Supreme Court Permits Bankruptcy Courts to Issue Final Judgments with Parties’ Consent
by | posted in: Bankruptcy Administration and Jurisdiction | 0

By Harold S. Novikoff, Douglas K. Mayer, Ian Boczko, Emil A. Kleinhaus, and Alexander B. Lees of Wachtell, Lipton, Rosen & Katz

The Supreme Court’s latest decision regarding the power of bankruptcy judges to resolve claims between bankruptcy estates and their creditors is Wellness International Network, Ltd. v. Sharif, handed down on May 26, 2015. In its landmark 2011 ruling in Stern v. Marshall, the Court held that bankruptcy judges have limited authority under Article III of the Constitution to determine claims asserted by an estate against creditors. However, Stern left open the question, which has split lower courts, whether parties can nonetheless consent to bankruptcy court adjudication. In Wellness, the Supreme Court held that bankruptcy litigants may waive Article III rights, and suggested that parties may forfeit untimely objections to a bankruptcy court’s lack of authority.

For a fuller analysis and summary, click here for our memo on Wellness.

Update on Directors’ and Officers’ Insurance in Bankruptcy
by | posted in: Bankruptcy Administration and Jurisdiction | 0

By Douglas K. Mayer, Martin J.E. Arms, and Emil A. Kleinhaus of Wachtell, Lipton, Rosen & Katz
110915.wlrk.dMayer.3477.web 110913.wlrk.mArms.1503.web120221.wlrk.kleinhaus-1009.webD&O insurance policies typically combine coverage for certain liabilities and defense costs of individual directors and officers (“A” coverage) and of their companies (“B” and “C” coverage). In recent years D&O policies also typically state that payments to insured individuals under their A coverage take priority over payments of B or C coverage to the insured company.

After commodities broker MF Global filed for bankruptcy in 2011, insured individual directors and officers asked the bankruptcy court to allow them to request payment of their A coverage for their defense costs in ongoing litigation, but were opposed by the contention that all access to the D&O insurance policy, including the individuals’ A coverage, was subject to the automatic bankruptcy stay due to the policy’s B and C coverages. [The B and C coverage of the company was directly subject to the stay; the personal A coverage was argued to be sufficiently related to the B and C coverage that it was also stayed.]

The bankruptcy court ultimately allowed the individuals to access their A coverage by honoring the policy’s priority of payment language, but in the interim granted the individuals only limited access to insurance money while the coverage litigation was ongoing. The MF Global D&O insurance dispute illustrates the significant risk that individuals may be barred, or at least significantly delayed, in gaining access to their personal A coverage under a typical directors and officers insurance policy issued to a company that subsequently enters bankruptcy, and highlights the usefulness of separate A-only or Difference in Condition coverage for individual directors and officers.

For the full memo, navigate here.