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.
Recent months have brought unprecedented challenges to businesses, with no sector immune to the economic repercussions of the pandemic. Yet despite headline news of certain high-profile restructurings and insolvencies, such as Virgin Atlantic, Debenhams, and Edinburgh Woollen Mill, it seems the emergency measures implemented by the UK Government have, to a degree, staved off wide spread economic collapse that may otherwise have been inevitable.
Re Joint Provisional Liquidators of Moody Technology Holdings Ltd [2020] HKCFI 416
The Hong Kong Court has explained why there is no inconsistency between: (a) its domestic insolvency law which does not permit the appointment of provisional liquidators purely for the purposes of restructuring the company; and (b) common law recognition of foreign "soft-touch" provisional liquidators.
What is a soft-touch provisional liquidator?
Introduction
The immediate focus for Britain’s authorities when dealing with the COVID-19 pandemic has been, quite rightly, to secure the best possible health outcome for the greatest number of people.
Subsequently, following a wave of concern regarding the best way of maintaining the financial status-quo for (i) businesses, (ii) employees, and (iii) individuals, the UK government announced an unprecedented series of assistance programmes, designed to counter the impact of previously unknown, and unquantifiable, distress.
Introduction
Clearly there are some major economic challenges ahead.
Many businesses may be able to withstand the challenges ahead but it may very well be that their trading counterparties (whether suppliers, customers or other stakeholders) will not. Whilst these times can represent an opportunity for some, such as potential acquirers (whether of businesses, assets or distressed debt), in most cases, the climate represents a threat to businesses.
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.
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.
Beauty Brands, LLC, along with two subsidiaries and affiliates, has filed a petition for relief under chapter 11 in the Bankruptcy Court for the District of Delaware (Lead Case No. 19-10031).
Angel Medical Systems, Inc., a developer of medical devices based in Eatontown, NJ, has filed a petition for relief under Chapter 11 in the Bankruptcy Court for the District of Delaware (Case No. 18-12903).
Alcor Energy, LLC filed a petition for relief under Chapter 11 in the Bankruptcy Court for the District of Delaware (Case No. 18-12839).