Siegel v. Fitzgerald – How to Remedy the Impacts of an Unconstitutional Law

On June 6, 2022, the U.S. Supreme Court issued its opinion in Siegel v. Fitzgerald, in which the Court held that the Bankruptcy Judgeship Act of 2017, Pub. L. 115-72, Div. B, 131 Stat. 1229 (the “2017 Act”) was unconstitutional.  The 2017 Act required a significant, temporary increase of the fee rates paid into the United States Trustee System Fund (the “UST Fund”) by debtors in large chapter 11 cases.[1]  Underlying the Court’s holding is the Bankruptcy Clause of the Constitution (Article I) which gives Congress the power “to establish… uniform laws on the subject of bankruptcies throughout the United States.”  The Court held that the 2017 Act was unconstitutional because the fees were not uniformly applied.  Perhaps most interestingly, the Court did not decide on a remedy. Instead, it remanded the proceeding back to the Fourth Circuit Court of Appeals alongside a $325 million[2] question: “Now what?”[3]

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Personal liability for PAYE, and all that Hoey (UK)

The Court of Appeal recently handed down its judgment in the Hoey case. The case is noteworthy because it helps illustrate the extent of HMRC’s powers to collect tax by shifting compliance obligations from one person to another. As can be readily appreciated, this could be particularly of note for directors of companies that have entered into an insolvency process.

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(UK) To Whom Should Insolvency Claims Be Assigned? 

It is often the case, that insolvency claims are pursued against former directors of the insolvent company or persons connected to them.  It is also often the case, that such claims are assigned to a litigation funding company given lack of funds in the insolvent estate to pursue them.  This is what happened in Lock v Stanley where various claims against the former directors, their parents and connected company were assigned to Manolete.  

The decision of the Court of Appeal in Lock v Stanley provides comfort to assignees of insolvency claims that defendants will not be able to avoid claims by seeking to attack the assignment where their interest is self-serving, and that liquidators are not obliged to offer to assign an insolvency claim to a proposed defendant.

It also reminds liquidators that although s168(5) of the Insolvency Act 1986 (“Act”) allows aggrieved persons to challenge their decisions, unless the applicant has a legitimate interest and there will be a benefit to creditors as a whole in reversing or modifying the liquidator’s decision, an applicant is unlikely to have standing to challenge.

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In re PWM Property Management: Creditors’ and Equity Holder’s Attempt to File and Solicit Competing Plan During Exclusivity Period Denied

What options does a creditor have when they are frustrated with how a debtor is conducting its chapter 11 bankruptcy case?  In In re PWM Property Management LLC, the Delaware bankruptcy court denied a motion by creditors and interest holders to file a proposed plan of reorganization as an exhibit to their opposition to the debtors’ motion to extend the exclusivity period.  The PWM Property Management decision serves as an important reminder of the strict limits on who can file and solicit a plan of reorganization and when filing of a plan is appropriate. Continue Reading

How Should UK Officeholders Deal with Notices Where the Rules Require Information that is Irrelevant?

In the case of Caversham Finance Limited (in administration) [2022] EWHC 789, the court considered whether errors in a notice to creditors seeking consent to extend an administration made the extension invalid. This case is important as it shows the court’s approach to omission of prescribed information in notices to creditors.

The information that was omitted in the notice to creditors in this case was also the subject of comment in the recent Government report reviewing the Insolvency Rules (England and Wales) 2016 (the “Report”) (please see our latest alert on this).

This blog provides a brief overview of the case, reflects on the Insolvency Service’s comments in the Report with thoughts on how irrelevant or redundant prescribed information should be dealt with in notices and documents that are required by the Rules to contain prescribed information.

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Smile Telecoms – Second Restructuring Plan Sanctioned

Smile Telecoms Holdings Limited (“Smile”), a Mauritian company, has recently had its second restructuring plan sanctioned by the High Court in England.  The case contains some important markers for those involved in restructuring plans, particularly those plans which involve international elements or which seek to prevent out-of-the-money creditors from voting on the plan.

Background

Smile’s first restructuring plan had not achieved the desired outcomes and Smile was facing formal insolvency. A new restructuring plan was proposed which provided an analysis that showed creditors would be better off under the terms of that plan, than in a formal insolvency.

Key issues

This case contains a number of useful findings from the court on the following issues:

  • out-of-the-money creditors
  • creditor objections
  • alteration of foreign member’s rights
  • expert evidence

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What are the Proposed Changes to Corporate Control Transactions in Australia?

The Australian government is consulting on a proposal to expand the role the Takeovers Panel plays in control transactions, with an aim of reducing the time and costs of mergers and acquisitions. The proposal includes options for the Takeovers Panel to regulate control transactions by scheme of arrangement.   This article considers the proposed reforms and whether judicial oversight of control transactions by scheme is preferable.

How Might the First Review of the Insolvency Rules Impact Mid-Market Insolvencies

On 5 April 2022, the UK government published the first review of the Insolvency (England and Wales) Rules 2016 (the Report).  We have produced this alert, that selects a few points from the Report that we think are of interest to practitioners. In particular:

  • proposed changes to the Rule on timing and dating notices of appointment of administrators,
  • the practice of swearing statutory declarations remotely,
  • the impact of the decision in Manolete Partners Plc v Hayward and Barrett Holdings Ltd [2021] EWHC 1481 (Ch) on bringing insolvency proceedings,
  • the engagement of secured creditors in approving fees and consent to the extension of an administrators’ appointment, and
  • the monetary limit on winding-up petitions.

 

 

From Dusk ‘Til Dawn: Hope for the Subchapter V Debt Limitation

The Small Business Reorganization Act (SBRA), which was signed into law on August 23, 2019, and went into effect as of February 19, 2020, put in place what is commonly known as “Subchapter V” in the reorganization industry. Under the SBRA, a qualified “small business debtor” may elect to be treated as a Subchapter V debtor if, among other things, the debtor’s aggregate, noncontingent, liquidated secured and unsecured debts as of the petition date totaled no more than $2,725,625. Qualification as a Subchapter V debtor would ostensibly make the chapter 11 process more accessible, economical, and beneficial for small business debtors making the election, because the SBRA was designed for smaller business that otherwise cannot afford the administrative fees and other costs associated with traditional Chapter 11 cases (even traditional small business Chapter 11s).  Continue Reading

Evaluating the Evaluation Process for UK Connected Party Sales – One Year On

It has almost been 12 months since the Administration (Restrictions on Disposal etc to Connected Persons) Regulations 2021 came into force on 30 April 2021. The regulations require an administrator to obtain creditor approval or a report from an independent evaluator in advance of completing a “substantial disposal” of the company’s property to a connected party within the first eight weeks of the administration.

We produced the attached FAQ document in April 2021 to explain the key aspects of the regulations and answer key questions about the process.

Having completed a number of connected-party transactions since the regulations came into force, acting for either administrators or buyers, in our experience complying with the regulations has not presented a significant challenge in completing those transactions, although in practice we have found the following:

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