Borrower beware: in times of distress, your credit documents may give your secured lenders an opportunity to “flip” control of your board

Distress happens, even at companies that once appeared financially solid. When it does, the company, its board (which may be controlled by a sponsor in a public or private equity scenario), and its lenders often enter into restructuring discussions in search of a consensual path forward, typically under the terms of a forbearance agreement.

Introduction

The COVID-19 pandemic hit the bottom line of many businesses. Among the hardest hit industries has been the travel industry and, in particular, airlines and aviation companies. Many airlines are still struggling to generate new ticket sales as compared to pre-pandemic levels and average fares remain depressed.¹ One industry source predicts that passenger numbers will not return to 2019 levels prior to 2024.² Compounding this are increased costs of fuel (up 35% so far this year) and other expenses.³

The COVID-19 pandemic hit the bottom line of many businesses. Among the hardest hit industries has been the travel industry and, in particular, airlines and aviation companies. Many airlines are still struggling to generate new ticket sales as compared to pre-pandemic levels and average fares remain depressed.¹ One industry source predicts that passenger numbers will not return to 2019 levels prior to 2024.² Compounding this are increased costs of fuel (up 35% so far this year) and other expenses.³

The High Court decision in Re All Star Leisure (Group) Limited (2019), which confirmed the validity of an administration appointment by a qualified floating charge holder (QFCH) out of court hours by CE-Filing, will be welcomed.

The decision accepted that the rules did not currently provide for such an out of hours appointment to take place but it confirmed it was a defect capable of being cured and, perhaps more importantly, the court also stressed the need for an urgent review of the rules so that there is no doubt such an appointment could be made.

A three-judge panel of the U.S. Court of Appeals for the Fifth Circuit has voided its previous near explicit declaration that make-whole provisions are always unmatured interest, and therefore subject to disallowance under section 502(b) of the Bankruptcy Code in Ultra Petroleum.

In certain circumstances, if a claim is proven, the defendant will be able to offset monies that are due to it from the claimant - this is known as set off.

Here, we cover the basics of set off, including the different types of set off and key points you need to know.

What is set off?

Where the right of set off arises, it can act as a defence to part or the whole of a claim.

Judge Drain has now issued a long-awaited Order on Remand from the Second Circuit’s decision in Momentive Performance Materials determining the appropriate cramdown interest rate applicable to replacement notes issued by Momentive.

In our update this month we take a look at some recent decisions that will be of interest to those involved in insolvency litigation. These include:

Creditor not obliged to take steps in foreign proceedings to preserve security