Despite the ongoing global pandemic, opportunities for stressed and distressed investments have not been as prolific as many expected. The window for entry into credits opened and closed more quickly than imagined. Nevertheless there have been several high-profile restructurings using the English scheme of arrangement. Of course, some of these were already in motion prior to the onset of the pandemic. A handful of these have sought to test the recently enacted insolvency regime, whilst others have tested more established legislative principles.
THE CHALLENGE:
After years of selling services at a loss to grow its customer base, Agera Energy—a retail electricity and natural gas provider for commercial, industrial and residential customers in 16 states—realized its business was no longer viable. The company decided to file for chapter 11 bankruptcy protection after evaluating strategic alternatives.
The enacted Corporate Insolvency and Governance Act (the Act) introduces three permanent reforms to the existing insolvency legislation and certain temporary measures designed to address the immediate impact of COVID-19 on UK businesses. Among other things, the Act looks to maximise the potential for struggling companies to be maintained as a going concern. As market participants and the courts get to grips with the new legislation, it is clear that there will be some impact on the special situations landscape and the business of stressed and distressed investment.
Permanent Reforms
Moratorium: a new stand-alone moratorium to provide businesses with an initial 20-business-day stay from creditor action.
The US Court of Appeals for the Sixth Circuit affirmed that a state court’s finding of “willful and malicious injury” in connection with the misappropriation of trade secrets entitled the plaintiff, in the defendant’s subsequent bankruptcy proceeding, to summary judgment of nondischargeability on collateral estoppel grounds. In re Hill, Case No. 19-5861 (6th Cir. May 4, 2020) (Donald, J.).
In our latest installment of our series “Bankruptcy On Ice”, we tackle temporary suspension of bankruptcy proceedings in response to the closure of “non-essential businesses” and other critical protective measures being imposed to fight the spread of COVID-19.
“Bankruptcy is about financial death and financial rebirth. Bankruptcy is the great American story rewritten. We’re a nation of debtors.” -Elizabeth Warren
Amid the Coronavirus (COVID-19) pandemic and related economic turmoil, bankruptcy filings in the United States are on the rise. Non-US insurers should review contractual arrangements with US insureds and brokers, and establish a plan to deal with bankruptcy filings across the United States in a consistent fashion.
The Paycheck Protection Program (PPP) is one of two business loan programs created under the Coronavirus Aid, Relief and Economic Security (CARES) Act to assist companies by extending potentially forgivable credit to small business employers. The PPP is designed to help cover employee-related expenses and help employers avoid layoffs. The prospect of forgivable debt, coupled with relatively favorable terms, have put PPP loans in high demand and many businesses, including some which had already sought chapter 11 bankruptcy protection, have sought PPP loans.
This article was originally published on Law360.
The COVID-19 pandemic has caused, and continues to cause, massive humanitarian and economic upheaval with no clear end in sight. Borrowers are already scrambling to increase liquidity from their banks. Some will continue to operate openly, honestly, and in the best interests of the company and its stakeholders. Others will not.
The extraordinary pandemic-based financial challenges impacting hospitals, health systems and other providers as a result of the Coronavirus (COVID-19) should prompt boards to re-evaluate focus on their duty to monitor the organization’s financial condition. Existing case law provides useful direction on the scope of these duties, particularly during periods of financial distress. There is value to enhancing the engagement of the board’s finance (or similar) committee on solvency matters during this period of crisis.