As discussed in our prior blog entitled “New York’s Sovereign Debt Restructuring Proposals,”[1] three bills were introduced in the New York state legislature to overhaul the way sovereign debt restructurings are handled in New York. Those bills sought to implement a comprehensive mechanism for restructuring sovereign debt, limit recovery on certain sovereign debt claims, and amend the champerty defense.
Two recent cases out of the Third Circuit and the Southern District of New York highlight some of the developing formulas US courts are using when engaging with foreign debtors. In a case out of the Third Circuit, Vertivv. Wayne Burt, the court expanded on factors to be considered when deciding whether international comity requires the dismissal of US civil claims that impact foreign insolvency proceedings.
In this note, we provide a high-level overview of key restructuring cases from last year in the US, Asia Pacific and Australia and consider the outlook in 2024 for restructuring transactions.
US
In March 2022, the International Monetary Fund (the “IMF”) assessed Sri Lanka’s public debt to be unsustainable after the country entered the pandemic with thin reserve buffers, high debt levels, and no fiscal space. The IMF’s determination prompted Sri Lanka to begin restructuring its debt the following month. As part of that process, Sri Lanka adopted an “Interim Policy” of suspending debt service on the following affected debts:
When a majority of a company’s board approves a tender offer in good faith, can it still be avoided as an actually fraudulent transfer? Yes, says the Delaware Bankruptcy Court, holding that the fraudulent intent of a corporation’s CEO who was a board member and exercised control over the board can be imputed to the corporation, even if he was the sole actor with fraudulent intent.
Background
The High Court has reaffirmed the test to be applied in considering an application to dismiss a bankruptcy summons grounded on a judgment.
The bankruptcy process in Ireland involves multiple steps and the debtor can seek to bring it to a halt at each step. Debtors often seek to rerun effectively the same arguments at each step, ignoring previous findings by the courts. One such step is an application to dismiss a bankruptcy summons.
The Irish High Court has determined that the liquidation of an Irish aircraft leasing company, which was a 100% subsidiary of a Russian company expressly subject to EU sanctions, rebuts the presumption that the company was controlled by the Russian parent for the purpose of EU sanctions.
This enables the liquidators to deal with the assets without costly and time-consuming derogation applications.
Background
Recently, in In re Moon Group Inc., a bankruptcy court said no, but the district court, which has agreed to review the decision on an interlocutory appeal, seems far less sure.
The confluence of the COVID-19 pandemic, high inflation, and increased borrowing costs culminated in countries incurring record levels of debt.[1] Despite this global debt crisis, there is currently no comprehensive set of rules or body of law to govern the restructuring of sovereign debt.
Yes, says the Delaware Bankruptcy Court in the case of CII Parent, Inc., cementing the advice routinely given by bankruptcy counsel to borrowers in default. We always counsel borrower clients in default of the risk associated with lenders taking unilateral actions pre-filing, stripping debtors of valuable options and assets. Thus, we normally recommend to always obtain a forbearance and undertake the preparations required to file a bankruptcy petition immediately upon forbearance termination, although whether or not to file depends on variety of factors that should be considered.