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?

Most restructuring professionals will tell you that there is no “typical” restructuring. That is absolutely true. Every financially distressed business is different and the character and direction of its restructuring will be highly dependent upon, among others, its capital structure, its liquidity profile, and the level of support it can build for its reorganization among key stakeholder bodies. Nevertheless, there are some important similarities in the way that any company should initially address a distressed situation.

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 oil and gas industry in Texas is currently facing a double whammy from the recent oil price shock and COVID-19 related demand reductions. While exploration and production operators in Texas are proactively taking self-help measures to reinforce their financial frameworks — reducing capital spending, operating expenses, overhead and dividends — the outlook remains highly uncertain.

In recent years, it has become common practice in large chapter 11 cases for debtors to include language in their proposed chapter 11 plan which purports to release certain nondebtors from the claims of third parties. Although some third parties may consent to the release—such as by voting in favor of the plan or otherwise electing to do so during the plan solicitation process—circumstances frequently arise in which the debtors seek approval from the bankruptcy court to release nondebtors from third parties’ claims without the consent of the third parties.