Prepackaged bankruptcies, prearranged bankruptcies, and expedited sales are available options for businesses in need of accelerated restructurings during the coronavirus (COVID-19) pandemic.

While the full extent of COVID-19’s impact on the economy remains to be seen, it will likely create significant restructuring activity for companies already experiencing financial distress and otherwise healthy companies that experience distress caused by the pandemic. We have already seen an increase in Chapter 11 filings, and more will follow.

With courts and government agencies around the world enacting emergency measures in response to the Covid-19 pandemic – ranging from complete shutdowns to delays and limitations – advancing the ball in dispute resolution is more challenging than ever. Because fraud investigations and complex asset recovery matters are typically managed by litigation counsel and often follow litigated claims, clients have a tendency to see the effort through a litigation lens.

A number of UK insolvency trade association bodies and professionals are advocating for the use of what is known as a light-touch administration for companies in financial distress as a result of the coronavirus (COVID-19) pandemic.

Light Touch Administration – What Is It?

In response to the coronavirus (COVID-19) pandemic, US bankruptcy courts have granted extraordinary equitable relief in some cases. As government orders enforcing stay-at-home measures have forced many businesses to shutter indefinitely, bankruptcy courts have implemented procedures to allow the ongoing—albeit virtual—administration of bankruptcy cases.

A Roll of the Dice: Mothballing Bankruptcy Cases Under 11 USC § 305(a)

In a recent decision addressing valuation issues, the First Circuit has issued an important reminder – and warning – to creditors seeking to establish a secured claim in settlement proceeds based on a security interest in the settled claim. In short, the key lesson for would-be secured creditors is this – the value of a claim is not equal to the value of damages!

With effect from 6 April, the UK government has increased the “prescribed part”—a portion of floating charge realisations that is set aside for unsecured creditors on a company’s insolvency—from £600,000 to £800,000.

Prescribed Part

The global COVID-19 pandemic has created uncertainty around the planned deal-making activities of many middle market private equity funds. However, this environment also creates significant opportunity to provide investment and financing to companies that find themselves in distressed circumstances.

Background

As many traditional private company buyers take a “wait and see” approach to dealmaking, pausing or cancelling their active transactions, many are scanning the horizons for new opportunities outside of their traditional comfort zones. In addition to scoping targets in COVID-19–relevant industries, many are looking for unique value propositions and approaching historically healthy and stable targets that are experiencing distress during the pandemic.

President Trump signed the Small Business Reorganization Act of 2019 (the “SBRA”) into law in August of last year and it became effective on February 20, 2020. The SBRA amended the U.S. Bankruptcy Code and is designed to simplify and shorten the reorganization process for “small businesses” and to make the entire process more cost effective. At the same time that the SBRA was coming online, the U.S. economy experienced a severe downturn as a result of the COVID-19 pandemic.

The measures include temporarily suspending wrongful trading liability for directors and implementing a new restructuring plan and moratorium to provide companies with a period of time to explore rescue options during the coronavirus (COVID-19) pandemic.