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.).
“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 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.
The impact of Covid-19 on businesses has already been significant, with several high-profile businesses in the UK and the Channel Islands ceasing to trade or entering administration. The sudden drop in custom as a result of restrictions imposed to protect the community from Covid-19 (the Restrictions) have resulted in businesses experiencing severe, if not crippling, cash flow issues.
In Autumn 2018 the States of Guernsey proposed changes to Guernsey’s corporate insolvency regime to come into effect in 2019. On 15 January 2020 the States of Guernsey enacted these changes with the passing of the Companies (Guernsey) Law 2008 (Insolvency) (Amendment) Ordinance 2020 (the Ordinance).
The Ordinance brings into effect the proposed changes to create a structured, flexible and transparent regime for company insolvency procedures in Guernsey, as is required in a modern jurisdiction. A summary of the main changes is set out below.
Administration
Der Gesetzesentwurf sieht Regelungen zu Aussetzung der Insolvenzantragspflicht, Zahlungsverboten, neuen Darlehen und Sicherheiten sowie zur Insolvenzanfechtbarkeit vor:
1. Insolvenzantragspflicht
The draft bill provides regulations regarding the suspension of the obligation to file for insolvency, payment prohibitions for management, new loans and securities, as well as claw-back risks:
1. Obligation to File for Insolvency