The past several years have not been kind to commodities exploration companies. The price of gold dropped to $1,051/oz. in November 2015, a level that had not been seen since 2009. Although the price of gold rebounded somewhat in January and February 2016 to just over $1,200/oz., the price has steadily decreased after peaking at $1,921/oz. in August 2011. The price of silver has also decreased dramatically, with its price off 60% from the 2011 highs. Copper has not escaped this trend, and was recently selling for just over half of its 2011 price.
Directors’ Liability in the Event of Insolvency in the United Arab Emirates
The duties and obligations of directors in the United Arab Emirates (UAE) are drawn from various legislative sources; there is no consolidated legislative framework dealing with the duties and obligations of directors under UAE Law. Squire Patton Boggs’ Dubai office have published a summary of the principal duties and liabilities of a director in the UAE, both generally and in the event of insolvency.
The summary is limited to the laws of the UAE pertaining to limited liability companies. It does not encompass the laws of the over 40 free zones of the UAE, many of which have their own laws and regulations which impact the role of directors. In particular this summary does not discuss the role of a director under the laws applicable in the Dubai International Finance Centre (DIFC) or the Abu Dhabi Global Market (ADGM) which are, in the case of the DIFC principally and in the case of the ADGM entirely, derived from English law.
A rock and a hard place…
It is very much the nature of the job that appointed Office Holders are required to make difficult and challenging decisions on each and every case they take. On some occasions those decisions are well received – on others, not so well. Creditors affected by those decisions can take comfort that the Office Holder is experienced in making those difficult decisions, is an Officer of the Court, has their own licence to protect and, fundamentally, has a duty to treat all creditors fairly. But what happens when an Office Holder knows that whichever decision he makes, he is likely to receive a claim challenging that decision from one or more creditors? Can the Office Holder ask the Courts to make a decision for them?
“A Bankruptcy Court Is Not A Collection Agency”: A Lesson On When Not To File An Involuntary Bankruptcy Petition
Many a bankruptcy attorney has been approached by an angry client who is owed a large amount from, or has obtained a judgment against another party, but has been frustrated in efforts to collect and wants to “throw them into bankruptcy.” After trying to calm the client down, the attorney will go over the technical requirements for commencing an involuntary bankruptcy case and will undoubtedly carefully explain the financial risks that lie in wait in the event that the putative debtor opposes the bankruptcy and is successful in having it dismissed. Specifically, section 303(j) of the Bankruptcy Code authorizes the bankruptcy court to award against petitioners and in favor of the debtor costs, or reasonable attorney’s fees, if an involuntary petition is dismissed other than on consent of all petitioners and the debtor. Even scarier, if the court concludes that the involuntary petition was filed in “bad faith,” it may grant judgment against any petitioner for any damages proximately caused by such filing, or punitive damages. Even if the technical standards for an involuntary filing are met, however, a creditor may find itself in serious “hot water” with the bankruptcy court if the judge determines to dismiss the case based on creditor misconduct, as the petitioning creditor in In In re Matthew M. Murray, Case No. 14-10271 (Bankr. S.D.N.Y. 2016) (REG) discovered.
Be Smart – Save 28% on Your Tax Bill
Businesses should be aware that new anti-avoidance tax rules will take effect from 6 April 2016 which will have a negative impact on members’ voluntary liquidations (“MVLs”).
The new rules are part of a crackdown by Revenue and Customs to avoid ‘income-into- capital’ tax planning. This is probably in part due to the higher dividend tax rates coming into force in April this year which will further increase the incentive for returns to be taxed as capital rather than income.
Under the current rules, distributions in MVLs are taxed as capital gains (rather than income), which has lower rates and specific exemptions. However, with effect from 6 April 2016, certain MVL distributions will be taxed as income and to really stick the boot in, the tax rate on income distributions will increase by an effective 7.5%. The cumulative effect of an MVL distribution being taxed as income and the rise in the tax rate will be to increase the tax levied up to a staggering 28%.
