Germany leads the way with proposed legislation regulating crypto-assets safekeeping that will provide insolvency protection

The European Markets in Crypto-Assets Regulation (Regulation (EU) 2023/1114 – MiCA), which entered into force on 29 June 2023, is a significant new regulation that will impact the treatment of cryptocurrencies and digital assets. MiCA requires the European Securities and Markets Authority (ESMA) to develop a series of regulatory technical standards (RTS) and implement technical standards (ITS) and Guidelines. Many of these regulations are to be developed in close cooperation with the European Banking Association (EBA).   

In addition, the German Federal Ministry of Finance and the Federal Ministry of Justice have launched a draft bill on the financing of future-proof investments, the Future Financing Act (“ZuFinG”). This will put Germany ahead of the curve as it is intended to advance the digitalisation of the capital market by opening up German law to electronic shares and crypto securities.

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How Do You Cram Down HMRC in a UK Restructuring Plan?

What we know for certain is that it is possible to cram down HMRC using a restructuring plan, but not without good reason. In a battleground which ultimately turns on individual circumstances there are some general lessons we can learn from recent cases which might assist in persuading a court to exercise its discretion to cram down.

We have recently authored this article printed in RECOVERY Magazine Autumn 2023 Edition that discusses the approach companies and HMRC might take to managing HMRC debt and cram down in future cases.

Do I Really Have To Pay Default Rate Interest In Order to Reinstate My Loan? (US)

In a scholarly, comprehensive and lengthy opinion written by one of the Southern District of New York’s most recently appointed Bankruptcy Judges, the issue of whether the reinstatement of defaulted and accelerated debt requires the payment of default-rate interest and fees was answered in the affirmative, undoubtedly to the delight of lenders everywhere. 

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Three Arrows Capital Co-Founder Avoids Contempt and Sanctions in United States, But Bankruptcy Court Previews Worldwide Enforcement Options

On June 27, 2022, Three Arrows Capital (“3AC”), a crypto hedge fund, commenced liquidation proceedings in the British Virgin Islands and thereafter filed recognition proceedings in, among other countries, the United States and Singapore.  As we discussed earlier this year, on December 2, 2022, the bankruptcy court presiding over 3AC’s chapter 15 proceeding pending in the Southern District of New York held that the 3AC joint liquidators (the “JLs”) could serve a subpoena (the “U.S. Subpoena”) upon a 3AC cofounder, Kyle Livingstone Davies, via email and Twitter (the “Service Opinion”).  At the time of the Service Opinion, Mr. Davies was presumed to be a U.S. citizen. 

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How Close Can You Be To Cannabis And Still Have Access To The Bankruptcy Courts? (US)

How close is too close?  The answer to this question can have dire implications for people and companies involved in the cannabis industry who wish to seek bankruptcy protection.  Last month, a United States District Court issued an opinion which, while it did not directly answer this question, rejected a “zero tolerance” cannabis policy and recognized the principle that the “mere presence” of cannabis near a bankruptcy case does not, in and of itself, preclude bankruptcy relief.

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(UK) Litigation Funding in Insolvency – Where Does PACAAR leave us?

Although a non-insolvency case the recent case of PACCAR Inc & Ors v Competition Appeal Tribunal & Ors (“PACCAR”) has caused waves in the litigation market (including insolvency litigation market) following the Supreme Court finding that litigation funding agreements (LFAs) where funders recover a percentage of the amount awarded to a claimant are damaged based agreements (DBAs) – which- unless the LFA complied with the Damages Based Agreements Regulations 2013 (“DBA Regs”) means that they are unenforceable.

In PACCAR the court determined that the LFAs in place were in fact DBAs and therefore were unenforceable because they were non-compliant with the DBA Regs.

What does this mean for insolvency practitioners given the use of LFAs and third-party funders is now commonplace? 

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Are UK Officeholders Protected if a Court Sanctions Their Actions?

From time to time, officeholders apply to court to seek approval of a proposed course of action which they have decided to take in connection with their function.

But where the court sanctions those decisions, are the officeholders protected from subsequent claims relating to the same?

The Court of Appeal, in the case of Denaxe Limited v Cooper & Rubin [2023] EWCA Civ 752 recently considered this question in the context of Receivers who had obtained the approval of the court for a sale of assets over which they had been appointed. In this blog we consider what comfort, if any, officeholders in the broader sense can take from this decision.

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Bankruptcy Appellate Panel Rules That A Section 524(a) Discharge Does Not Protect The Debtor’s Alter Egos (US)

When a debtor receives a bankruptcy discharge, section 524(a) of the U.S. Bankruptcy Code prohibits a creditor from seeking to collect a prepetition debt against the discharged debtor or its property. Importantly, the discharge does not extinguish the debt—it merely limits recourse against the discharged debtor. Section 524(e), however, provides that the discharge does not affect the liability of non-debtors for the discharged debt.

Corporate law generally provides that the owners of a corporation are not liable for the company’s debts. However, when there is a lack of separateness between a corporation and its owners, courts may “pierce the corporate veil” and find owners to be alter egos of the corporation and liable for the corporation’s debts. But what if the corporation obtained a discharge through a bankruptcy proceeding? Can that debt be enforced against the alter egos? In a recent opinion, the United States Bankruptcy Appellate Panel for the Ninth Circuit faced this question and held that the discharge of a corporation does not prevent creditors from seeking recovery of discharged debts against the debtor’s alter egos.

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(UK) Have You Got Consent? Dealing with Administration Extensions

Although an initial administration extension can be dealt with by consent, if that consent is not valid the extension will also be invalid.  This leaves administrators in a difficult position because they will not be in office unless the court remedies the position.  Obtaining consent might seem straightforward but obtaining the consent of secured creditors and ensuring the consent of unsecured and preferential creditors (when required) is also valid can be problematic. 

In two recent podcasts, we discuss the issues surrounding obtaining secured creditor consent to an administration extension and a recent unreported decision that concerned whether the deemed consent procedure can be used to obtain the consent of unsecured creditors.

Listen to our podcasts at the below links:

Administration Extensions and Secured Creditor Consent

Administration Extensions and Using the Deemed Consent Procedure

(UK) How Qualifying Is Your Floating Charge?

A floating charge debenture holder has the advantage that they can enforce their security by appointing their choice of administrators.  This is a powerful and useful tool for lenders but is subject to the caveat that the debenture has to be “qualifying”.

What does this mean? In short, the charge must give the lender the power to appoint administrators and be over the whole or substantially the whole of the company’s property.  In addition, the charge must be enforceable i.e. there has been default, before a lender can appoint.  Other than determining what “substantially the whole” means – for which there is no definition – it is usually relatively straightforward to determine whether a lender has a qualifying floating charge.

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