Overview

The highly anticipated Supreme Court decision in Bresco Electrical Services Ltd (in Liquidation) v Michael J Lonsdale [2020] UKSC 25 has endorsed the use of adjudication in the context of insolvency set off, substantially reversing the decision of the Court of Appeal.

The first tentative steps are now being taken to ease the lockdown restrictions imposed on the nation as a consequence of the COVID-19 pandemic and thoughts are turning to how we can return to “normal”. The construction sector is no exception but finds itself in a slightly different position to many businesses as sites were never required to close (provided that work could carry on “safely”). Nevertheless the impact of COVID-19 has wreaked havoc on the finances of the construction sector and the viability of current and future projects.

The economic fallout from the COVID-19 pandemic will leave in its wake a significant increase in commercial chapter 11 filings. Many of these cases will feature extensive litigation involving breach of contract claims, business interruption insurance disputes, and common law causes of action based on novel interpretations of long-standing legal doctrines such as force majeure.

In Meadowside Building Developments Ltd (in liquidation) –v- 12-18 Hill Street Management Company Ltd [2019] EWHC 2651 (TCC), the Court found that in certain circumstances, it is possible for companies in liquidation to legitimately engage in adjudication proceedings.

Background

Historically, there has been some doubt as to whether or not an Adjudicator has jurisdiction to make a decision if the referring party was insolvent. This was due to the fundamental incompatibility between the adjudication process and the insolvency regime.

U.S. Bankruptcy Judge Dennis Montali recently ruled in the Chapter 11 case of Pacific Gas & Electric (“PG&E”) that the Federal Energy Regulatory Commission (“FERC”) has no jurisdiction to interfere with the ability of a bankrupt power utility company to reject power purchase agreements (“PPAs”).

The Supreme Court this week resolved a long-standing open issue regarding the treatment of trademark license rights in bankruptcy proceedings. The Court ruled in favor of Mission Products, a licensee under a trademark license agreement that had been rejected in the chapter 11 case of Tempnology, the debtor-licensor, determining that the rejection constituted a breach of the agreement but did not rescind it.

Few issues in bankruptcy create as much contention as disputes regarding the right of setoff. This was recently highlighted by a decision in the chapter 11 case of Orexigen Therapeutics in the District of Delaware.

The judicial power of the United States is vested in courts created under Article III of the Constitution. However, Congress created the current bankruptcy court system over 40 years ago pursuant to Article I of the Constitution rather than under Article III.

Southeastern Grocers (operator of the Winn-Dixie, Bi Lo and Harvey’s supermarket chains) recently completed a successful restructuring of its balance sheet through a “prepackaged” chapter 11 case in the District of Delaware. As part of the deal with the holders of its unsecured bonds, the company agreed that under the plan of reorganization it would pay in cash the fees and expenses of the trustee for the indenture under which the unsecured bonds were issued.