What is causing supply chain pressure and how can you spot the red flags?

Increase in insolvencies

Insolvency rates in the manufacturing and construction industries are higher than pre-pandemic levels and are showing an upward trend on a year-by-year basis since 2021.

Spotting the warning signs of distress in your construction supply chain and taking early action can significantly reduce the impact on your projects

While insolvency events may appear to arise suddenly, there are often warning signs or "red flags" of distress well in advance. While these do not necessarily demonstrate actual insolvency, they can indicate liquidity and solvency risks to the supply chain.

Does the extension of pandemic protections risk creating 'zombie' businesses in the building sector?

The government has extended measures in the Corporate Insolvency and Governance Act 2020 (CIGA) to protect businesses during the pandemic until 30 September 2021.

The CIGA came into force on 26 June 2020. It introduced new procedures and measures to rescue companies in financial distress as a result of the Covid-19 pandemic.

Pandemic protection

The government has extended the restriction on the enforcement of statutory demands until 31 December 2020. The extension from the initial period of 30 September 2020 was introduced by regulations amending the Corporate Insolvency and Governance Act 2020 and will be of application to those in the construction industry.

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.

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.