Introduced by the Corporate Insolvency and Governance Act 2020, the restructuring plans regime set out in Part 26A of the Companies Act 2006 (Plans) has quickly proven a popular route for corporate financial rescue. This is in large part due to the fact that it allows for a plan to be imposed upon dissenting creditor classes in certain circumstances. This is known as "cross-class cramdown".
Welcome to the first issue of Insolvency Matters, our round-up of recent legal developments affecting insolvency and restructuring.
Case round-up
The inter-relationship between disputed debts, arbitration agreements and winding up proceedings has come up again this time before the Privy Council in Sian Participation Corp (In Liquidation) v Halimeda International Ltd [2024] UKPC 16. In delivering this important judgment, the Privy Council looked closely at the dividing line between two areas of public policy, namely insolvency and arbitration.
Background
Deal structure matters, particularly in bankruptcy. The Third Circuit recently ruled that a creditor’s right to future royalty payments in a non-executory contract could be discharged in the counterparty-debtor’s bankruptcy. The decision highlights the importance of properly structuring M&A, earn-out, and royalty-based transactions to ensure creditors receive the benefit of their bargain — even (or especially) if their counterparty later encounters financial distress.
Background
This article was first published by Insol World Magazine in Q1 of 2024.
Insolvency office-holders in the UK and elsewhere frequently rely upon litigation funders to finance their legal proceedings and, accordingly, developments in the funding market are of keen interest to insolvency professionals.
In this guide, we explain what to do when you no longer need a company that has been incorporated or registered in the British Virgin Islands (Company). Assuming the Company is solvent, you have two options: (1) arrange for the Company to be voluntarily liquidated and dissolved (Liquidated); or (2) leave (or apply for) the Company to be administratively struck-off and dissolved (Administratively Dissolved). For the reasons set out below, we usually recommend a Company is Liquidated, rather than Administratively Dissolved.
In early February, a Delaware bankruptcy judge set new precedent by granting a creditors’ committee derivative standing to pursue breach of fiduciary duty claims against a Delaware LLC’s members and officers. At least three prior Delaware Bankruptcy Court decisions had held that creditors were barred from pursuing such derivative claims by operation of Delaware state law, specifically under the Delaware Limited Liability Company Act (the “DLLCA”).
A Massachusetts Bankruptcy Court’s recent appellate decision in Blumsack v. Harrington (In re Blumsack) leaves the door open for those employed in the cannabis industry to seek bankruptcy relief where certain conditions are met.
Breathing Spaces and Mental Health Crisis Moratoriums (MHCM) were introduced by the Debt Respite Scheme (Breathing Space Moratorium and Mental Health Crisis Moratorium) (England and Wales) Regulations 2020 (the "2020 Regulations").
It is a rare occasion that one can be assured with certainty that, if they file a motion with a bankruptcy court, it will be granted. But, in the Third Circuit, that is exactly what will happen if a creditor or other party in interest moves for an examiner to be appointed under Section 1104(c) of the Bankruptcy Code. Once considered to be within the discretion of a bankruptcy court “as is appropriate,” the appointment of an examiner is now guaranteed if the statutory predicates are fulfilled according to the Third Circuit Court of Appeals.