BCLP Global Restructuring & Insolvency Developments

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Creditor’s Rights

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From Across the Pond – Dissipation of Assets May be Tort Under English Law: Marex Financial Limited v. Garcia [2017] EWHC918

Editor’s Note from The Bankruptcy Cave:  Our good colleagues Robert Dougans and Tatyana Talyanskaya from BC’s London office published this earlier in the summer, and we could not wait to add it to your autumn reading list.  The lesson here is powerful – England, the birthplace of the common law, comes through again to right an injustice where traditional legal principles might otherwise fall short.  Many of you readers have often dealt with defendants playing a shell game with their assets.  The Marex decision provides a powerful response – an independent tort against the individuals who perpetrated the asset stripping, instead of a pursuing a daisy-chain of subsidiaries and affiliates, all bereft of assets.  We at The Bankruptcy Cave applaud this decision – for every right, there shall be a remedy! 

There is a joke that freezing injunctions are

No Notice: How Unnotified Creditors Can Violate a Discharge Injunction

Here is the scenario: You are a creditor.  You hold clear evidence of a debt that is not disputed by the borrower, an individual.  That evidence of debt could be in the form of a note, credit agreement or simply an invoice.  You originated the debt, or perhaps instead it was transferred to you — it does not matter for this scenario.  At some point the borrower fails to pay on the debt when due.  For whatever reason, months or even years pass before you initiate collection efforts.

Finally, you seek to collect on the unpaid debt. Those collection efforts include letters and phone calls, and maybe even personal contact, all of which are ignored.  Then you employ an investigator and an attorney.  You eventually obtain a default judgment from a state court, which the borrower (unsurprisingly) refuses to pay.  You then garnish the borrower’s wages to pay the debt.  You

What’s Yours is Mine and What’s Mine is For the Benefit of My Creditors: Bankruptcy Courts Remain Reluctant to Impose Constructive Trusts on Debtor Property

February 27, 2017

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There is an inherent tension between the goals of bankruptcy law and the state law doctrine of constructive trust.  A central tenet of bankruptcy policy is that similarly situated creditors should be treated equally: because an insolvent business or individual will not be able to pay all creditors in full, a proper bankruptcy system must provide as equitable a distribution to each of them as possible.  Constructive trust law, on the other hand, works to the advantage of a single creditor – which always means the detriment of the others when everyone is competing for limited funds.

Constructive trusts are imposed when “property has been acquired in such circumstances that the holder of the legal title may not in good conscience retain the beneficial interest.”  Beatty v Guggenheim_Exploration_Co, 225 N.Y. 380, 386 (1919) (Cardozo, J.).  When a creditor in a bankruptcy case alleges that the debtor is

Involuntary Bankruptcy Primer Part I: Understanding the Oft Ignored Involuntary Bankruptcy Petition (with Bankruptcy Cave Embedded Briefs for Your Use!)

August 30, 2016

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Editor’s Note:  This is a new one for us at The Bankruptcy Cave.  We are starting a series of primers, covering a narrow range of law but with more depth than just “here’s a recent case.”  And also, we have our first edition of “The Bankruptcy Cave Embedded Briefs” – top quality briefs on a certain issue, feel free to download to your own form files or come back and grab ’em when you need ’em.  Let us know what you think – we are always trying to improve things around here for our readers.

 

Involuntary bankruptcy is an underused but potentially powerful tool in the Bankruptcy playbook.  Although the process to initiate an involuntary case is relatively straightforward (and has been largely unchanged for decades), the scarcity of involuntary petitions filed each year means few bankruptcy lawyers have any practical experience in this area of law.  In 2012

PROMESA Shields Puerto Rico Behind a New Automatic Stay

July 21, 2016

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On June 30, 2016, President Obama signed the Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA)[1] into law.  A copy of the Act can be found here. The most significant portions of PROMESA are found in titles I and II, which establish an Oversight Board with budgetary and fiscal control over Puerto Rico, and title III, which creates of a debt adjustment procedure for Puerto Rico and other territories of the United States.  From a bankruptcy perspective, title III gives rise to a fascinating new procedure that, while it does not make U.S. territories eligible to commence cases under chapter 9 of the Bankruptcy Code, patterns itself after a chapter 9 case by adopting and incorporating substantial portions of chapters 1, 3, 5, 9, and 11 of the Bankruptcy Code to create an wholly new debt adjustment process for Puerto Rico and other U.S. territories.

Beyond

How Reporting a Crime May Subject You to Sanctions

You are a creditor and your loan is secured by personal property, let’s say equipment.  The borrower recently filed for bankruptcy protection.  You receive a phone call from a friend advising you that someone has a moving truck outside the borrower’s business location and it looks like they are stealing equipment.  You don’t know who is moving the equipment — but you do know it’s without your permission and in violation of the security agreement.  You are furious.  You think a crime is being committed and you want tell the appropriate authorities.  You call the police, file a police report and hope the police will recover the equipment so your collateral remains intact.  A few weeks later, the chapter 11 debtor files an action against you for willful violation of the automatic stay and requests sanctions again you under 11 U.S.C. 362(k)(1)!  Will you have to pay sanctions?

Believe it

Bitcoin after Brexit: Safe Haven or Harbinger of Future Distress?

Currency icons consept : Businessman touching the screen about currency icons

What a difference a week makes! On June 17, 2016, bitcoin was trading at more than $750. Five days later, as polls showed the Brexit vote leaning heavily to “remain,” bitcoin dropped as low as $585. After the vote to leave the European Union became final, the British Pound, the Euro, the Chinese Yuan, and global stocks dropped precipitously. Bitcoin, on the other hand, spiked to more than $676, and was trading in the $660s on Friday. Could this mean bitcoin is being perceived as a new safe-haven asset?

A Brief Background on Bitcoin Generally

Bitcoin often is described as a “digital currency.” On a more technical level, bitcoin is a digital asset within a peer-to-peer computer network payment system created in 2008

Ninth Circuit Decides Issue of First Impression, Protects Insider Guarantor from Preference Liability

In a case of first impression for any district or appellate court, the Court of Appeals for the Ninth Circuit (the “Court”) held that “when an insider guarantor has a bona fide basis to waive his indemnification rights against the debtor in bankruptcy and takes no subsequent actions that would negate the economic impact of that waiver, he is absolved of any preference liability to which he might otherwise have been subjected.” As discussed below, the case provides a list of factors for courts to consider in determining whether an indemnification waiver should be considered valid for purposes of exempting an insider guarantor’s preference liability.

In Stahl v. Simon (In re Adamson Apparel, Inc.), the Court decided whether a personal guarantor of corporate debt may be liable for preferences where that guarantor is an insider of the debtor but validly waived his rights to indemnification against the debtor. The debtor

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