Elon Musk recently said he has a "super bad feeling" about the economy, pithily declaring what most financial commentators have been predicting in more technical terms.

Key Points

• The use by Malaysia Airlines' subsidiary, MAB Leasing Ltd. (incorporated in Malaysia) ("MABL"), in 2021, of an English Scheme of Arrangement (a "Scheme") to compromise its aircraft lease obligations proved that US Chapter 11 is not the only route to a globally recognised compromise of airline leases.
• Airline lessors should now prepare themselves for Schemes (and possibly also other English restructuring processes) as an alternative to Chapter 11.

Background

The persisting spectre of the pandemic continues to create uncertainty in the market. Over the last 18 months, insolvency figures remained consistently low due to the government support which has been in place. With the prospect of that support coming to an end there is likely to be a reckoning, but when that will begin is unclear. Overall, this next year is likely to be one of resolving loose ends and tidying up before the economy can take off afresh.

Market outlook

This is the second article in 'Back to Basics', a series of articles looking at insolvency processes in Scotland. This article will examine the court process for sequestration, focusing on petitions by creditors.

This is the first article in 'Back to Basics', a series of articles looking at insolvency processes in Scotland. In this article I examine the court process for winding up a company.

A winding up petition is a form of legal action that can be used when a company is unable to pay its debts as they fall due. Sections 122 to 124 of the Insolvency Act 1986 (‘the Act’) deal with how to wind up a company in Scotland.

When is a company deemed unable to pay debts?

In the recent Sheriff Court judgment in the case of The Accountant in Bankruptcy v Peter A Davies, the Sheriff sought to clarify how a family home should be dealt with following the sequestration of an individual.

Background

The debtor was sequestrated in October 2010.

In October 2020, the Accountant in Bankruptcy (‘AiB’) applied to the Sheriff under section 40 of the Bankruptcy (Scotland) Act 1985 (now section 112 of the Bankruptcy (Scotland) Act 2016) to permit the sale of the debtor’s family home.

KEY POINTS The risk that prepetition lease payments made by a lessee that is a debtor in a US bankruptcy will be clawed back from an aircraft lessor can be reduced if: • the lease is a true lease rather than a disguised secured loan or finance lease • one or both of basic rent and maintenance reserves are payable in advance (i.e., at the beginning of a rent period rather than at the end) • basic rent and maintenance reserves are payable monthly rather than quarterly or semiannually • the lessor enforces the lease’s payment obligations consistently • any payment made by a third party on beha

Overview

There were big changes in 2020 in the world of restructuring and insolvency legislation with the introduction of two new restructuring tools: the Moratorium and the Restructuring Plan, as well as the reintroduction of Crown preference.

The COVID-19 pandemic together with Brexit have meant many commercial relationships have had to stop or risk having to do so in the future. Are you ready to deal with what happens if any of your key contracts terminate?

No contract is 100% ‘Brexit-proof’. The current uncertainty about whether there will or won’t be a trade deal with the EU makes it unclear what contracts will be profitable and which won’t in 2021. For many businesses, some of their contractual relationships may well become untenable in the period after 11pm on 31 December 2020.