and the lenders' suits did not involve "the same claims". However, it held that the lower courts had construed too narrowly the equitable powers conferred by Section 105(a) of the Bankruptcy Code.

Second Circuit determines that Argentine central bank is not alter ego of Argentina
Caplin & Drysdale, Chartered
  • Insolvency & Restructuring
  • USA
  • March 11 2016

The recent decision in Banco Centrale makes clear that the Second Circuit will strictly interpret and apply any waivers of sovereign immunity. The Second Circuit established a high bar for creditors seeking to prove that state-owned instrumentalities are the alter egos of their states, and sets clear limits on the types of activity that will permit application of the commercial activity exception.

First Circuit decision fails to relieve Puerto Rico's debt crisis
Caplin & Drysdale, Chartered
  • Insolvency & Restructuring
  • USA
  • October 16 2015

The US Court of Appeals for the First Circuit has held that Chapter 9 of the US Bankruptcy Code pre-empts an insolvency law enacted by Puerto Rico designed to provide a path for the restructuring of financially distressed municipalities and public utilities in Puerto Rico. The action was initiated by two groups of investors which collectively hold nearly $2 billion worth of bonds issued by one of Puerto Rico's distressed public utilities.

Supreme Court: decisions denying plan confirmation not appealable as of right
Caplin & Drysdale, Chartered
  • Insolvency & Restructuring
  • USA
  • August 07 2015

In a recent unanimous decision the Supreme Court held that a bankruptcy court order denying confirmation of a debtor's repayment plan, but leaving the debtor free to propose another plan, was not a final order that could be appealed immediately as of right. The decision closes off an avenue that would have allowed debtors to obtain immediate appellate review of such a decision, thereby delaying the conclusion of the bankruptcy case.

Supreme Court rejects stripping-off of underwater mortgages in bankruptcy
Caplin & Drysdale, Chartered
  • Insolvency & Restructuring
  • USA
  • June 26 2015

In Bank of America NA v Caulkett the Supreme Court considered whether debtors in a Chapter 7 bankruptcy liquidation could invoke Section 506(d) of the Bankruptcy Code to void or 'strip off' the junior mortgage liens on their homes when the senior mortgage debt exceeded their homes' current value. In a unanimous opinion the court has reversed the US Court of Appeals for the Eleventh Circuit and held that the debtors could not strip off the junior mortgage liens.

Wellness International: litigants may consent to adjudication by bankruptcy courts
Caplin & Drysdale, Chartered
  • Insolvency & Restructuring
  • USA
  • June 19 2015

In a recent decision the Supreme Court held that parties may consent to bankruptcy courts entering final judgment on so-called 'Stern claims'. The decision is significant: a decision that litigants could not consent to adjudication in a bankruptcy court would have required already overburdened district courts to take over a large portion of the bankruptcy docket.

Supreme Court considers junior liens on 'underwater' property
Caplin & Drysdale, Chartered
  • Insolvency & Restructuring
  • USA
  • May 22 2015

The Supreme Court recently heard oral argument in Bank of America v Caulkett, considering whether the US Bankruptcy Code permits a Chapter 7 debtor to 'strip off' a junior mortgage lien in its entirety when the outstanding debt owed to a senior lienholder exceeds the current value of the collateral (ie, when the property is 'underwater'). The court is expected to issue a decision before the end of June.

Fairfield Sentry and the limits of comity in Chapter 15 cases
Caplin & Drysdale, Chartered
  • Insolvency & Restructuring
  • USA
  • March 20 2015

In the Fairfield Sentry Limited cross-border insolvency case, the US Court of Appeals for the Second Circuit held that US bankruptcy law governed the sale of intangible property of a foreign debtor in liquidation proceedings in the British Virgin Islands. The decision shows that despite being a governing concept, the doctrine of international comity is not without limit in Chapter 15 cases.

Appeal court expands stockbroker defence to non-securities transactions
Caplin & Drysdale, Chartered
  • Insolvency & Restructuring
  • USA
  • December 19 2014

The US Court of Appeals for the Second Circuit recently handed down a remarkable decision concerning Section 546(e) of the Bankruptcy Code in Madoff. Relying on the statute's broad wording, the court extended the safe harbour to shield payments carrying only the veneer of a securities-related transaction from recovery, even though the payments were not related to any actual transactions in securities.

Changes to the Uniform Fraudulent Transfer Act approved
Caplin & Drysdale, Chartered
  • Insolvency & Restructuring
  • USA
  • October 10 2014

The Uniform Fraudulent Transfer Act has been amended and renamed as the Uniform Voidable Transactions Act. The act, which declares rights and provides remedies for unsecured creditors against transactions that impede them in the collection of their claims, now has of a choice of law rule, and rules allocating the burden of proof and defining the standard of proof with respect to claims and defences.

Supreme Court on powers of bankruptcy courts after Stern
Caplin & Drysdale, Chartered
  • Insolvency & Restructuring
  • USA
  • September 26 2014

The Supreme Court has ruled that in the case of a bankruptcy-related matter which has been designated as 'core' in Section 157 of the Bankruptcy Code, but under Article III of the US Constitution cannot be finally adjudicated by a bankruptcy judge, the bankruptcy judge may issue proposed findings of fact and conclusions of law to be reviewed de novo by a district court judge.

Limitations on corporation's ability to free itself from legacy liabilities
Caplin & Drysdale, Chartered
  • Insolvency & Restructuring
  • USA
  • June 20 2014

When a corporation undergoes multiple corporate restructurings which spin off most of its assets while keeping most of its liabilities, under what circumstances may its creditors pursue those spun-off assets? In a recent ruling a court held that corporate defendants which separated most of their liabilities from most of their assets were liable under a fraudulent transfer theory to tort and environmental claimants.

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