A restructuring plan completed earlier this year by Smile Telecoms notches up a number of firsts.
African telecommunications provider Smile Telecoms Holding Limited, incorporated in Mauritius, successfully completed a restructuring plan (the Plan) under Part 26A of the UK Companies Act 2006 at the end of March 2021.
The Plan features a number of novel actions, including:
Latham & Watkins operates worldwide as a limited liability partnership organized under the laws of the State of Delaware (USA) with affiliated limited liability partnerships conducting the practice in France, Hong Kong, Italy, Singapore, and the United Kingdom and as an affiliated partnership conducting the practice in Japan. Latham & Watkins operates in South Korea as a Foreign Legal Consultant Office. Latham & Watkins works in cooperation with the Law Office of Salman M. Al-Sudairi in the Kingdom of Saudi Arabia.
The primary investment thesis of a private credit lender is simple — get the loan repaid at maturity. Private credit lenders do not make loans as a means to acquire their borrower’s business. There are circumstances, however, where private credit lenders must be prepared to take ownership when the borrower is distressed and there is no realistic prospect of near-term loan repayment. Becoming the owner of a borrower’s business may very well be the loan recovery option of last resort.
The reforms, which are the result of the transposition of the EU’s Restructuring Directive, should come into force in October.
Key Points:
We anticipate a more assertive regulatory enforcement program under the Biden administration, particularly focused on fund managers’ conflicts of interest, advisers’ codes of ethics, and related policies and procedures relating to material nonpublic information. These concerns may be heightened for fund managers participating in bankruptcy proceedings, where competing fiduciary obligations arise, particularly in the context of serving on creditors committees.
The decision provides new judicial guidance for determining the boundaries of cross-class cram down tests.
On 28 June 2021, the High Court declined to sanction a restructuring plan proposed by Hurricane Energy plc (Hurricane), an AIM listed oil drilling company, under Part 26A of the Companies Act 2006 (Act). The plan would have seen shareholders diluted to 5% of Hurricane’s equity, with the remaining 95% issued to bondholders as consideration for a partial debt-for-equity swap.
The ruling confirmed that Section 423 of the Insolvency Act 1986 has extensive international reach, and does not require a transaction at an undervalue to leave the debtor with insufficient assets.
Background
The decision confirms that company voluntary arrangements remain a flexible tool for restructuring leasehold portfolios.
• No rigid test exists for “basic fairness” that requires a landlord to receive at least market rent, or that contractual rent should be interfered with to the minimum extent necessary.
• If a landlord is entitled to terminate the lease and receive a better outcome than in the alternative, any automatic unfairness from changes to the terms of the lease is negated.
• Whether a CVA is unfairly prejudicial depends on all the circumstances of the case.
Private credit lenders started 2020 both with anticipation and trepidation. Activity levels were strong and default levels were at historic lows, but private credit lenders worried about the risk of economic headwinds – after all, we were then in the extra innings of the longest economic recovery on record.
COVID-19 continues to disrupt normal business operations, creating liquidity problems and negative working capital for many companies. As fund sponsors take actions to help their portfolio companies navigate through this time, they should also sensitize directors to insolvency issues and the associated litigation risks.