Assume and Wait – Delaware Bankruptcy Court Approves Debtors’ Novel Lease Assumption Strategy (US)

When a liquidating debtor seeks to assume a lease, one of the lessor’s immediate questions is who will be the assignee.  But what happens when a liquidating debtor seeks to assume a lease and waits up to two years thereafter to determine who the assignee will be?  Although peculiar, the analysis of whether to grant the assumption rests on evaluating the three basic requirements under section 365 of the Bankruptcy Code.  By preserving the lessor’s ultimate ability to object to a proposed assignment, and with a considerable amount of discretionary liquidity, assumption can prove to be a value-maximizing decision for an estate notwithstanding a lessor’s opposition to such future uncertainty.

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Parties Beware—Noncompliance with Delaware ABC Statute Can Lead to Serious Consequences (US)

Last month the Delaware Chancery Court sent a clear message to Delaware companies that failure to strictly comply with the Delaware Assignment for the Benefit of Creditors (“ABC”) statute will result in severe consequences, including dismissal.

On December 27, 2023, WMT (an ABC) LLC (the “Assignee”) filed an assignment petition which provided that it had entered into an assignment agreement on March 13, 2023 with WindMIL Therapeutics, Inc. (the “Assignor”).  The petition noted that the assignment agreement was attached—it was not.  The assignment agreement was only provided to the Chancery Court in response to a scheduling order (the “Initial Order”) entered on January 3, 2024.  The Assignee also filed an affidavit in response to the Initial Order and provided two purported valuation opinions that had been obtained by the Assignee.  The first was an appraisal stamped “draft” from Redwood Valuation Partners (“Redwood”) dated November 21, 2023, which valued the intellectual property assigned to the Assignee at $409,000 based on a fair market value analysis.  The second was an appraisal prepared by Braun Co. (“Braun”) dated November 22, 2023, with a valuation date of October 31, 2023, which offered a speculative $100 value on the intellectual property. 

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(UK) What practical changes can IPs expect from the proposed amendments to FCA guidance?

The UK Financial Conduct Authority (FCA has issued a consultation about proposed changes to its Guidance for Insolvency Practitioners.  The aim is to clarify existing guidance and provide more information to insolvency practitioners (IPs) on how to deal with regulated firms.

The proposed amendments (shown as track changes in this document) intend to update the current guidance to reflect changes in the legal framework since it was first issued, and to clarify or provide further information to IPs which will assist IPs in dealing with regulated firms.

The more substantive changes intend to deal with, the Consumer Duty and the Court of Appeal decision in Ipagoo, but some of the most practical (suggested) changes to the guidance are these:

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Subchapter V Debt Limit: Don’t Get Caught Assuming Congress Will Act (It Probably Will…But Still) (US)

In my most recent blog post, I provided some tips for creditors who find themselves in the Subchapter V arena. This is somewhat of a follow-up to that one.

There is a general consensus that Subchapter V has been successful for debtors in smaller cases. The American Bankruptcy Institute recently commented that Subchapter V bankruptcies comprise nearly 30% of all Chapter 11 bankruptcy cases filed since enactment of the Small Business Reorganization Act (SBRA) in 2020.[1]  This is no surprise – the advantages that a Subchapter V brings are meaningful and often case dispositive relative to a standard Chapter 11.

Presently, Subchapter V is only available to debtors with less than $7.5 million in secured and unsecured debt.  However, the $7.5 million debt limitation is set to sunset (i.e., expire) on June 21, 2024. Upon expiration, the debt limit will be reduced to $3,024,725. There is, however, hope for prospective debtors. A bipartisan group in the United States Senate is sponsoring legislation (S. 4150, by Sen. Richard Durbin of Illinois) that would further extend the expiration of the current $7.5 million limit for an additional two years.[2] That would be welcome news to many prospective small businesses that may otherwise fall outside the debt limit if it expires soon.

But what if…bear with me here…what if Congress doesn’t get it done? 

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UK Litigation Funding post PACCAR – Tying up Loose Ends

Last year we discussed the impact of funding insolvency litigation following the Supreme Court decision in PACCAR where the court found that litigation funding agreements (LFAs) were damaged based agreements.  This meant that unless LFAs complied with the Damages Based Agreements Regulations 2013 (DBA Regulations), they were unenforceable. 

Although concluding that the outcome of the decision was unlikely to be significant in the context of the insolvency market, because the majority of insolvency claims are assigned (and therefore are unaffected by this decision) – those claims that were supported by LFAs were potentially impacted.

Players in the litigation funding market spent much of the second half of last year discussing work arounds, such as amending the affected funding agreements (which no doubt will have been actioned, where possible, in the interim). However, without legislative intervention the enforceability status of existing LFAs was uncertain, and the usual method for calculating returns (based on a percentage of damages received) appeared to be indefinitely off-the-table. The litigation funding industry may well now be preparing to breathe a sigh of relief as new legislation to reverse the PACCAR decision is on the horizon.

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New York’s Renewed Efforts to Pass Sovereign Debt Legislation (US)

As discussed in our prior blog entitled “New York’s Sovereign Debt Restructuring Proposals,”[1] three bills were introduced in the New York state legislature to overhaul the way sovereign debt restructurings are handled in New York.  Those bills sought to implement a comprehensive mechanism for restructuring sovereign debt, limit recovery on certain sovereign debt claims, and amend the champerty defense.  None of the bills advanced to a full vote during the 2023 legislative session and, therefore, failed. 

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Texas Bankruptcy Court Declines to Deem Nonvotes as Votes in Favor of Plan (US)

As seen in the recent proliferation of bankruptcy cases seeking a structured dismissal or conversion after a successful sale, debtors constantly seek creative and efficient ways to wind up a case, including through a traditional plan of liquidation.  Yet, as discussed below, debtors must ensure that any proposed voting procedures for a plan comply with section 1126 of the Bankruptcy Code, or are at least supported by, or supportable with, prior precedent.  Otherwise, notwithstanding a debtor’s creativity and intent to further benefit a creditor class, such voting procedures will likely be denied.

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Update for Insolvency Practitioners on UK Companies House Filings

Office Building

Following our previous alert, in which we highlighted an issue with entries relating to registered security maintained at Companies House being incorrectly updated to indicate that they had in fact been discharged without the awareness of the relevant company or security holder, it appears that some (potentially all) unauthorised filings have been – or are in the process of being – corrected. Is this good news? Yes, but with some reservations.

Our latest insight considers what the current position is, and the impact on insolvency practitioners and other third parties that rely on Companies House registers.

Quick Guide to Administration (UK)

For those unfamilar with the various insolvency processes it is not always easy to differentiate between them.

In our latest insight we have produced a quick guide to administration that explains the procedure, benefits and effect of administration on third parties, including employees, suppliers and landlords. Our quick guide also explains the administrator’s role and the purpose of administration, as well as providing an overview of the sale process and the impact that this has.

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Members Voluntary Liquidations (MVL) – Update

In recent months, there have been a few changes regarding MVLs which we have set out in this insight as a helpful reminder to practitioners. 

Our insight considers the changes to filing statements of solvency, comments on the practice of remote swearing those statements and highlights the change in policy regarding clearance letters from HMRC.