When an employer is insolvent and administrators appointed, job losses are often an inevitable consequence. In this blog we look at the legal obligations arising where redundancies meet the threshold for collective consultation, and the implications for administrators arising out of the recent Supreme Court in the case of R (on the application of Palmer) v Northern Derbyshire Magistrates Court and another.

When does the legal obligation to collectively consult apply?

On 24 February, the Government published draft regulations that, if implemented, will impose new restrictions on pre-pack administration sales to connected parties. For all `substantial disposals' (which will include `pre-pack' sales) to connected parties, taking place within eight weeks of the administrators' appointment, the administrators will either need creditor consent or a report from an independent `evaluator'.

Context

The COVID-19 pandemic has caused massive disruption across the globe, resulting in a significant uptick in U.S. restructuring activity. According to AACER, a database of U.S. bankruptcy statistics, an estimated 7,128 business bankruptcies were filed in 2020, representing a 29% increase over the same period last year. Although Chapter 11 filings increased in 2020, many experts believe we have yet to see the full extent of the surge in filings that will occur in the aftermath of the COVID-19 crisis.

On January 17, 2017, the U.S. Court of Appeals for the Second Circuit issued an opinion in Marblegate Asset Management v. Education Management Corp., 15-2124-cv(L), 15-2141cv(CON) (2nd Cir. Jan. 17, 2017), overturning a broad interpretation of the Trust Indenture Act (TIA) by the U.S.

In the past decade, Chapter 11 practice has witnessed the rise of a new phenomenon: structured dismissals.¹ Broadly speaking, the term structured dismissal is an umbrella term for a dismissal order that includes additional bells and whistles, such as releases, protocols for claims administration or provisions permitting the gifting of assets to junior stakeholders. Like a Chapter 11 plan, a structured dismissal often identifies how proceeds are to be distributed while retaining jurisdiction in the bankruptcy court for claims administration and other specified matters.

On May 26, 2015, the U.S. Supreme Court issued its ruling in Wellness International Network, Ltd., et al. v. Sharif.¹ The Wellness decision clarifies one of the most significant open issues created four years ago by the Court’s highly controversial decision in Stern v.

The Bankruptcy Code's so-called "cramdown" statute provides debtors with a significant tool that can be used to impose a reorganization plan upon recalcitrant secured lenders, subject to fulfillment of certain requirements. In particular, Section 1129(b) of the Bankruptcy Code allows a bankruptcy court to approve a debtor's reorganization plan over the objections of a secured creditor so long as the plan is "fair and equitable" to the creditor.