Christopher J Howard, Sullivan & Cromwell LLP

This is an extract from the third edition of GRR's The Art of the Ad Hoc. The whole publication is available here.

Introduction

Kate Colman, Sarah Levin and Ryan Al-Hakim, Milbank LLP

This is an extract from the third edition of GRR's The Art of the Ad Hoc. The whole publication is available here.

Introduction

For a decade or more, restructuring professionals have predicted the coming of a bankruptcy boom. This may be the year those predictions finally come true. Inflation, interest rates, supply chain issues, global conflict and domestic politics have created a challenging macro environment. At the same time, dry powder abounds, with new distressed debt funds cropping up daily. Will this result in a bankruptcy tidal wave, or an increase in workouts and distressed M&A? Perhaps all of the above.

Where a company's liquidation is necessary, deciding who or where is best placed to administer an orderly wind down for the benefit of creditors can be difficult: the shortfall of assets in an insolvency will highlight jurisdictional differences in approach as to questions of priority, frequently territorial rather than universalist.

On 5 October 2022 a judgment was handed down by the Supreme Court in the case of BTI 2014 LLC v Sequana SA (Sequana) and others.This judgment relates to an insolvency dispute between BTI, the assignee of AWA’s claims, and Sequana. Principally, it concerns which entity should make the payment for an outstanding liability incurred by AWA, arising out of the National Cash Register Company’s (NCR) pollution of the Fox River in Wisconsin. Through a series of restructurings, AWA became liable to indemnify British American Tobacco (BAT) for these costs.

Over the last two years, courtesy of a once-a-century pandemic, government-mandated business closures, nationwide stay-at-home orders, and—unprecedented—disruptions to the global supply chain have illuminated, previously unknown, vulnerabilities across a whole host of industries. Would anyone have seriously questioned the viability of office space two years ago? Now, inflation, in keeping with the recent chaos, may be upending the viability of another tried-and-tested institution: the supply contract.

You’ve gotta admire the Debtor in In re Deirdre Ventura.

Debtor has been fighting to save a Bed and Breakfast business through bankruptcy: beginning in 2018 with a regular Chapter 11, and then struggling to get into Subchapter V.

Debtor’s is a you-can’t-make-this-stuff-up story of persistence through adversity.

Debtor has survived, for example, an inexplicably-bad appellate opinion refusing to allow Debtor’s Subchapter V election. The appellate opinion declares:

To the long list of things people love about lawyers we can add last week’s holding by the Eleventh Circuit Court of Appeals that “Blvd.” is utterly unrecognizable as “Boulevard” – at least by Article 9 of the Uniform Commercial Code as enacted in Florida.

Assignment for benefit of creditors (“ABC”) has existed for centuries under the common law of England and the United States. And the ABC process has worked well under that common law!

ABC Function

ABC has been an effective tool in the toolbox of debtor and creditor remedies for resolving financial stress. Specifically, ABC allows a failing business to shut down with efficiently and credibility:

The U.S. Cannabis industry stands on the cusp of springing forth as a fully formed industry once certain legislative hurdles are overcome. As one of the first major U.S.-based business advisory firms to establish a cannabis-specific practice, the FTI Consulting team understands the unique challenges of the cannabis industry from local, national and global perspectives.