Two years on: review of CIGA permanent measures

The restructuring plan has so far proven to be a powerful tool to facilitate restructurings of complex capital structures. Two recent cases provide further helpful guidance for advisers when formulating a restructuring plan and for investors who may be affected by its terms.

Amicus Finance plc (in administration) ("Amicus")

As previously reported in our article of 21 May 2020, the Corporate Insolvency and Governance Act 2020 (Act), introduced a number of new tools for businesses suffering financial distress. One of the new measures introduced by the Act was the 'Restructuring Plan' – a process modelled on the existing scheme of arrangement (Scheme) but with the following key distinctions:

On 26 June 2020, the Corporate Insolvency and Governance Act 2020 (the "CIGA") came into effect. As anticipated in our previous article the CIGA was fast-tracked through Parliament and some amendments were ultimately made prior to it becoming law.

The decision of Mr Justice Morgan in A Company (Injunction To Restrain Presentation of Petition) [2020] EWHC 1406 (Ch) (judgment anonymised) which was handed down on 2 June 2020 will be of interest to tenants and landlords alike in the current climate. The judgment, which follows the decision in Travelodge Ltd v Prime Aesthetics Ltd [2020] EWHC 1217 (Ch) will be of huge precedent value to commercial tenants that have been impacted by coronavirus and have been unable to meet their rent obligations as a result.

Following the Government's announcement in March that the hotly anticipated changes to the UK's insolvency regime would be rushed through Parliament with further, temporary, provisions to mitigate the impact of COVID-19, insolvency practitioners and business professionals alike have been awaiting further clarity on what the Business Secretary's comments mean for businesses both in the current climate and more generally.

In a November 17, 2016 ruling likely to impact ongoing debt restructurings, pending bankruptcy proceedings and negotiations of new debt issuances, the Third Circuit recently overturned refusals by both the Delaware bankruptcy court and district court to enforce “make-whole” payments from Energy Futures Holding Company LLC and EFIH Finance Inc. (collectively, “EFIH”) to rule that the relevant indenture provisions supported the payments. The case was remanded to the bankruptcy court for further proceedings.

On May 15, 2012, the United States Court of Appeals for the Eleventh Circuit issued a decision^[1]  in the much-watched litigation involving the residential construction company, TOUSA, Inc. ("TOUSA"). The decision reversed the prior decision of the District Court, ^[2] reinstating the ruling of the Bankruptcy Court.^[3]

Background

Indentures often contain make-whole premiums payable upon early redemption of the debt, and term B loan agreements often include "soft call" protection in the form of prepayment premiums during the early life of the loan. If the debt issuer becomes subject to a chapter 11 proceeding after the debt issuance, the question then arises as to how this payment obligation is to be treated: Does the make-whole or prepayment premium constitute unmatured interest due as a result of the debt acceleration, which would be disallowed, or is it liquidated damages?