Many foreign companies experiencing financial distress due to the COVID-19 pandemic have utilized the American bankruptcy system to restructure. In 2020, major airlines in Chile, Colombia and Mexico availed themselves of Chapter 11 protections. The oil and gas sector, already struggling from a multiyear slump in commodity prices that worsened with the pandemic, also saw a surge in Chapter 11 filings by foreign entities.

Although the Trade and Cooperation Agreement (TCA) arrived in time to prevent a wholesale “no deal Brexit,” issues of cross-border cooperation and recognition in relation to insolvency and restructuring proceedings were not included in the agreement.

The COVID-19 pandemic has caused massive disruption across the globe, resulting in a significant uptick in U.S. restructuring activity. According to AACER, a database of U.S. bankruptcy statistics, an estimated 7,128 business bankruptcies were filed in 2020, representing a 29% increase over the same period last year. Although Chapter 11 filings increased in 2020, many experts believe we have yet to see the full extent of the surge in filings that will occur in the aftermath of the COVID-19 crisis.

A recent bankruptcy case now on appeal is being closely watched for the significant economic repercussions it could have on debtors and creditors alike. On October 26, 2020, in In re Ultra Petroleum Corp., the U.S. Bankruptcy Court for the Southern District of Texas held that the debtor must pay (1) the make-whole premium owed under its debt documents and (2) post-petition interest at the contractual default rate.

The Bankruptcy Protector

In City of Chicago, Illinois v. Fulton, No. 19-357, 2021 WL 125106, at *1 (U.S. Jan. 14, 2021), the United States Supreme Court considered the issue of whether the mere retention of estate property after the filing of a bankruptcy petition violates section 362(a)(3) of the Bankruptcy Code. Reversing the Seventh Circuit and resolving a split among the circuits, the Supreme Court ruled unanimously on January 14, 2021 “that mere retention of property does not violate the [automatic stay in] § 362(a)(3).”

The New York Court of Appeals’ recent 4-3 opinion in CNH Diversified Opportunities Master Account, L.P. v. Cleveland Unlimited, Inc., 2020 WL 6163305 (NY Oct. 22, 2020), could provide minority noteholders with additional negotiating leverage in the context of attempted out-of-court restructurings. However, the scope of this decision’s impact, and whether it conflicts with the U.S. Court of Appeals for the Second Circuit’s prior holding in Marblegate Asset Mgmt., LLC v. Educ. Mgmt. Fin. Corp., 846 F.3d 1 (2d Cir.

The United States Court of Appeals for the Eleventh Circuit recently issued an opinion that calls into question the long-held Barton doctrine following the dismissal of a bankruptcy case and thus the jurisdiction of that court. In Tufts v. Hay, No. 19-11496 --- F.3d ----, 2020 WL 6144563 (11th Cir. Oct. 20, 2020), the court considered where a litigant may bring suit against counsel appointed by a bankruptcy court after the bankruptcy case was dismissed.

The economic hardships brought about by the COVID-19 pandemic have impacted companies globally, leading many to consider both in-court and out-of-court restructurings. Because this trend will likely continue as the long-term effects of COVID-19 play out, companies with arbitration clauses in their commercial agreements may wish to consider the impact of insolvency on their options for pursuing pending or future arbitrations.

For years, small business debtors have struggled with the intricacies of Chapter 11, the debt limitations of Chapter 13 and Chapter 7 bankruptcy liquidations. Stringent requirements and procedural hurdles often made restructuring a prohibitively expensive option for many small business debtors. Congress attempted to address these issues with H.R. 3311, the Small Business Reorganization Act (the “SBRA”). The SBRA, which was signed into law on August 23, 2019, creates a new subchapter, Subchapter V, of Chapter 11 of the Bankruptcy Code.

This article discusses some of the main considerations that arise when a party considering arbitration or already engaged in arbitration files for insolvency, or has its counterparty file for insolvency, under German insolvency law.