This article first appeared in Accountancy Daily on 20 January 2023.

With supply chain problems, war in Europe and other issues leading to higher inflation and an increasingly uncertain economic outlook, this article explores the options available to companies experiencing financial distress.

The active trading of loans made to a borrower that has become unable to repay in full (known as non-performing loans or distressed debt) has been a feature of the North American and European loan markets for a number of years.

On 4 November 2021, the High Court of Australia heard the arguments put forward by Wells Fargo Trust Company, National Association and Willis Lease Finance Corporation, together Wells Fargo, and the administrators (the Administrators) of the Virgin Australia Airlines group, which entered into administration on 20 April 2020. The dispute primarily concerned who should pay for the redelivery of four aircraft engines capable of being used on B737s (the Engines) to the lease redelivery location in Florida.

In what could prove to be a landmark judgment, a Dubai court ruled earlier this month that the directors of a company in bankruptcy should be personally liable for the company’s debts, to the sum of almost AED 450,000,000 (around US$ 122,000,000).

Article 144 of Federal Law No.9 of 2016 (the “Bankruptcy Law”) allows a court to order directors to pay a bankrupt company’s debts where:

It finally happened. On 12 December 2011, New York Governor Andrew Cuomo signed Senate Bill 2713A into law. The bill, which was passed by the legislature in June, adds important provisions to the New York Insurance Law regarding the treatment of qualified financial contracts in an insurance insolvency proceeding.

On 30 November 2011, New York Senate Bill 2713A was delivered to the desk of Governor Andrew Cuomo for signature. If signed by the Governor, the bill will add provisions to the New York Insurance Law regarding the treatment of qualified financial contracts in an insurance insolvency proceeding. “Qualified financial contracts” include derivatives, securities lending, repurchase agreements, futures contracts and other financial instruments. These contracts are typically documented under master agreements providing for netting of obligations between the parties.

Thus far in 2011, six additional states have enacted the provisions from the National Association of Insurance Commissioners’ Insurer Receivership Model Act (“IRMA”) that govern the treatment of “qualified financial contracts” and “netting agreements.”

The IRMA provisions, which are modelled on the U.S. Bankruptcy Code, allow a party that has entered into a swap transaction with an insurer to exercise certain netting, collateral realization and termination rights without being precluded by the automatic stay that is imposed if the insurer becomes insolvent.