The coronavirus (COVID-19) outbreak has widespread and significant implications for the financing situation of companies. Mandatory emergency measures, such as closure orders, have cut off entire sectors from revenue and cash flows with severe consequences for corporate liquidity. In addition, deteriorating market conditions are putting additional pressure on companies and their ability to service their debt.

Yesterday the UK Insolvency Service released their quarterly statistics spanning October to December 2019. These confirm that liquidations and administrations in 2019 hit levels not seen for over five years. This signals a potentially serious underlying concern about the UK economy.

Chinese firms acquiring foreign assets has been a hot topic for some time. But one often overlooked question is what happens to those overseas assets if the Chinese business fails? Given the scale of Chinese investment overseas and the financial problems currently being experienced by many Mainland businesses, this question is of growing importance. Two recent decisions – one in Hong Kong and one in New York – address this issue and point to the growing demystification and recognition of Chinese insolvency law outside China.

The latest amendments to the Kazakhstan Rehabilitation and Bankruptcy Law were signed on April 2, 2019, and became effective from April 14. The amendments enhance the priority right of secured creditors through the acceptance of pledged assets in kind or the implementation of self-facilitated foreclosure over pledged assets. Notably, the law provides that pledged assets are carved out from bankruptcy estates.

Priority of Claims of Secured Creditors

To exercise a priority right, a secured creditor must comply with the following procedure:

What is the preventive restructuring framework and what are its key features?

Where there is a likelihood of insolvency (but importantly where the debtor is not yet insolvent as defined by national law), Member States must provide debtors with access to a preventive restructuring framework that enables them to restructure, with a view to preventing insolvency and ensuring their viability.

The UK government has published a draft Finance Bill 2020, which includes a provision that, if enacted, will give HM Revenue & Customs (HMRC) secondary preferential creditor status for certain taxes which a company has collected but failed to pay to HMRC on the date it enters insolvency.

New Priority Status

Directors and officers of private companies are responsible for managing and running business. This responsibility is not limited to disciplinary liability (such as termination of employment), but also involves civil law liability (such as payment of damages) as well as administrative and even criminal liability. In some cases, the liability may be broad and contain no reasonable exceptions that might be available in other jurisdictions. This LawFlash summarizes the extent of liability that company directors and officers could face under Kazakhstan law.

When a business entity that is regulated by the Federal Energy Regulatory Commission (FERC) is closely related to another business entity, FERC takes the position that under some circumstances it may treat the two different legal entities as if they were one single entity.

The Singapore High Court recently issued the first-ever super-priority order for debts arising from rescue financing under Section 211E(1)(b) of the amended insolvency laws in the Companies Act. The decision shows that the court is open to adopting relatively unique deal structures, and could be a benefit for more business-centric solutions.

In Part 1, we discussed how, despite widespread usage, termination in the event of bankruptcy clauses (“ipso facto” clauses) are generally unenforceable pursuant to the bankruptcy code. In this second part, we discuss why these clauses are still prevalent in commercial transactions and the exceptions that allow for enforceability in certain situations.

Why Do Ipso Facto Clauses Remain in Most Contracts?

If ipso facto clauses are generally not enforceable, then why do practically all commercial agreements continue to include them? There are several reasons.