Despite the ongoing global pandemic, opportunities for stressed and distressed investments have not been as prolific as many expected. The window for entry into credits opened and closed more quickly than imagined. Nevertheless there have been several high-profile restructurings using the English scheme of arrangement. Of course, some of these were already in motion prior to the onset of the pandemic. A handful of these have sought to test the recently enacted insolvency regime, whilst others have tested more established legislative principles.
THE CHALLENGE:
After years of selling services at a loss to grow its customer base, Agera Energy—a retail electricity and natural gas provider for commercial, industrial and residential customers in 16 states—realized its business was no longer viable. The company decided to file for chapter 11 bankruptcy protection after evaluating strategic alternatives.
The enacted Corporate Insolvency and Governance Act (the Act) introduces three permanent reforms to the existing insolvency legislation and certain temporary measures designed to address the immediate impact of COVID-19 on UK businesses. Among other things, the Act looks to maximise the potential for struggling companies to be maintained as a going concern. As market participants and the courts get to grips with the new legislation, it is clear that there will be some impact on the special situations landscape and the business of stressed and distressed investment.
New legislation has been introduced in the UK which restricts the rights of parties to construction contracts to terminate or even suspend work. This means that even if your contract says you can terminate or suspend – for example, for non-payment – you may not in the future be able to exercise this right. These reforms are likely to lead to significant changes to how parties operate their contracts and credit lines.
The highly anticipated Insolvency and Corporate Governance Bill (the "Bill") was finally published on 20 May 2020. Following its second and third readings in the House of Commons yesterday (3 June 2020), the Bill will now be considered by the House of Lords in the coming days.
Permanent Reforms
Moratorium: a new stand-alone moratorium to provide businesses with an initial 20-business-day stay from creditor action.
As reported last month, as part of its response to the Covid-19 pandemic, the UK Government has brought forward reforms to the corporate insolvency regime. The Corporate Insolvency and Governance Bill (the "Bill") has now been introduced to Parliament.
The US Court of Appeals for the Sixth Circuit affirmed that a state court’s finding of “willful and malicious injury” in connection with the misappropriation of trade secrets entitled the plaintiff, in the defendant’s subsequent bankruptcy proceeding, to summary judgment of nondischargeability on collateral estoppel grounds. In re Hill, Case No. 19-5861 (6th Cir. May 4, 2020) (Donald, J.).
“Bankruptcy is about financial death and financial rebirth. Bankruptcy is the great American story rewritten. We’re a nation of debtors.” -Elizabeth Warren
Amid the Coronavirus (COVID-19) pandemic and related economic turmoil, bankruptcy filings in the United States are on the rise. Non-US insurers should review contractual arrangements with US insureds and brokers, and establish a plan to deal with bankruptcy filings across the United States in a consistent fashion.
In the midst of the COVID-19 pandemic and the far reaching and drastic measures implemented in numerous countries around the world, we are receiving an increasing number of insolvency and restructuring enquiries from our clients.