In late September 2020, the federal government announced that it would be introducing changes to Australia's Corporations Act (Act) and the most significant amendments to the corporate insolvency regimes in decades. The main objective is to help the small business sector deal with and overcome the economic, financial and trading challenges posed by the ongoing pandemic. Since then, the government has released its new laws via the Corporations Amendment (Corporation Insolvency Reforms) Bill 2020 (Cth) (New Laws).

The Australian federal government has continued introducing temporary and potentially permanent insolvency law reforms intended to assist the economic repair efforts during, and following, the pandemic. In the latest development, which occurred in somewhat strange circumstances, the federal government has announced that it will shortly introduce new laws into parliament, which are intended to reduce complexity, time and the costs for small businesses to restructure their financial affairs.

The Australian federal government has announced that the temporary changes it enacted in March to the Corporations Act (Cth) (Act) concerning insolvent trading laws and the creditor’s statutory demand regime (Insolvency laws) have been extended to 31 December 2020. The changes were due to expire on 25 September. 

Economic Fallout Continues

In a decision arising out of Tribune’s 2008 bankruptcy, the United States Court of Appeals for the Third Circuit recently issued a decision affirming confirmation of the media conglomerate’s chapter 11 plan over objections raised by senior noteholders who contended that the plan violated their rights under the Bankruptcy Code by not according them the full benefit of their prepetition subordination agreements with other creditors.

Since late March 2020 there has been a steady stream of voluntary administrators seeking the assistance of the court to limit their personal liabilities under the Corporations Act (Cth) 2001 (Act) by pointing to the social and economic disruptions and restrictions caused by COVID-19.

The Australian Government has taken swift action to enact new legislation which significantly changes the insolvency laws relevant to all business as a result of the ongoing COVID-19 related developments.

Snapshot

As the coronavirus (COVID-19) pandemic continues to shake global markets, it is likely that more companies will need to restructure to address liquidity constraints, to right-size their balance sheets, or to implement operational restructurings. In addition to a potential surge in restructurings, the spread of COVID-19 is already having pronounced impacts on companies planning or pursuing restructurings, and further market turmoil may cause even broader changes to the restructuring marketplace.

Potential Increase in Restructuring Activity

The U.S. Supreme Court held today in Mission Product Holdings, Inc. v. Tempnology, LLC that a trademark licensee may retain certain rights under a trademark licensing agreement even if the licensor enters bankruptcy and rejects the licensing agreement at issue. Relying on the language of section 365(g) of the Bankruptcy Code, the Supreme Court emphasized that a debtor’s rejection of an executory contract has the “same effect as a breach of that contract outside bankruptcy” and that rejection “cannot rescind rights that the contract previously granted.”

In a recent decision arising out of the Republic Airways bankruptcy, Judge Sean Lane of the United States Bankruptcy Court for the Southern District of New York held that the liquidated damages provisions of certain aircraft leases were improper penalties and, thus, “unenforceable as against public policy” under Article 2A the New York Uniform Commercial Code. In re Republic Airways Holdings Inc., 2019 WL 630336 (Bankr. S.D.N.Y. Feb. 14, 2019).

On February 8, 2019, the United States District Court for the Southern District of Texas, Houston Division, affirmed a Bankruptcy Court order enjoining a claimant from pursuing claims against a debtor’s non-debtor affiliates based upon third-party release and injunction provisions included in the debtor’s confirmed chapter 11 plan. In re CJ Holding Co., 2019 WL 497728 (S.D. Tex. Feb. 8, 2019).