This past year was marked by extraordinary deal activity. Record breaking M&A activity drove record breaking private credit activity. Private equity M&A activity was at a substantial high, with over 8,500 deals worth $2.1 trillion, a 60% increase over 2020. Not surprisingly, in this environment, defaults were at all-time lows. The Proskauer Private Credit Default tracker showed an active default rate of approximately 1% at the end of 2021, compared to 3.6% in 2020.
Despite the Supreme Court’s rejection of a structured dismissal in 2017,[1] there is a growing trend of bankruptcy courts approving structured dismissals of chapter 11 cases following a successful sale of a debtor’s assets under Section 363 of the Bankruptcy Code.
The primary investment thesis of a private credit lender is simple — get the loan repaid at maturity. Private credit lenders do not make loans as a means to acquire their borrower’s business. There are circumstances, however, where private credit lenders must be prepared to take ownership when the borrower is distressed and there is no realistic prospect of near-term loan repayment. Becoming the owner of a borrower’s business may very well be the loan recovery option of last resort.
On 11 September 2020, the Insolvency Act 1986 (HMRC Debts: Priority on Insolvency) Regulations 2020 were made. The Regulations will come into force on 1 December 2020.
The Regulations set out the debts due to HMRC that will have ‘secondary’ preferential status in insolvencies from 1 December 2020. They are debts in respect of PAYE income tax, employee NICs, construction industry scheme deductions and student loan repayments. VAT debts are to be treated in the same way, though are not covered by these Regulations.
On 4 June 2020, a draft of The Insolvency Act 1986 (HMRC Debts: Priority on Insolvency) Regulations 2020 was provided to the Public Bill Committee. The Regulations are due to come into force on 1 December 2020.
The draft Regulations set out the debts due to HMRC that will have ‘secondary’ preferential status in insolvencies from 1 December 2020. They are debts in respect of PAYE income tax, employee NICs, construction industry scheme deductions and student loan repayments. VAT debts are to be treated in the same way, though are not covered by these draft Regulations.
HM Treasury has provided the Public Bill Committee with a draft copy of The Insolvency Act 1986 (HMRC Debts: Priority on Insolvency) Regulations 2020, to be made pursuant to the current clause 96 of the Finance Bill 2020. The draft regulations have not yet been formally laid before Parliament but are d
A recent, highly anticipated ruling by a Bankruptcy Court in Delaware has reilluminated the concept of a "golden share". While an appeal of the ruling seems likely, this latest ruling by Delaware Bankruptcy Judge Mary F. Walrath suggests that as the COVID-19 outbreak continues to disrupt businesses and send shockwaves through the economy, courts may look at the specific circumstances of each case and weigh the interests of all corporate stakeholders in determining whether to enforce a "bankruptcy blocker".
What is a "Golden Share"?
On 11 July 2019, HMRC published its summary of responses to its “protecting your taxes in insolvency” consultation.
Following the consultation, the government will legislate in the Finance Bill 2019-20 to make HMRC a secondary preferential creditor for certain tax debts paid by employees and taxpayers. This change is intended to ensure that when a business enters insolvency, more of the taxes paid in good faith by employees and taxpayers go to the Exchequer, rather than being distributed to other creditors. Draft legislation and an explanatory note is also available.
On 11 July 2019, HMRC published a policy paper discussing measures which are aimed at those taxpayers who “unfairly seek to reduce their tax bill by misusing the insolvency of companies”. This will be achieved by making directors and other persons connected to those companies jointly and severally liable for the avoidance, evasion or “phoenixism” debts of the corporate entity.
An explanatory note and draft legislation set out the conditions that must be satisfied in order to enable an authorised HMRC officer to issue a “joint liability notice” to an individual.
On 26 February 2019, HMRC launched a consultation entitled “Protecting your tax in insolvency”, on the government’s proposal to make HMRC a secondary preferential creditor for taxes paid by employees and customers (the new powers are contained in the proposed Finance Bill 2019-20).