• Webinar Series: “Directors’ Duties Across Borders in the Insolvency Zone”: On Feb. 14, 2024, our committee hosted the second webinar in a series that covers key jurisdictions around the globe focusing on bankruptcy-type proceedings in foreign jurisdictions. The webinar examined the situation in the Americas. Click here to read more about this webinar.
• Webinar: “Unraveling ADR in Restructuring & Insolvency Cases: A Global Perspective”: Our committee partnered with the ABI Mediation Committee on Feb. 27, 2024, to present a webinar focused on mediation and arbitration in the context of insolvency proceedings. Click here to read more about this webinar.

Annual Spring Meeting Recap
Our committee partnered with the Commercial Fraud Committee to present a panel titled, “Cross-Border Recovery in Fraudulent Schemes.” The panelists included Kimberly Crabbe-Adams and Craig Martin, with Michael Napoli serving as moderator. The committee also co-hosted a happy hour with the Commercial Fraud Committee. We thank all those who attended, especially our sponsors.

Over about 75 minutes, the panelists answered questions related to the duties directors must confront under domestic law when operating in the zone of insolvency and contrasted domestic law expectations around directors’ duties compared to those that apply in the U.S. All noted that in their countries, the directors’ duties are always to the corporation as a whole and not to any specific stakeholder group. With respect to third-party releases, it was of interest to note that the availability of nonconsensual releases was available in some but not all jurisdictions.

The Insolvency and Bankruptcy Board of India (IBBI), which released a report in September 2019 that recommended introducing reforms to better facilitate corporate group insolvency proceedings under the IBC, such as procedural coordination between group companies in insolvency, stopped short of recommending specific provisions to deal with substantive consolidation. It was, however, noted that reforms relating to substantive consolidation could be introduced at a later date.

Facts
Saad is a Cayman Islands company that was placed into liquidation on 18 September 2009. Via various transactions between 2002 and 2008, Trustee Maan Al-Sanea came to hold shares in five Saudi Arabian companies, on trust for Saad, in certain trusts governed by Cayman Islands law. On 26 September 2009, the trustee, in a breach of trust, transferred the shares to Samba Financial Group, a Saudi Arabian bank, for the purpose of discharging debts he owed to Samba in his personal capacity, which Samba proceeded to register in its name.

Critical to the dispute was the fact that Samba knew that the transfer was made in breach of trust. Indeed, in the Court below it was accepted that a reasonable bank in Samba’s position would have appreciated (or ought to have made inquiries or sought advice that would have revealed the probability) that the transfer was in breach of trust. However, under Saudi Arabian law, which governed the transfer, there is no distinction made between the legal title of, and an equitable interest in, property. The effect of the transfer was therefore that Samba became the legal owner of the shares, and that Saad’s equitable interest in the property was extinguished.

This article concerns primarily legal risks in one very specific form of investment, leaving aside the issues of economic risks that go beyond the scope of the issue: cryptocurrency pyramid schemes. This risk results from the fact that, even in virtual reality, the inevitable end of a pyramid scheme’s activity is the bankruptcy of the entity organizing it.

Of course, a pyramid scheme is not a new concept in finance. The scheme has been around for a long time and is fundamentally very simple: It involves accepting funds by an entity that invests them in a supposedly innovative asset or in a traditional asset, the value of which is played in a supposedly innovative way.