In this article we look at current trends and developments at the intersection between insolvency and dispute resolution, including a rundown of some of the latest legislative changes, and issues to consider when litigating against parties in financial distress.

This analysis was first published on Lexis®PSL on 27 September 2021 and is republished with their kind permission.

Corporate Insolvency and Governance Act 2020

The High Court has dismissed an application by a landlord creditor to overturn a company voluntary arrangement (CVA) implemented by coffee shop chain Caffé Nero. The CVA, previously approved by its creditors, compromised rent arrears and reduced future rents for the company's premises. The decision follows a series of previous high-profile challenges to retail and leisure CVAs.

The UK Government yesterday announced that it will proceed with the phasing out of temporary measures introduced to protect businesses from creditor action during the COVID-19 pandemic, whilst also announcing new measures to protect smaller businesses from winding up petitions. The legislation required to implement these amendments was laid before Parliament yesterday and will come into force on 29 September 2021.

Earlier this month – citing the “virtually unflagging obligation” of an Article III appellate court to exercise its subject matter jurisdiction – the Eighth Circuit Court of Appeals decried the pervasive overreliance by district courts on the doctrine “equitable mootness” to duck appeals of confirmation orders.[1]

The Pensions Regulator's new powers: what lenders need to know Updated August 2021 Pension briefing Following the insolvencies of Carillion and BHS and the associated fallout for the pension schemes they sponsored, the Pensions Regulator (tPR) announced it was going to be “clearer, quicker and tougher”. The Pension Schemes Act 2021 (the Act) gives tPR significant new powers to intervene where the security of defined benefit (DB) pensions may be at risk.

Judge Stacey Jernigan did not mince words in a recent opinion sanctioning the former CEO of Highland Capital Management, LP. Entities related to the former CEO brought suit against Highland (the debtor in a Chapter 11 bankruptcy proceeding), and sought leave from the district court to add Highland’s replacement CEO as a defendant. In Judge Jernigan’s view, such conduct violated her “gatekeeping” orders that required the bankruptcy court’s approval before “pursuing” actions against the new CEO.

Section 365 of the Bankruptcy Code creates a framework through which a debtor can elect to either assume or reject an executory contract. Because the Bankruptcy Code does not define “executory,” courts utilize various tests to determine if a debtor can assume a contract—and thus be obligated to perform—or reject a contract—and thus the contract is deemed breached immediately prior to the bankruptcy filing date. The Countryman test is overwhelmingly the most commonly applied test to determine a contract’s executory nature.

National Car Parks' proposed restructuring plan aimed to write-off arrears, cut rents and close unwanted sites but why did the plan stall?

On 30 April 2021, National Car Parks launched its proposed restructuring plan, which is the flagship new restructuring process introduced last June through the Corporate Insolvency and Governance Act 2020. Around a dozen restructuring plans have come to market so far, but the NCP plan was only the second (the first being Virgin Active) to involve landlord creditors.

A key goal of the Bankruptcy Code is to prevent corporate insiders from profiting from their employer’s misfortune. Section 503(c) of the Code makes clear: “there shall neither be allowed, nor paid... a transfer made to, or an obligation incurred for the benefit of, an insider of the debtor for the purpose of inducing such person to remain with the debtor's business” absent certain court-approved circumstances.

Some courts permit debtors to designate vendors crucial to their business as “critical vendors.” These vendors supply debtors with necessary goods or services. Debtors are permitted to pay them amounts owing when a bankruptcy case is filed. Accordingly, critical vendors often recover more on their pre-petition claims than other unsecured creditors. In other words, critical vendors could receive a full recovery, while other creditors only receive a fraction of what they are owed.