In NOAL SCSp v Novalpina Capital LLP [2025], the court took a strict view of the statutory requirement that companies entering a member’s voluntary liquidation (MVL) must be able to pay all their debts (including contingent or disputed ones) within 12 months.
That mattered because, in practice, some insolvency professionals understood the legislation to mean that if the company was balance sheet solvent and able to pay its debts, they did not need to be actually paid before the end of 12 month.
This report was therefore commissioned by the Insolvency Service in response to Novlapina to
Better understand the potential impact of the ruling on MVL practice; and
To explore and understand the MVL landscape more generally, with particular focus on the efficiency and effectiveness of MVLs
Judge Craig Goldblatt’s recent decision in the Delaware bankruptcy court carves out a safe haven for creditors amid the Third Circuit’s expanding view of what claims belong to a debtor’s estate. Relying on the Third Circuit’s decision in Whittaker, Clark & Daniels[1], Judge Goldblatt held that certain claims against directors and officers, which are traditionally treated as estate property, instead belong to individual creditors.
The dispute arises from the chapter 11 cases of Joann, an iconic national fabric and hobby retailer. In the nine months between its first and second filings, vendors commenced a state court proceeding asserting that Joann’s directors and officers were guilty of common law fraud and negligent misrepresentation by making false and misleading statements about its financial condition that induced the vendors to extend credit. The case was removed to federal court and transferred to the Delaware bankruptcy court (Judge Goldblatt) with jurisdiction over Joann’s chapter 11 cases.
Joann’s second chapter 11 case involved a sale of substantially all of its assets; after which, Joann filed an adversary proceeding seeking to dismiss the vendors’ action. Joann argued that the claims against its directors and officers were derivative of the company and therefore belonged to the estate. As such, Joann asserted that the claims were transferred to the buyer of its assets.
In distinguishing between derivative and direct claims, courts historically apply a straightforward framework. Under this approach, if applicable non-bankruptcy law would allow the debtor corporation to assert the claim prior to bankruptcy and the alleged injury is to the corporation generally with no particularized injury against any creditor, then courts generally consider the claim derivative and a part of the bankruptcy estate. Since alleged misconduct by officers and directors typically harms creditors only indirectly through injury to the corporation, courts generally view such claims as derivative and, thus, estate property.
As noted by Judge Goldblatt, the Third Circuit found this traditional framework unworkable for some state law claims, such as successor liability, where creditors have a nominal right to sue for secondary harms derived from prepetition injuries to the debtor corporation. To resolve this tension, the Third Circuit, over a series of decisions, shifted the inquiry from whether the debtor could bring the claim prior to bankruptcy to the nature of the claim itself. Judge Goldblatt found the synthesis of the Third Circuit’s evolving case law in Whittaker, which held that claims are direct when the theory of liability is based on a particularized injury directly traceable to the conduct of the defendant, and claims are derivative if the theory of liability is based on an injury to the debtor that resulted in secondary harm to all creditors.
In applying the test to Joann, Judge Goldblatt found that the vendors’ injuries were particularized and traceable to the conduct of the directors and officers, despite the vendors’ claims relying on the same misrepresentations by those directors and officers. In making this finding, Judge Goldblatt focused on the elements of the state law claim asserted and not the facts underlying the claim. He held that since in Ohio (the law applicable to the claims) creditors need to prove justifiable reliance of the misrepresentations of directors and officers, the theory of liability must be particularized to each creditor. Of critical importance to the opinion is the fact that if any creditor failed to establish reliance, then the directors and officers would not be liable to that creditor.
The Joann decision highlights a subtle but important shift in the Third Circuit’s jurisprudence regarding claims against directors and officers. Debtors may no longer be able to rely on the traditional framework to assume that claims against directors and officers will belong to the estate. A loss of these claims could severely impact the value of a struggling estate that relies on potential recoveries to fund a chapter 11 plan or maximize recoveries for creditors generally. Therefore, practitioners in the Third Circuit and elsewhere should carefully review potential claims against directors and officers prior to filing to ensure that they fully understand whether potential claims are estate assets, the potential value of such claims and the potential impact on the feasibility of confirming a plan.
