Key Points

Hong Kong Airlines (HKA) has announced that it is seeking to implement a restructuring of its aircraft lease obligations and other liabilities by court action in the UK and Hong Kong.

The plan proposes to give aircraft lessors a right to an upfront cash recovery — of about 5 percent of their claims (or in the case of lessors of aircraft being retained, the right to elect equity in the restructured HKA) — and potential future payouts starting in 2028 tied to the future earnings of the airline.

Key Points

• The use by Malaysia Airlines' subsidiary, MAB Leasing Ltd. (incorporated in Malaysia) ("MABL"), in 2021, of an English Scheme of Arrangement (a "Scheme") to compromise its aircraft lease obligations proved that US Chapter 11 is not the only route to a globally recognised compromise of airline leases.
• Airline lessors should now prepare themselves for Schemes (and possibly also other English restructuring processes) as an alternative to Chapter 11.

Background

1. State of the Restructuring Market

1.1 Market Trends and Changes

State of the Restructuring and Insolvency Market

There were 27,359 insolvencies in France as of the end of September 2021, down 25.1% from the same period in 2020, and down 47.9% from September 2019. Such reduction is relatively stable across all sectors, including those most severely affected by the health-related restrictions, such as accommodation and food services (down 44.2% year-on-year) and trade (down 28.1% year on year).

Fewer Insolvencies for More Opportunities

At the end of 2021, corporate bankruptcies (for most company sizes and in most sectors) were at their lowest level compared to the pre-COVID-19 figures from 2019, with a 50% drop in insolvency proceedings and a 10% decrease in pre-insolvency situations. This was largely due to the temporary impact of government emergency measures and support, including:

Background

In the 2018 Autumn Budget, the Chancellor announced his intention to reintroduce Crown Preference with effect from 6 April 2020. Due to the attempts to prorogue Parliament and the General Election last year, the necessary legislation was not passed. However, it has now been introduced in the Finance Bill 2020, with the later start date of 1 December 2020.

This week’s TGIF takes a look at the recent case of Mills Oakley (a partnership) v Asset HQ Australia Pty Ltd [2019] VSC 98, where the Supreme Court of Victoria found the statutory presumption of insolvency did not arise as there had not been effective service of a statutory demand due to a typographical error in the postal address.

What happened?

This week’s TGIF examines a decision of the Victorian Supreme Court which found that several proofs had been wrongly admitted or rejected, and had correct decisions been made, the company would not have been put into liquidation.

BACKGROUND

This week’s TGIF considers Re Broens Pty Limited (in liq) [2018] NSWSC 1747, in which a liquidator was held to be justified in making distributions to creditors in spite of several claims by employees for long service leave entitlements.

What happened?

On 19 December 2016, voluntary administrators were appointed to Broens Pty Limited (the Company). The Company supplied machinery & services to manufacturers in aerospace, rail, defence and mining industries.

This week’s TGIF considers the recent case of Vanguard v Modena [2018] FCA 1461, where the Court ordered a non-party director to pay indemnity costs due to his conduct in opposing winding-up proceedings against his company.

Background

Vanguard served a statutory demand on Modena on 27 September 2017 seeking payment of outstanding “commitment fees” totalling $138,000 which Modena was obliged, but had failed, to repay.

The recent decision of the Court of Appeal of Western Australia, Hamersley Iron Pty Ltd v Forge Group Power Pty Ltd (in Liquidation) (Receivers and Managers Appointed) [2018] WASCA 163 provides much needed clarity around the law of set-off. The decision will no doubt help creditors sleep well at night, knowing that when contracting with counterparties that later become insolvent they will not lose their set-off rights for a lack of mutuality where the counterparty has granted security over its assets.