Both the First Energy Solutions and PG&E bankruptcies have seen proceedings regarding power purchase and similar agreements (PPAs) that raise this question.
Background
Contracts often contain provisions that enable a party to terminate or modify the contract based on the other party's bankruptcy filing, insolvency or deteriorating financial condition. In general, the Bankruptcy Code renders these types of provisions (sometimes referred to as "ipso facto" clauses) ineffective. Specifically, under section 365(e)(1) of the Bankruptcy Code (emphasis added):
After months of speculation, it is now official : PG&E (both the parent, PG&E Corporation, and its subsidiary, Pacific Gas & Electric Company), having faced extraordinary challenges relating to catastrophic wildfires in 2017 and 2018, has announced that a voluntary bankruptcy filing “is appropriate, necessary and in the best interests of all stakeholders, including wildfire claimants, PG&E’s other creditors and shareholders, and is ultimately the only viable option to restore PG&E’s financial stability to fund ongoing operations and provide safe service to customers.” As
Merit Management Group, LP v. FTI Consulting, Inc., No. 16-784 (2018)
The UK Treasury and Financial Conduct Authority (FCA) have been drip-feeding the industry rules and practical details of the transfer of consumer credit (CC) regulation to FCA. FCA has now published the final form of its detailed rules in its Consumer Credit Sourcebook (CONC), with feedback and practical advice. The rules apply from 1 April 2014 with limited grace periods only. It is critical that all firms carrying on credit-related regulated activities know what the changes mean for them.
On December 5, 2013, Judge Steven Rhodes of the US Bankruptcy Court for the Eastern District of Michigan held that the city of Detroit had satisfied the five expressly delineated eligibility requirements for filing under Chapter 9 of the US Bankruptcy Code1 and so could proceed with its bankruptcy case.
FRC has issued guidance to banks' directors on financial reporting of solvency and liquidity risks, and the definition of going concern, in the context of post-crisis reforms and central bank and government support. (Source: Guidance for Directors of Banks)
The Government has decided to create a Special Administration Regime (SAR) for systemically important payment and securities settlement systems. It is concerned that, were one of these market infrastructures to become insolvent, the administrator or liquidator would have to work towards maximising value for creditors, rather than keeping critical payment and settlement services running. The Bank of England would have the power to apply to court for an order declaring the start of SAR proceedings. Ensuring continuity of service would be among the special administrator’s objectives.
The Government has fed back on the responses to DBIS’s consultation on the effect of bankruptcy on the ability to access a basic bank account. Responses to the consultation have shown that only 27% of people subject to a bankruptcy order are able to retain their bank account. A bank's decision not to offer a bank account to a bankrupt is mainly based on the bankrupt's credit record, rather than on the risk of the trustee making a claim against the bank, a risk that the consultation process has shown is more perceived than real.
BBA has published a briefing paper setting out its position on the Commission’s proposal for a bank recovery and resolution directive. It suggests that certain powers, such as appointing a Special Manager or requiring a plan for debt restructuring, are more akin to resolution tools and should not be used until the firm has reached its point of non-viability. This also applies to the bail-in tool, which cannot be used as the first or default option.
FMLC has published an addendum to its March 2012 paper on legal uncertainties arising from bail-ins. The addendum addresses the points the Commission made in a recent paper. (Source: FMLC Bail-in Addendum)