The court did not have turn to r12.64 in this case, finding that the “appointment” of administrators was invalid (therefore there was nothing to remedy because the appointment was of no effect), but went on to consider whether r12.64 could have provided a remedy if the appointment was not void. Concluding that the defect was such that it would have caused substantial injustice and could not and should not be remedied by court order.
Can a successor receiver let a past receiver, removed for being a “faithless fiduciary,” bid to buy company assets at auction? In B.E. Capital Management Fund LP v. Fund.com Inc., the Delaware Court of Chancery (the “Court”) highlighted the deference courts give to receivers when making ordinary-course-of-business decisions and provided a thoughtful discussion of auction “game theory.” For creditors, equity holders, receivers, and bidders alike, this decision provides important guidance on how courts evaluate a receiver’s decision-making, and when they will decline to intervene.
BACKGROUND
Fund.com Inc. (the “Company”) is a defunct company subject to receivership in Delaware. The Court originally appointed Thomas Braziel as the receiver, but he was adjudicated as a “faithless fiduciary,” which, under Delaware law, means that Braziel was acting to advance his own personal interest rather than the Company’s. The Court replaced Braziel with a successor receiver (the “Receiver”). The Company had certain claims against another company subject to liquidation in New Zealand (the “Assets”), which Braziel had helped to recover for the Company. Subsequently, when the Receiver sought to sell the Assets at auction, the Receiver permitted Braziel to participate as a bidder.
Another bidder objected to Braziel’s participation in the auction. The bidder alleged that Braziel had “an informational advantage over other bidders concerning the Assets.” The objector contended that Braziel had “superior knowledge” of the assets and that there were “gaps in the due diligence information available to other bidders about some of the actions Braziel took that could affect the value of the [a]ssets.” The objector further contended that because of Braziel’s superior knowledge, he could “better assess risk than other bidders” with respect to the Assets.
STANDARD OF REVIEW
As a threshold matter, the Court addressed the standard of review applicable to the Receiver’s decision to permit Braziel to participate in the auction. The Court explained that, when a court appoints a private individual to act as a receiver, the default standard of review is de novo unless otherwise specified in the order appointing that receiver. However, “business-oriented and judgment-laden decisions” are different. Here, the Court reasoned that a similarly situated (i.e., disinterested and independent) board of directors would “enjoy the protections of the business judgment rule” and that a “comparable standard of review should therefore protect the Receiver’s decision.” The Court therefore determined that it should examine the Receiver’s decision under the far more deferential “abuse of discretion” standard.
INFORMATION ASYMMETRY AND GAME THEORY
The Court’s discussion about the effect of Braziel’s participation centered around two conflicting ideas. First, letting Braziel participate could be in the best interests of the company if he could pay the highest price. Second, however, Braziel’s participation may impair the sale process due to his insider knowledge.
When a party with an informational advantage competes against a less-informed party, the less-informed party risks “the winner’s curse.” That is, when a less-informed party wins an auction against a better-informed party, the less-informed party pays more than the better-informed party believes the asset is worth. It follows that when a less-informed party wins an auction, they have likely overpaid. Auction participants understand this, and the effect is that less-informed parties tend not to participate in auctions with better-informed parties. For instance, the objector in this case refused to participate if Braziel was permitted to bid on the assets.
So, the Receiver found himself in a catch 22. If Braziel’s informational advantage drove away all the other bidders, then he might be able to buy the assets at a steep discount. However, by excluding Braziel, the Receiver risked losing the potential highest bidder.
DEFERENCE TO THE RECEIVER’S JUDGMENT
Because the Receiver was protected by the business judgment rule, the Court applied the “abuse of discretion” standard and ultimately held that the Receiver could include Braziel in the auction. In making this decision, the Court highlighted that the Receiver did not need to design a perfect auction (e.g., running a “first-price-sealed-bid” auction instead of an “English” auction). Instead, the Receiver only needed to design an auction that fell “within a range of reasonableness.” As noted by the Court, what typically causes a decision to fall outside this range is “the presence of self-interest that taints the fiduciaries’ judgment.” Without such a taint of self-interest, courts defer to the “thoughtful, informed judgments that disinterested and independent fiduciaries make.” Because the Receiver was disinterested and independent, the Court deferred to the Receiver’s judgment. The Court reasoned that “[i]ncluding Braziel present[ed] a combination of risks and benefits. So d[id] excluding him. Neither choice constitute[d] an abuse of discretion.”
