The economic picture has started to improve, with modest GDP growth in the first half of 2024. However, the enormous strains on business finances over the past four years have caused insolvency rates to rise sharply this year.
According to The Insolvency Service’s latest figures, company insolvencies in June 2024 were the third highest since monthly records started in 2020. Administrations in June 2024 were 22% higher than in June 2023, and the number of CVAs was 64% higher in June 2024 than June 2023.
In most bankruptcies, the company decides to file for relief. In involuntary bankruptcies, creditors force the company into bankruptcy. Involuntary petitions are an extreme remedy, and therefore the requirements and standards to meet for filing such petitions are strictly construed and applied. If creditors meet the requirements under the Bankruptcy Code for filing an involuntary petition, it can serve as a powerful tool to use against a debtor.
Key Issues
How does an arbitration clause, or an exclusive jurisdiction clause in favour of foreign courts, affect insolvency proceedings?
The effect of an arbitration clause, or an exclusive jurisdiction clause in favour of foreign courts, on insolvency proceedings has been a topic of longstanding debate in the Courts of Hong Kong, England and other common law jurisdictions.
Court awards first security for costs order in respect of a challenge to a restructuring plan.
Key takeaways
The High Court has for the first time awarded security for costs in respect of a challenge to a proposed English restructuring plan.1
The U.S. Supreme Court reversed confirmation of Purdue Pharma’s Chapter 11 bankruptcy plan of reorganization on the basis that its non-consensual third-party releases were not permissible. It held that the Bankruptcy Code does not authorize the inclusion of a release in a plan that effectively seeks to discharge claims against a non-debtor without the consent of affected claimants. The decision prohibits an approach to global resolution of mass tort litigations that has been utilized in numerous cases over the last 40 years.
Takeaways
Unlike traditional Chapter 11 bankruptcy cases, sometimes called "free fall" cases, where a debtor files for bankruptcy and determines its path out of bankruptcy over the course of the following months, some debtors enter into bankruptcy with a plan entirely (or mostly) drafted, with an emergence strategy already completed. In these cases, debtors enter bankruptcy with pre-packaged plans or pre-negotiated plans (sometimes called pre-arranged plans) ready to file on or just after their petition date.
In this alert, we consider the implications from the recent High Court judgment finding two former directors of BHS liable for various heads of wrongdoing, including wrongful trading and "misfeasant trading".
What Directors need to know
Opinion has potential implications for a broader set of parties with potential liabilities affected by a Chapter 11 process.
Case law relating to the potential recharacterisation of fixed charges tends not to come around too often, but the recent case of Re UKCloud Ltd follows (relatively) hot on the heels of the Avanti Communications case, discussed here.
The case background
In a bankruptcy case, a preference action1 is often asserted pursuant to Section 547 of the Bankruptcy Code against a creditor to claw back funds paid to the creditor in the 90 days prior to the bankruptcy. While the most common defenses to a preference action are the ordinary course of business defense2, the new value defense3, and the contemporaneous exchange for new value defense4, there are other defenses that a savvy creditor should consider to reduce or even eliminate preference liability.
Key Issues