The impact of COVID-19 is yet to be fully realized, and many companies are yet to consider restructuring as a means to survive the pandemic, but all companies and all creditors can benefit now from learning how employee matters are treated in a bankruptcy proceeding under chapter 11 of the U.S. Bankruptcy Code (as amended, the Bankruptcy Code). This blog provides a high-level overview of some of the most material matters affecting an employee workforce in the context of a chapter 11 restructuring.

Recent weeks have witnessed seismic shifts in the oil and gas industry because of crashing oil prices, demand destruction associated with the COVID-19 pandemic, and crude oil storage reaching record capacity levels. Upstream producers are especially vulnerable to these market pressures and have begun shutting in wells, asserting force majeure, and cutting costs. As counterparties to distressed producers, midstream players face new challenges in navigating contractual relationships and mitigating risk.

As the impact of COVID-19 is felt across the globe, many airlines have grounded their fleet, ceased operating flights, and are potentially in breach of any financial covenants that they may have in their debt or lease documents, if not already in technical insolvency.

If an airline does go into insolvency, what should banks and lessors do to protect their assets? What issues, practical and legal, should they be aware of?

The Warning Signs

The Revenue Commissioners have issued some recent welcome clarifications about certain provisions of the Government's temporary wage subsidy scheme.

Application for the Subsidy Scheme – An Admission of Insolvency?

The main provisions of the subsidy scheme are set out in Section 28 of the Emergency Measures in the Public Interest (Covid-19) Act 2020.

That section also contains the criteria for an employer's eligibility to avail of the subsidy scheme. One such criterion is that:

As American individuals, employers, and governments are implementing various restrictions from social distancing to quarantines to reduce the rate of new COVID-19 infections, each of these decisions results in an increasingly negative impact on the American economy. Even with the recent financial aid package passed by Congress, with greater credit constraints and a heightened sensitivity to weak consumer demand, small businesses are among those hit the hardest by COVID-19 restrictions.

In the case of Wilson v McNamara [2020] EWHC 98 (Ch) the High Court of England and Wales (the Court) considered whether the EU principle of freedom of establishment requires that a pension held in another EU member state (Ireland) should be excluded from a bankruptcy estate under UK law in the same manner as a UK pension would be in a UK bankruptcy. Mr Justice Nugee decided in order to decide the case the Court needed to refer a preliminary reference to the European Court of Justice (CJEU) on a question of EU law.

A recent English Court of Appeal decision has held that legal advice privilege, once established, remains in existence unless and until it is waived. Whether there is no one to waive it; or whether the Crown could have waived it but has not done so; does not matter.

What was the Background to the Case?

In Mission Product Holdings Inc. v. Tempnology LLC, No. 17-1657, the Supreme Court has held that a debtor’s rejection of an executory contract does not abrogate the rights others enjoy under that contract. Although the Court’s ruling specifically dealt with rights to a trademark license, the reasoning appears broader than that. The Supreme Court has in effect done away with a debtor’s right to reject any lease, concession, license, or agreement and then prevent a counterparty from enjoying the use of the rights previously granted.

In the recent decision of Re M.D.Y. Construction Ltd [2018] IEHC 676 the Examiner sought to have proposals for a scheme of arrangement confirmed by the High Court pursuant to section 541 of the Companies Act 2014 (the "Act"). The most interesting feature of the case was that the scheme of arrangement was proposed for approval by the Interim Examiner before his appointment was confirmed by the High Court.

Arrangement to be approved the day after application to confirm appointment

The recent decision of the Court of Appeal in The Governor and Company of the Bank of Ireland v O'Grady & Anor 2018 IECA 180 has confirmed that where anapplication for summary judgment is made, a defendant must establish that he has "an arguable defence" to the claim if proceedings are to be remitted to plenary hearing.

Background Facts