CONCLUSION AND KEY TAKEAWAYS
In sum, this case is instructive, holding that disinterested, independent receivers will receive the protection of the business judgment rule when conducting auctions. Courts will defer to receivers’ decisions, absent evidence of abuse (i.e., self-dealing), and courts will not micromanage a receiver’s auction design, even if the receiver does not design a perfect auction. For more protection, creditors can try to request a heightened standard of review in the court’s order to appoint a receiver which empowers the court to be less deferential to the receiver.
The Court of Appeal’s recent judgment in TAQA Bratani Limited (“TAQA”) & Others v Fujairah Oil & Gas UK LLC & Others [2025] EWCA Civ 1669 provides clarity on how the Court will approach the question of whether a transaction, is a transaction at an undervalue caught under s.238 of the Insolvency Act 1986 (“Act”). In overturning the High Court decision, the Court of Appeal has clarified the limits of the s.238 jurisdiction, the scope of the statutory ‘good faith’ defence pursuant to s.238(5) of the Act, and the circumstances in which surrounding commercial arrangements can (and cannot) be treated as consideration.
Ahead of the Insolvency Rules Review expected this summer, the Insolvency Service have published a new statutory instrument (SI) that will come into force on 22 June. This seeks to tidy up a few of the “niggles” found in the Insolvency Rules 2016 (Rules) that have caused practitioners a headache, as well as making a change to r18.30 regarding approval of remuneration and a few minor tidy ups alongside those.
When Waldorf Production UK Plc returned to court with its second restructuring plan in a year, the primary opposition it faced was from HMRC who voted against the plan. Mr Justice Green ultimately sanctioned the plan, cramming down the liabilities owed to HMRC but the judgment provides some helpful insight into the position taken by HMRC and is helpful more generally in framing the approach and considerations for other plan proponents when dealing with HMRC as a creditor.
Why Was a Restructuring Plan Proposed?
Waldorf’s liquidity issues were largely driven by Energy Profits Levy (EPL) liabilities which exceeded £69 million. Following Waldorf’s failed restructuring plan in 2025, this second plan, and the success of it, relied on an offer by Harbour Energy to buy most of the group for US$205 million. However, the offer to buy was premised on the the EPL liabilities being compromised.
Waldorf represented that if the plan was not approved a formal insolvency was likely (the Relevant Alternative) in which unsecured creditors—including HMRC—would receive around 0.1% of their claims. Under the plan, HMRC would however receive 14% of its claim.
HMRC voted against the plan, but with other creditors supporting it, the Court had to consider at the sanction hearing, whether to exercise its discretionary power to cram down the plan on HMRC in the face of its opposition. Why did HMRC oppose the plan?
Have the doors to U.S. Bankruptcy courts finally swung open to cannabis companies? Perhaps, but still in only very limited circumstances involving a foreign debtor. Nonetheless, Judge Brendan Shannon’s recent order granting recognition of a Canadian insolvency proceeding [1] filed by a cannabis company is the first crack in the door that many bankruptcy professionals have been waiting for and may provide a roadmap for future cannabis restructurings in the U.S.
The Renters Rights Act 2025 (Act), which came into force on 1 May 2026 aims to give private tenants greater security and protection from eviction, in many respects aligning the position with business tenants who are in occupation under a protected business tenancy.
For insolvency practitioners (IPs) appointed as administrators or liquidators of a business with real estate assets that have residential tenants in situ, the changes introduced by the Act are important to understand, not least because they enhance the rights of tenants, change the grounds on which a landlord can obtain possession of a property and place new or additional obligations on a landlord.
Whilst the Supreme Court’s decision in THG Plc v Zedra Trust Company (Jersey) Ltd [2026] UKSC 6 provides clarity on the application of limitation periods in unfair prejudice claims, it raises fresh questions for certain insolvency claims that have traditionally been thought to have limitation periods.
