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.
Introduction
UK COVID-19 Developments
HMRC updates its trading activities guidance
Further to our last update on prospective changes to the UK insolvency regime in light of COVID-19, the UK government revealed the Corporate Insolvency and Governance Bill on 20 May.
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.).
A recent, highly anticipated ruling by a Bankruptcy Court in Delaware has reilluminated the concept of a "golden share". While an appeal of the ruling seems likely, this latest ruling by Delaware Bankruptcy Judge Mary F. Walrath suggests that as the COVID-19 outbreak continues to disrupt businesses and send shockwaves through the economy, courts may look at the specific circumstances of each case and weigh the interests of all corporate stakeholders in determining whether to enforce a "bankruptcy blocker".
What is a "Golden Share"?
“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.