The increase in bankruptcy filings that restructuring professionals have been expecting is now arriving. With rising inflation, increased interest rates, tightening credit markets, labor shortages and supply chain disruptions, we are starting to see a dramatic increase in filings. Last week the American Bankruptcy Institute noted that commercial Chapter 11 filings increased 105% in May 2023 as compared to May 2022 and across the board filings are on the rise as well.

In this quick guide we focus on working capital and consider ways a business can seek to preserve all important liquidity through challenging and unpredictable periods. Supply chain issues, the battle against inflationary price hikes and other external stressors mean businesses globally are being challenged. What can senior management do in order to manage and mitigate risk to a company's financial health and stay away from the edge?

Practical Tips

Managing the financial health of a business to ensure it continues to be viable and successful can be challenging, particularly in today’s economic environment.

June 2023

Contents

In two recent blog posts we discussed the challenge made to the Company Voluntary Arrangement (CVA) of Mizen Build/Design Ltd (the “Company”) by Peabody Construction Limited (“Peabody”) and the finding of (i) a material irregularity based on failure to disclose information to creditors in the CVA proposal, and (ii) unfair prejudice based on vote swamping.

The High Court (Court) had to determine whether proceeds from two investments in the estate in the bankruptcy of Bernard McNamara (McNamara) were payable to NALM under its security package, or whether they should be retained in the estate in the bankruptcy of McNamara for the benefit of creditors generally (substantive question).

On May 8, 2023, online cryptocurrency exchange platform Bittrex, Inc. and three of its affiliated entities (collectively “Bittrex”) filed for chapter 11 to wind down their U.S. and long-dormant Malta operations. The bankruptcy filing followed costly regulatory investigations and an April 17, 2023 SEC enforcement action alleging that Bittrex improperly sold crypto assets that were securities. Unlike other crypto bankruptcies, Bittrex did not risk, hypothecate, or loan cryptocurrencies needed to meet its contractual obligations to its customers.

With increased stress in global, domestic, and regional economies, the number of Australian businesses at risk of bankruptcy is approaching a three-year high.

The High Court (Court) has found that it was not appropriate to make a winding up order in respect of a company under section 760(2) of the Companies Act 2014 (Act), where no party was nominated or consented to act as liquidator.

What can we say about the outcome of the GAS (Great Annual Savings Company Limited) sanction hearing that hasn’t already been reported?

It’s impossible not to comment on the fact that the plan was not sanctioned, and as a consequence of fierce opposition from HMRC that it avoided cram down. Nor that the court refused to sanction the plan on the basis that the conditions for cram down were not met – the court was not satisfied that HMRC would be better off under the plan and even if it were the judge said he would have not exercised his discretion to cram down.

The recent case of Dolfin Asset Services Ltd v Stephens & Anor (Re Dolfin Financal (UK) Ltd) [2023] EWHC 123 (Ch) (“Dolfin“) concerned a special administration, but it has relevance to administrators more generally. In particular, when it comes to the judge’s view of what is meant by the word “consider” – which is phrase used in the insolvency legislation when it comes to making decisions.