On 28 March 2020, the Business Secretary, Alok Sharma, announced new insolvency measures to support companies under pressure as a result of the COVID-19 outbreak. In summary, the government is due to: (i) implement the landmark changes to the corporate insolvency regime that were announced in August 2018 (as discussed in Weil’s European Restructuring Watch update on 7 September 2018); and (ii) temporarily and retrospectively suspend wrongful trading provisions for three months.

Proposed Changes to the Corporate Insolvency Regime

Background

On 6 March 2020, the restructuring of Doncasters Group's 1.22 billion funded debt was completed. Following a successful non-core disposals program, the Doncasters Group (a leading worldwide supplier of high quality engineered components for the aerospace, industrial gas turbine and specialist automotive industries) operates from 12 principal manufacturing facilities based across the United Kingdom, the United States, Germany, Mexico and China.

Over the last two years, BEIS has issued a number of consultations either focussed on, or touching upon, corporate governance issues in insolvency or the broader insolvency framework.

The Bankruptcy Code’s cramdown provisions are a powerful tool for debtors in the plan confirmation process. Pursuant to section 1129(a)(10) of the Bankruptcy Code, a plan may be confirmed if, among other things, “at least one class of claims that is impaired under the plan has accepted the plan.” Once there is an impaired accepting class, and assuming certain requirements are met, the plan may then be “crammed down” on all other classes of impaired creditors that reject the plan and those creditors will be bound by the terms of a plan they rejected.

Recoupment is an equitable remedy – not expressly addressed in the Bankruptcy Code – that permits the offset of mutual debts arising out of the same transaction or occurrence. Unlike typical setoff, if recoupment applies, prepetition debts can be set off against postpetition debts. A recent decision from the Delaware bankruptcy court demonstrates that the availability of recoupment often depends on how the court defines the contours of the “same transaction or occurrence” requirement.

The Bankruptcy Court for the District of Delaware recently faced a question of first impression: whether an allowed postpetition administrative expense claim can be used to set off preference liability. In concluding that it can, the court took a closer look at the nature of a preference claim.

Facts and Arguments

Courts have applied various standards for determining when a “claim” arises for the purposes of the Bankruptcy Code, particularly in the tort context. A recent decision from the United States Bankruptcy Court for the Western District of Pennsylvania illustrates that the standard may differ depending on whether the claim in question is a creditor’s claim against the debtor’s estate or a debtor’s claim against a third-party.

Practitioners generally identify “excusable neglect” as the standard that bankruptcy courts apply in determining whether to allow a creditor’s untimely proof of claim. A creditor who lets the bar date pass finds itself in the undesirable position of having to persuade the bankruptcy court that its neglect to file a timely proof of claim was excusable.