Early engagement, targeted information requests and use of the court's disclosure powers may assist consideration of whether to support or oppose a plan

Since their introduction in 2020, restructuring plans have become increasingly common in the retail and consumer sectors, including fitness centres (Virgin Active and Fitness First), casual dining (Prezzo) and, most recently, in greeting cards and gifting (Clintons).

The Eighth Circuit held that “avoidance actions [e.g., preferences, fraudulent transfers] can be sold as property of the [Chapter 7 debtor’s] estate.” In re Simply Essentials, LLC, 2023 WL 5341506, *1 (8th Cir. Aug. 21, 2023). On a direct appeal from the bankruptcy court, the court affirmed the bankruptcy court’s granting of the trustee’s motions to compromise and sell property under Bankruptcy Code §363(f). A creditor had objected, arguing unsuccessfully that “avoidance actions… are not part of the bankruptcy estate ….” Id.

HMRC has taken an increasingly active role in opposing restructuring plans with which it does not agree

Previously in this series, we explored whether restructuring plans present an alternative to formal insolvency, as well as the court's ability to exercise a cross-class cram down on opposing creditors.

The new law emphasises preventive restructuring, cross-border cooperation and equitable treatment of creditors

The European Union has recognised the need for harmonised insolvency laws across its member states and has taken a significant step forward with the introduction of the new EU Restructuring Directive ((EU) 2019/1023).

This directive aims to establish a common framework for insolvency proceedings, thereby enhancing cross-border cooperation and safeguarding the interests of all stakeholders involved.

Even if the statutory conditions for cramming down the votes of dissenting creditors has been met, the court retains a discretion to consider other factors

Certain statutory conditions need to be met in order for the court to sanction a plan at least one class of creditors or members has not voted in favour of the plan by the requisite majority (being 75% in value of those present and voting) – referred to as the "cross-class cram down".

Demonstrating that dissenting creditors are no worse off under a contested restructuring plan than in the relevant alternative is an essential requirement for the court to exercise its power to sanction the plan

The power of the court to sanction a restructuring plan where one or more classes of creditors or members has not voted in favour of the plan by the requisite majority (being 75% in value of those present and voting) is referred to as the "cross-class cram down".

Demonstrating what would most likely happen if a restructuring plan were not sanctioned is an essential element for the exercise of the court's discretion to cram down the votes of dissenting creditors

Restructuring plans under Part 26A of the Companies Act 2006 (CA 2006) may provide an alternative for companies in financial distress to formal insolvency (see our previous Insight).

Restructuring plans can provide companies in the early stages of financial difficulty with a flexible alternative to entering a formal insolvency procedure

Under Part 26A of the Companies Act 2006 (CA 2006), companies or groups encountering financial difficulties affecting their ability to carry on business can propose a compromise or arrangement (a restructuring plan) which mitigates or eliminates the effects of those financial difficulties.

On July 28, 2023, Judge Michael Kaplan of the Bankruptcy Court for the District of New Jersey issued an opinion granting motions to dismiss LTL Management LLC’s second chapter 11 case, finding that it was filed in bad faith due to a lack of imminent and immediate financial distress. See In re LTL Mgmt., LLC, No. 23-12825 (MBK), 2023 WL 4851759 (Bankr. D.N.J. July 28, 2023). Judge Kaplan’s decision follows the U.S. Court of Appeals for the Third Circuit’s dismissal of LTL’s first chapter 11 bankruptcy case in January 2023.

Over the past year, digital asset investors have become acutely aware of asset custody and counterparty credit risks due to the high-profile bankruptcies of Voyager, Celsius, BlockFi, and FTX. These investors have found that, at times, their assets may be stuck in a bankruptcy proceeding for years. However, these investors—now bankruptcy claim holders—have options for more immediate liquidity.