Restructuring Plans (RPs)

2024 was a year of firsts for RPs, and as case law in this area continues to evolve, there is little doubt that this will carry through into 2025.

It would be remiss not to expect to see more RPs in 2025. News of Thames Water's restructuring is "splashed" all over the press and Speciality Steel's plan might see the first "cram up" of creditors, but there seems a long way to go to get creditors onside.

The below sets out key considerations when dealing with an extension of an administration at the end of the first-year anniversary.

Categorisation of a charge as fixed or floating will have a significant impact on how assets are dealt with on insolvency and creditor outcomes.

Typical fixed charge assets include land, property, shares, plant and machinery, intellectual property such as copyrights, patents and trademarks and goodwill.

Typical floating charge assets include stock and inventory, trade debtors, cash and currency, movable plant and machinery (such as vehicles), and raw materials and other consumable items used by the business.

The German Federal Court of Justice (the Federal Court) has considered whether a so-called "weak" preliminary insolvency administrator, entrusted to continue business operations with the management during the preliminary proceeding, may take actions in the interest of these operations, where it is unclear whether the debtor has discontinued the business.

Background

According to the German Federal Court of Justice (the Court), a “related party” (nahestehende Person) within the meaning of German insolvency law includes in the case of a legal entity, an indirect shareholder, provided that it holds more than 25% of the shares. Here, the Court will assume that the legal entity has advance knowledge of the financial situation of its subsidiary.

Background

Following our previous alert, in which we highlighted an issue with entries relating to registered security maintained at Companies House being incorrectly updated to indicate that they had in fact been discharged without the aware

Over the past week, reports have emerged about filings that have been made at Companies House marking a charge as satisfied, without the company's or relevant lender's knowledge.

There were rumours last week, which were simply that, because Companies House had not publicly announced any issue, but, as we have seen over the weekend and is now widely reported in the news, it appears that there have been at least 800 erroneous filings.

In a recent case before the Federal Court of Justice, an insolvency administrator was found to have neglected his duties of investigation in a particularly serious and reproachable manner.

Decision

The insolvency administrator had contested the offsetting of an investment subsidy by the creditor bank to balance the debtor’s accounts.

The focus of the decision was whether the insolvency administrator had made the contestation claim within the statutory limitation period. In Germany, this is usually three years and starts:

Monitoring Winding up Petitions

While not an everyday occurrence, a company being issued with a winding up petition is an eventuality that all providers of finance, whether on a secured or unsecured basis, will prepare for.

From a contractual perspective, facility agreements will include specific monitoring information covenants as part of the core relationship housekeeping, supported by a hard backstop of event of default triggers, with rights for debt acceleration, and (if applicable) security enforcement operating in tandem from that point.

Where a creditor believes that a debtor is insolvent, any “third-party application” that it makes for the insolvency of the debtor must be well substantiated.

Decision

The District Court of Hamburg recently considered an application for insolvency on grounds of illiquidity due to default in social security contributions.

A landmark decision of the German Federal Court (13 June 2006 – IX ZB 238/05) held that the illiquidity of a company could be assumed where it was in default for more than six months of social security contributions.