The Supreme Court Confirms That Passive Retention of Property Does Not Violate Section 362(a)(3)

On January 14, 2021, the Supreme Court unanimously held in City of Chicago v. Fulton that a creditor’s passive retention of a debtor’s property does not violate section 362(a)(3) of the Bankruptcy Code. The Court’s 8-0 decision (Justice Barrett did not participate in the consideration or decision of the case) may have the unintended effect of increasing bankruptcy costs and making it more difficult for individual debtors to achieve a “fresh start”.

 

I. Background

When a bankruptcy case is filed, certain Bankruptcy Code sections take immediate effect and have a significant impact on a debtor’s property. First, section 541(a)(1) creates the bankruptcy estate, which is comprised of “all legal or equitable interests of the debtor in property.” This includes any property made available to the estate by other provisions of the Bankruptcy Code. One such other provision is section 542, which governs the turnover of property to the debtor’s estate. Section 542 commands that, with certain exceptions, any entity in possession of a debtor’s property shall deliver the property to the debtor.

Second, a bankruptcy petition operates as an automatic stay, preventing, in relevant part, “any act to obtain possession of property of the estate…or to exercise control over property of the estate.” 11 U.S.C. § 362(a)(3). The automatic stay is one of the fundamental elements of the bankruptcy system: it protects the debtor’s assets from unilateral creditor actions during the bankruptcy case and maintains the status quo. Continue Reading

Implications of the EU-UK Trade Agreement on UK Financial Services

As expected, the market access to the EU for UK financial services firms has changed post-Brexit. As of 1 January 2021, UK financial services firms that intend to do business in the EU can no longer rely on the EU Single Market to offer their services using the EU passporting system. Therefore, the implications of the Trade and Cooperation Agreement (“Agreement“) for financial services are more severe than for example trade, and the effects come close to that of a hard Brexit.

The Agreement deals with market access for financial services firms in a similar way to other EU Foreign Trade Agreements with third countries in that they must comply with EU legal obligations on market access, including authorisation requirements and supervision. Continue Reading

Breathing space for individuals may lead to constricted cashflow for UK businesses

The Debt Respite Scheme (Breathing Space) comes into force on 4 May 2021. This allows individuals to obtain “breathing space” from creditors under certain circumstances.

A breathing space can be obtained if:

  • An individual cannot or is unlikely to be able to repay their debts and a debt adviser considers a breathing space appropriate – the standard breathing space
  • An approved Mental Health Professional certifies that a person is receiving mental health crisis treatment – the mental health breathing space

If a business is owed money by an individual, they may receive notice that an individual has the benefit of breathing space. Whilst this is in force, that business will be unable to take certain steps (i.e. enforcement/ recovery action, contacting the debtor to request payment and charging interest/ fees/ penalties/ charges during the breathing space). Continue Reading

Germany Implements New Insolvency Laws and Restructuring Tools

After its publication in the German Federal Gazette (Bundesanzeiger) on 29 December 2020, the Law for the Further Development of the Restructuring and Insolvency Laws (SanInsFoG) came into force in Germany on 1 January 2021. The major part of this new law, the Law on the Stabilisation and Restructuring Framework for Enterprises (StaRUG), introduces a new framework for restructurings outside of formal insolvency proceedings, implementing EU Directive 2019/1023 of 20 June 2019 on preventive restructuring frameworks.

In addition to the new tools, the core one of which is the restructuring plan other important changes to the German insolvency and restructuring laws were made which we discuss below.

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What financial support is available for UK businesses in 2021?

Falling ChartWith the announcement of a further national lockdown the wind has somewhat been taken out of the sails of businesses hoping to get back on their feet in early 2021, that is following the good news about the COVID-19 vaccine.

It has been a bumpy ride for many businesses over the last few months with localised lockdowns, the tier system and different restrictions inhibiting “business as usual” and making it difficult to predict and plan for the future.  More so, given the roller coaster of changes and the short notice often given about when they will come into effect.

In the hope of preserving businesses, the UK government schemes announced in lockdown one, including the job retention scheme and government backed loans, were extended over the festive period and will now be available until Spring 2021.    In addition, the UK Chancellor announced today (5 January 2021) a further one off  ‘top up grant’ for businesses in the retail, hospitality and leisure industry, enabling those businesses to claim a grant of up to £9,000 to help that sector through until Spring.

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Have UK Insolvency Practitioners Lost the Protection of Release Clauses?

city shoppingIn the third (and final) of our blog series on recent CVA cases, in Rhino Enterprises Properties Ltd & Anor [2020] EWHC 2370 (Ch), the High Court gave permission for misfeasance proceedings to be brought against two former joint administrators. This was despite an approved Company Voluntary Arrangement (“CVA”) containing a clause releasing the joint administrators from liability.

The Court held it was ‘at least strongly arguable’ that CVAs were not contracts for the purpose of s.1(1) of the Contracts (Rights of Third Parties) Act 1999 (the “1999 Act”) and that its terms could not be enforced by non-parties. Continue Reading

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