As the coronavirus (COVID-19) pandemic continues to shake global markets, it is likely that more companies will need to restructure to address liquidity constraints, to right-size their balance sheets, or to implement operational restructurings. In addition to a potential surge in restructurings, the spread of COVID-19 is already having pronounced impacts on companies planning or pursuing restructurings, and further market turmoil may cause even broader changes to the restructuring marketplace.

Potential Increase in Restructuring Activity

This judgment is an important one. It concerned an application by the joint liquidators of Comet (formerly joint administrators) for directions permitting them not to carry out any further investigation into the validity of the fixed and floating charge held by a single purpose vehicle (“HAL”) that had been granted by Comet under a year before it collapsed into administration. The joint liquidators also sought a direction that they be permitted to transfer a further tranche of funds to HAL that had been realised in the administration.

The U.S. Supreme Court held today in Mission Product Holdings, Inc. v. Tempnology, LLC that a trademark licensee may retain certain rights under a trademark licensing agreement even if the licensor enters bankruptcy and rejects the licensing agreement at issue. Relying on the language of section 365(g) of the Bankruptcy Code, the Supreme Court emphasized that a debtor’s rejection of an executory contract has the “same effect as a breach of that contract outside bankruptcy” and that rejection “cannot rescind rights that the contract previously granted.”

In a recent decision arising out of the Republic Airways bankruptcy, Judge Sean Lane of the United States Bankruptcy Court for the Southern District of New York held that the liquidated damages provisions of certain aircraft leases were improper penalties and, thus, “unenforceable as against public policy” under Article 2A the New York Uniform Commercial Code. In re Republic Airways Holdings Inc., 2019 WL 630336 (Bankr. S.D.N.Y. Feb. 14, 2019).

On February 8, 2019, the United States District Court for the Southern District of Texas, Houston Division, affirmed a Bankruptcy Court order enjoining a claimant from pursuing claims against a debtor’s non-debtor affiliates based upon third-party release and injunction provisions included in the debtor’s confirmed chapter 11 plan. In re CJ Holding Co., 2019 WL 497728 (S.D. Tex. Feb. 8, 2019).

Bankruptcy partner Brian Hermann and counsel Lauren Shumejda co-authored the chapter, “U.S.: New Strategies for Getting Paid: Recent Investment Fund Activity in Chapter 11,” in the 2019 edition of the Global Restructuring Review (GRR) Special Report, “The Restructuring Review of the Americas.”

Restructuring & Insolvency analysis: Iain Pester, barrister at Wilberforce Chambers, advises that the judgment in the case is a timely reminder that not everything of economic value will necessarily vest in a trustee in bankruptcy pursuant to section 306 of the Insolvency Act 1986 (IA 1986).

The United States Court of Appeals for the Third Circuit recently issued a 2–1 decision affirming the ruling of the Bankruptcy Court for the District of Delaware, which reconsidered its prior approval of a $275 million termination fee in connection with a proposed merger. In re Energy Future Holdings Corp., No. 18-1109, 2018 WL 4354741, at *14 (3d Cir. Sept. 13, 2018).

The insolvency aspect of the long-running Baxendale-Walker litigation adds much needed to clarity to two practical issues arising in bankruptcy.

Conflicts of interest on the part of Administrators and the Court’s powers to grant remedial relief by appointing so-called “conflicts” administrators have become real hot topics in insolvency litigation, in particular following the decisions this year in VE Vegas Investors IV LLC and Davey v Money.