New legislation ushers in the largest change in the UK’s corporate insolvency regime in over 20 years and raises questions for pension schemes.

Fast-tracked through Parliament in the wake of the Covid-19 emergency, the Corporate Insolvency and Governance Act 2020 came into force on 26 June 2020. It brings in some temporary measures designed to support businesses affected by the pandemic and changes that have been expected for a while. We look at five aspects of the Act that the trustees and employers of UK pension schemes will need to know about.

The long-awaited revamp of UK insolvency and corporate governance law has introduced significant changes to the effectiveness of termination on insolvency clauses in supply contracts.

As discussed in earlier posts,¹ substantial uncertainty exists over whether companies in bankruptcy are eligible to pursue funding pursuant to the SBA’s Paycheck Protection Program, or PPP, which was established by the CARES Act to support small businesses by offering SBA-guaranteed loans on advantageous terms.

The long-awaited revamp of UK insolvency and corporate governance law will introduce significant changes to the effectiveness of termination on insolvency clauses in supply contracts.

The Corporate Insolvency and Governance Bill was published on 20 May 2020. Our understanding is that this will go through all stages of Parliament on Wednesday 3 June and will become law on or very soon after that date.

As discussed in an earlier Legal Update,¹ substantial uncertainty exists over whether companies in bankruptcy are eligible for loans under the Paycheck Protection Program, or PPP, which was established by the CARES Act to support small businesses by offering SBA-guaranteed loans on advantageous terms. Several recent bankruptcy court decisions underscore this uncertainty.

As courts across the country deal with scaled back operations due to the COVID-19 pandemic, bankruptcy courts in New Jersey and Delaware have issued novel orders to address the impact of the virus on certain debtors. Last month, debtors in the chapter 11 bankruptcy cases of Modell’s Sporting Goods, Inc. and CraftWorks Parent, LLC each sought and obtained court orders suspending certain case activity which, for all intents and purposes “mothballed” the cases for a certain period of time.

The UK Government has announced wide-ranging emergency legislation in response to the Coronavirus crisis, in an attempt to reduce the burden on business and allow them to carry on trading during and after the pandemic. Some of the changes (other than the one on wrongful trading) were already intended following a consultation process that concluded in 2018 but are now being fast tracked.

Prepayment premiums (also referred to as make-whole premiums) are a common feature in loan documents, allowing lenders to recover a lump-sum amount if a borrower pays off loan obligations prior to maturity, effectively compensating lenders for yield that they would have otherwise received absent prepayment. As a result of the widespread use of such provisions, three circuit courts of appeal – the U.S. Court of Appeal for the Second, Third and Fifth Circuit – have recently had to address the enforceability of prepayment provisions in bankruptcy.

In recent weeks, the dispute in Windstream’s bankruptcy between Windstream and its REIT spinoff Uniti Group over the lease transaction that ultimately led to Windstream’s chapter 11 bankruptcy has continued to escalate with Windstream filing an adversary complaint against Uniti. In its complaint, Windstream seeks to recharacterize the lease as a disguised financing alleging that the lease resulted in a long-term transfer of billions of dollars to Uniti to the detriment of Windstream’s creditors.