On August 26, 2020, the U.S. Court of Appeals for the Third Circuit affirmed Delaware Bankruptcy Judge Kevin Carey’s order confirming the Tribune Company’s chapter 11 plan.1 As a matter of first impression, the Court held that the prohibition against “unfair discrimination” in cramdown plans supplants the requirement that subordination agreements be enforced in bankruptcy. The decision comes more than eight years after Judge Carey initially entered the Bankruptcy Court order, and follows years of appeals by the senior noteholders.
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.
The COVID-19 pandemic has heavily disrupted our lives, communities, and businesses. Even with new approaches, not all businesses can overcome the substantial challenges brought by the pandemic. Lending programs like the Paycheck Protection Program have brought temporary relief, but many small businesses remain exposed to financial difficulties and face a real risk of bankruptcy.
New Small Business Provisions in Bankruptcy Code
On June 22, 2020, the Federal Energy Regulatory Commission (“FERC” or “Commission”) issued an order concluding that the Commission and the United States Bankruptcy Courts have concurrent jurisdiction to review and address the disposition of natural gas transportation agreements (“FERC-jurisdictional agreement”) sought to be rejected through bankruptcy.
More than a third of the world’s population is under lockdown to slow the spread of COVID-19. The virus and these responsive measures have heavily disrupted lives, communities, and healthcare systems. Many businesses have been forced to change their operations. COVID-19 is rapidly pushing companies to operate in new ways, and the resilience of systems is being tested as never before.
Permanent Reforms
Moratorium: a new stand-alone moratorium to provide businesses with an initial 20-business-day stay from creditor action.
Even with the economy starting to re-open, many businesses are still struggling to get back on track in the wake of the COVID-19 pandemic. Chapter 11 bankruptcies are up 26 percent over this time last year, a number that includes businesses in a wide array of industries from large retailers like J. Crew and J.C. Penney to energy companies like Diamond Offshore Drilling and Whiting Petroleum.
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 bench ruling in In re Pace Industries, LLC1 by Judge Walrath for the Bankruptcy Court for the District of Delaware (the “Court”) has validated a chapter 11 bankruptcy filing by certain debtors in the jointly administered cases of Pace Industries, LLC and certain of its affiliates, in spite of the fact that they were filed in contravention of an explicit bankruptcy-filing blocking right held by certain equity holders as set forth in the applicable corporate governance documents.
“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.