From 6 April 2016, MVL proceeds will be treated as income distributions if certain conditions are met. A major concern for entrepreneurs is that if a company is placed into MVL and its shareholders either carry on the trade or a similar activity within 2 years of the MVL, the distributions will be treated as dividends. It appears that the aim of the Revenue is to target ‘phoenixism’, where a company is liquidated and a new company set up to replace it. Whilst phoenixes in certain situations have a negative connotation, in an MVL (where all creditors are paid in full) they are normally a perfectly sensible and proper corporate simplification tool. Thus the measures have been accused of being ‘anti-business’, may well have unintended consequences and hit individuals like property developers and other entrepreneurs where it really hurts – their bank balance.
It is expected that as a result of the impending changes, the number of MVLs will increase exponentially in the coming couple of months before the new rules come into force. If you are in a position that is likely to be affected, now is the time to act – unless of course, you want to pay more in tax!
Creditors of Lehman Brothers Australia to Receive Further Dividends
The Federal Court of Australia has approved a settlement, effectively resolving one of the most complex corporate insolvencies in Australian history. On 18 December 2015 the Federal Court of Australia approved a settlement relating to inter-company loans and disputed assets between the liquidators of Lehman Brothers Australia Ltd (LBA) and American parent company Lehman Brothers Holdings Inc.
Creditors may receive a dividend of potentially 80 cents in the dollar. This is likely to provide significant relief to the 72 major investors in financial products, many of whom had sustained losses in the 10’s of millions, including institutional investors, private wealth individuals, councils across Australia and significant charitable organisations and churches which had surplus funds invested in a range of financial products, including the collateralised debt obligations or CDOs that they acquired through LBA.
The Ninth Circuit Gives Individual Chapter 11 Debtors A Double-Whammy
Individuals may want to think twice before seeking relief under chapter 11 following a recent decision from the Ninth Circuit Court of Appeals. In Zachary v. California Bank & Trust, the Ninth Circuit affirmed a bankruptcy court’s order denying confirmation of a plan of reorganization in which individual debtors proposed to retain their pre-petition and post-petition property but to pay a dissenting unsecured creditor just .26% of the creditor’s claim. The Ninth Circuit held that the absolute priority rule still applies to individual chapter 11 debtors, and that individual chapter 11 debtors may not confirm a plan under which they retain prepetition property if they do not pay dissenting creditors in full.
In Zachary, David Zachary and Annmarie Snorsky filed a joint chapter 11 petition. California Bank & Trust (CB&T) was their largest unsecured creditor with a claim of approximately $1.9 million. In their third amended plan of reorganization, the debtors put CB&T in its own class and proposed to pay CB&T $5,000.00 on account of its $1.9 million claim. CB&T objected to confirmation, arguing that the plan violated the absolute priority rule. The absolute priority rule provides that a dissenting class of creditors must be paid in full before any junior class can receive or retain any property under a plan of reorganization. CB&T argued that the debtors’ plan could not be confirmed because it permitted the debtors to retain their prepetition property even though CB&T was not being paid in full (and in fact was being paid only .26% of its claim). The bankruptcy court sustained CB&T’s objection and denied confirmation.
On appeal, the Ninth Circuit noted the split between the majority “narrow view” and the minority “broad view” of the absolute priority rule that has developed since the 2005 amendments to the Bankruptcy Code (known as the “Bankruptcy Abuse Prevention and Consumer Protection Act of 2005” (BAPCPA)). BAPCPA added section 1115 to the Code. Section 1115 expands an individual chapter 11 debtor’s estate to include earnings and property acquired after the petition is filed and before the case is closed, dismissed, or converted. BAPCPA also amended section 1129(b)(2)(B)(ii) to provide that an individual debtor may retain property included in the estate under section 1115. The question in Zachary was whether sections 1115 and 1129(b)(2)(B)(ii) created an exception to the absolute priority rule so that an individual debtor may retain property that he or she acquires before commencement of the case when the creditors are not paid in full. Courts adopting the broad view have interpreted sections 1115 and 1129(b)(2)(B)(ii) to allow an individual debtor to retain all estate property whether acquired pre- or post-petition. These courts have essentially held that the absolute priority rule no longer applies to an individual debtor. Conversely, the courts adopting the narrow view have interpreted sections 1115 and 1129(b)(2)(B)(ii) to allow an individual debtor only to retain property acquired post-petition.
