In a welcome clarification for administrators, the UK Supreme Court in the recent case of R (on the application of Palmer) v Northern Derbyshire Magistrates’ Court[1], held that an administrator appointed under the Insolvency Act 1986 (IA 1986) is not an “officer” of the company for the purposes of section 194(3) of the Trade Union and Labour Relations (Consolidation) Act 1992 (TULRCA).
Whilst commonplace in the U.S., uptier transactions in which a borrower teams up with a subset of creditors to issue new “super priority” debt by amending or exchanging existing debt documents, have not been widely used in Europe.
However, with increasing macro economic pressures and financial market instability, we may see more European borrowers taking advantage of flexibility in cov-lite debt documentation to implement liability management transactions as an alternative to, or even as part of, more formal restructurings.
In this client alert we set out some of the key lessons from the recent judgment in ABT Auto Investments Ltd v Aapico Investment Pte Ltd [2022] EWHC 2839 (Comm), which considers the validity of appropriation as an enforcement power pursuant to Regulation 17 of the Financial Collateral Arrangements (No. 2) Regulations 2003 (“FCARs”), the duty imposed on a collateral-taker by Regulation 18 of the FCARs in connection with the valuation of a collateral subject to appropriation, and provides useful guidance on what is “commercially reasonable” in this context.
There are distinct advantages to investors sitting on the boards of their portfolio companies, not least their ability to look after their investment and work toward maximising their return. The human capital provided by investor directors can be invaluable in driving efficiencies and creating growth opportunities. The interests of investors, investor directors, and the company will generally be aligned in seeking the success of the business.
This update summarises the latest jurisprudence on insolvent schemes of arrangement (schemes) and restructuring plans (RPs), and provides an overview of the key themes that are emerging in this area.
Key Concepts and Notes
Many investors, including PE firms, are waiting with bated breath to see how the UK economy, currently dependent on COVID-19-related government support, will respond once that stimulus is withdrawn. An increase in UK company insolvencies is expected, creating opportunities for savvy investors to acquire businesses at bargain prices, while at the same time appearing to be white knights swooping in to save a beloved high street brand or large regional employer.
STOP RIGHT NOW, THANK YOU VERY MUCH – I NEED SOME TIME FOR A RESCUE.
THE PART A1 MORATORIUM
The moratorium is an insolvency process introduced by the Corporate Insolvency Governance Act 2020. It allows a financially distressed company to obtain temporary protection from creditor action, while the company attempts to rescue itself as a going concern. It is a debtor-in-possession process, overseen by a monitor—an insolvency practitioner.
Who can use it?
The UK’s reformed restructuring regime shows its force with the first successful cross-class cram-down following the introduction of the new restructuring plan. A quick legal update on the key features of the restructuring plan and the analysis of the recent cases can be found in the infographic below.
Contributors to this update were Howard Morris, Amrit Khosa, Jai Mudhar, Joe Donaghey, and Haania Amir.
