The Pugachev tale

October 2017

INSURE

InSure

This month's roundup of developments affecting the insurance industry sees ECON calling on the European Commission to postpone the application date of the IDD, EIOPA issuing final guidelines on complex insurance-based investment products under the IDD and the European Commission releasing a report on consumers' decision-making process in insurance services.

General Update

It is now clear that the Pensions Regulator will take a much tougher approach in future towards employers and scheme funding. The new approach comes after a select committee of MPs looking into the BHS collapse criticised the Regulator for being reactive, slow-moving and reluctant to exercise its powers.

The two key areas where we expect the Regulator to be more aggressive are scheme funding and "moral hazard" powers.

BANKING

ECON votes to adopt draft report on proposed BRRD Insolvency Hierarchy Directive

On August 10, 2017, the U.S. Supreme Court rescinded the grant of certiorari in PEM Entities LLC v. Levin on the grounds that review had been “improvidently granted.” The case seemingly provided a perfect vehicle to resolve the circuit split on whether federal or state law governs debt recharacterization in bankruptcy, and less than two months after the Court first agreed to hear the case, its dismissal came as a surprise.

In recent years, courts have become increasingly critical of the doctrine of equitable mootness, a judicially created abstention doctrine that allows appellate courts to dismiss appeals from a bankruptcy court’s confirmation order in certain circumstances. Although the doctrine is meant to be applied only sparingly, to avoid unscrambling complex reorganizations on appeal, it has been invoked in noncomplex cases or where limited relief is practicable. As a result, some circuit courts have urged a more limited application of the doctrine.

The Technology and Construction Court in England has refused pre-action disclosure of the insurance policy of a currently solvent insured, notwithstanding that a successful claim would have resulted in the insolvency of the insured.

Factual background

Over the last several decades, the enforcement of intercreditor agreements ("ICAs") that purport to affect voting rights and the rights to receive payments of cash or other property in respect of secured claims have played an increasingly prominent role in bankruptcy cases. Although the Bankruptcy Code provides that "subordination agreement[s]" are enforceable in bankruptcy to the same extent such agreements are enforceable under applicable nonbankruptcy law, the handling of creditor disputes regarding such agreements has been inconsistent.i

Although political and economic uncertainties tempered corporate activity somewhat in 2016, the trends and fundamentals that have the potential to drive transactions remain in place in 2017.

Capital Markets

Crude oil and natural gas prices reached multiyear lows of approximately $26 per barrel for crude oil (as of January 2016) and $1.50 per million British thermal units (mmbtu) for natural gas (as of March 2016). This represented a 75 percent decline in the price of oil from its peak of approximately $105 per barrel in mid-2014 and an 80 percent decline in the price of natural gas from its early 2014 peak of over $8 per mmbtu. At the time, many industry observers predicted that depressed commodity prices would result in numerous bankruptcy filings and an uptick in M&A activity.