Historically, the interests of landlords whose commercial real estate is occupied by debtors in Chapter 11 proceedings have been generally well protected. Indeed, Section 365(d)(3) of the Bankruptcy Code requires the debtor to timely perform all of its post-petition obligations under its nonresidential leases of real property — most important among those, rent.
Building on measures already introduced in the Coronavirus Act – such as the moratorium on lease termination for non-payment of rent until 30 June 2020 – the Government announced that further emergency measures will be introduced.
Statutory demands and winding up petitions issued to commercial tenants to be temporarily voided
The forthcoming Corporate Insolvency and Governance Bill will include restrictions on the use of statutory demands and winding up petitions to recover sums owed by tenants.
On March 27, the president signed into law Phase 3 of the federal stimulus program, called the Coronavirus Aid, Relief, and Economic Security Act, or CARES Act. Title I of the act, titled the Keeping American Workers Paid and Employed Act (KAWPEA), directs, among other amounts, $349 billion to small businesses as part of an expansion of the U.S. Small Business Administration’s (SBA) Section 7(a) loan program under a new paycheck protection loan program (PPP) as well as $10 billion through an expansion to the SBA’s Section 7(b) economic injury disaster loan (EIDL) program.
The question is not if but how deeply the global coronavirus (COVID-19) pandemic will disrupt businesses and impact future operations. That answer differs based upon each company’s industry, access to cash and other capital, debt structure, ability to manage expenses, lost revenues, and operational interruption. Certain industries, such as airlines and airline service companies, hotels, restaurants, sports and entertainment, media, and retailers, among others, are suffering immediate adverse effects. Our healthcare resources are being stretched thin.
The recent decision of the Bankruptcy Court for the Southern District of New York in In re AAGS Holdings LLC, Case No. 19-13029 (SMB) (Bankr. D. Del. Nov. 12, 2019), underscores the ability of debtors — and specifically, for purposes of this Client Alert, parties to real property purchase contracts — to take advantage of the Bankruptcy Code’s 60-day tolling period to get more time to close on a purchase despite a “time of the essence” ("TOE") closing deadline.
In another decision affecting Chapter 11 cases, U.S. Bank National Association v. Village at Lakeridge, --- S. Ct. ---, 2018 WL 1143822 (2018), on March 5, 2018, the United States Supreme Court issued a unanimous decision, authored by Justice Kagan, affirming the Ninth Circuit’s decision to review the Bankruptcy Court’s determination of a mixed question of fact and law for clear error, rather than de novo.
Key Points
A binding contract by exchange of email did not arise where parties were simply exploring a potential deal.
Sale by auction is often appropriate where an asset is difficult to value.
Where no differential treatment of creditors, unfair harm requires that a decision does not withstand logical analysis.
The Facts
Investors may, for reasons outside of their control, find themselves with a financially distressed company in their portfolio and possibly in unfamiliar territory. Consequently, it is not just those investors who actively seek out opportunities within the distressed space who should be mindful of the implications of insolvency processes (most commonly administration which can often also be used as part of a wider restructuring).
Key points
Failure to comply with sections 333 and 363 of the Insolvency Act constitutes contempt of court for which a committal order may be obtained.
A trustee in bankruptcy should not usually require permission to apply for a committal order.
Correct procedure for application confirmed by the court.
Key points
Information obtained by compulsion can be shared between officeholders of connected estates (parent/subsidiary)
There must, however, be a possibility that there will be a surplus in the subsidiary estate
The prospect must be real as opposed to fanciful
The facts