The Ninth Circuit adopted the narrow view and held that an individual debtor may not retain pre-petition property when creditors are not paid in full. The court held that interpreting sections 1115 and 1129(b)(2)(B)(ii) as defining a new class of property that is exempt from the absolute priority rule “nicely harmonizes the new provisions.” The court also reasoned that if Congress had intended to eliminate the absolute priority rule for individual chapter 11 debtors (i.e., the broad view), it would have done so in a more straightforward manner. After all, Congress repealed the absolute priority rule in 1952 and then reinstated it in 1978, “demonstrating that when it intends to abrogate the rule, it knows how to do so explicitly.”
By its opinion in Zachary, the Ninth Circuit joined the Fourth, Fifth, Sixth, and Tenth Circuits in adopting the narrow view of the absolute priority rule. The decision in Zachary, as well as the prior decisions in the sister circuit courts, is a “double-whammy” for individual debtors in chapter 11. Individual chapter 11 debtors cannot confirm a plan over the objections of creditors unless they relinquish both five years’ of post-petition disposable income (as provided for in section 1129(a)(15)(B)) and prepetition property. Debtors may need to brace themselves for longer, more protracted negotiations with unsecured creditors, and should prepare themselves to part with prepetition property. Enabling a fresh start for the individual chapter 11 debtor has just become a more difficult endeavor, and may force more individual debtors into chapter 7.
2016: Friend or Foe in the Face of the Global Oil Pricing Crisis?
2015 saw the global oil and gas market in turmoil and 2016 looks set to continue the trend.
16 January 2016 saw the lifting of sanctions against Iran, and critically signified its re-entry as a major OPEC player to the already saturated global oil and gas market. With the world’s fourth-biggest oil reserves, an immediate increase equivalent to an extra 500,000 barrels a day is predicted, increasing over the year to meet pre-sanction levels by the end of 2016. This would represent approximately 10% of total OPEC production and is only forecast to increase.
New Liquor Licence Guide for Insolvency Practitioners
The trading environment for Britain’s pubs has never been tougher. According to the Campaign for Real Ale, 29 pubs close every week in the UK, with pubs selling approximately a third of the number of pints that they used to sell in the late 1970s.
With the number of failing pubs on the increase, insolvency practitioners need to be aware of the potential issues with UK licensing laws that they face when accepting an appointment over a business that holds an alcohol licence. Breaches of UK licencing laws are punishable by an unlimited fine and/or up to 6 months’ imprisonment.
Nicola Smith, a Senior Associate in our specialist alcohol, entertainment and food licensing team, has authored a Guide on Liquor Licensing law for Insolvency Practitioners which has been published by Lexis PSL.
A copy of the Guide is available here IPs’ Liquor Licence Guide
More Bad News for Bankruptcy Professionals – Baker Botts v ASARCO is Back Like a Boomerang
Last June, the Supreme Court issued a ruling in Baker Botts LLP v. ASARCO, LLC, which dramatically altered expectations that had previously been fairly widely accepted in many areas – the right of professionals representing debtors and creditors committees to be reimbursed by the estate for fees incurred in defending objections to their fees. In ASARCO, the Supreme Court applied the so-called “American Rule” that each party must pay its own attorneys’ fees absent explicit statutory authority to the contrary. The Supreme Court held that section 330 of the Bankruptcy Code, which governs payment of fees to estate professionals, is not sufficiently “specific and explicit” to avoid the American Rule and that Baker Botts was therefore not entitled to recover its fee defense costs. This blog previously explored the ASARCO ruling in greater detail.
