1. State of the Restructuring Market

1.1 Market Trends and Changes

State of the Restructuring and Insolvency Market

There were 27,359 insolvencies in France as of the end of September 2021, down 25.1% from the same period in 2020, and down 47.9% from September 2019. Such reduction is relatively stable across all sectors, including those most severely affected by the health-related restrictions, such as accommodation and food services (down 44.2% year-on-year) and trade (down 28.1% year on year).

Fewer Insolvencies for More Opportunities

At the end of 2021, corporate bankruptcies (for most company sizes and in most sectors) were at their lowest level compared to the pre-COVID-19 figures from 2019, with a 50% drop in insolvency proceedings and a 10% decrease in pre-insolvency situations. This was largely due to the temporary impact of government emergency measures and support, including:

In the current period of flux, lenders should review their finance documents regarding protections and/or vulnerabilities; and where exposed to industries particularly affected by the COVID-19 outbreak may consider (i) invoking provisions to demand early repayment and/or to preclude further lending; and (ii) whether there is material benefit in doing so. They should also consider pre-emptive steps with a view to staving off critical defaults.

At first blush, it may seem counterintuitive for financiers to compete to provide loans to debtor companies that have just filed for protection under an insolvency or restructuring procedure, but they have been proven to do so on a large scale in US Chapter 11 cases and for a variety of reasons, whether to protect an existing loan position or taking an opportunity to garner significant, safe returns as a new lender.

In the recent case Re CW Advanced Technologies Limited, the Hong Kong court took the opportunity, albeit only obiter dicta, to raise and briefly comment on certain unresolved questions surrounding three issues of interest to insolvency practitioners:

It is not uncommon to see that the law governing a loan document is different from that of the debtor company’s place of incorporation. Can the rights of the lender be altered by a restructuring plan sanctioned in the latter? The English court said “no” in a recent case1, applying the longstanding Gibbs rule that also applies under Hong Kong law.

Background

Experienced insolvency practitioners in Hong Kong are all familiar with Hong Kong Court of Appeal's decision of 1 March 2006 in the liquidation of Legend International Resorts Limited1.

A key factor contributing to the vitality and development of the common law is that judges can have the benefit of authorities from other jurisdictions with a comparable legal framework. This has proved and will be increasingly important in areas such as cross-border insolvency, where modified universalism has been thecatchword in recent years.

Did you know that a scheme of arrangement can be used to reduce the creditor constituency in a liquidation, so that time and costs can be saved for the benefit of all parties?

The Honourable Mr. Justice Ng of the Hong Kong High Court made an Order sanctioning a scheme of arrangement (Scheme) proposed by the Joint and Several Liquidators (Liquidators) of Lehman Brothers Asia Holdings Limited (LBAH) to be implemented between LBAH and certain of its unsecured creditors (Scheme Creditors).

The existing provisions on the winding up of  companies in Hong Kong will continue to operate  after the new Companies Ordinance comes into  effect, which is expected to be on 3 March 2014.

The new Companies Ordinance is an overhaul  covering many aspects of the existing Companies  Ordinance, including the following: