It is clear from the recent collapse of Bear Stearns that the real impact of the credit crunch is now being felt. With this in mind, how can landlords and tenants of commercial properties prepare themselves for a potential rise in the number of corporate insolvencies?

Landlords’ remedies – think outside the box

The landlord of a commercial property faced with an insolvent tenant will usually have two concerns:

On 14 February 2008 the German Federal Parliament deliberated a draft bill submitted by the Federal Ministry of Justice concerning the reform of Germany’s insolvency law. The draft bill envisions, in particular, regulation for stability against insolvency (Insolvenzfestigkeit) for licence agreements.

A recent report by Standard & Poor's ("S&P") noted that the number of U.S. insurers placed under regulatory supervision in 2007 was the lowest in a decade. The report attributes a decrease in insolvencies among property casualty insurers to, among other things, a mild hurricane season combined with better underwriting and an improved premium rate environment. S&P forecasted a stable outlook in the P&C sector for 2008, though noting that it expects net premiums to decline modestly after an extremely profitable 2007.

In an important recent decision of the United States Court of Appeals for the Second Circuit, testing the outer reaches of a bankruptcy court’s jurisdiction, In re Johns Manville Corp., 06-2099 (2d Cir. Feb. 15, 2008), the court considered whether claims that are not derivative of a debtor’s liability, but rather seek to recover directly from an insurer for its own alleged misconduct, can be enjoined by the “channeling” mechanism developed by the bankruptcy court.

With commentators predicting that the real impact of last summer’s credit crunch on corporate liquidations has yet to be felt, how can landlords and tenants of commercial properties prepare for a potential rise in the number of corporate insolvencies?

LANDLORDS’ REMEDIES - THINK OUTSIDE THE BOX

The landlord of a commercial property faced with an insolvent tenant will usually have two concerns:

In a matter of first impression under New Jersey law that potentially impacts both the reinsurance and insurance industry and policyholders of insolvent insurance companies, the New Jersey Supreme Court affirmed the appellate division's ruling that the Fourth Amended Final Dividend Plan (the "FDP") proposed by the Liquidator for Integrity Insurance Company ("Integrity") should not be approved because it unlawfully allowed incurred but not reported (“IBNR”) claims to share in the insolvent insurer's estate. See In the Matter of the Liquidation of Integrity Ins.

The case of Law Society v Dixit Shah (2007) EWHC 2841 (Ch) arose from the intervention of the Office for the Supervision of Solicitors into an association of firms owned by Dixit Shah which traded under "the BJ Brandon Group" name. The Law Society alleged that the OSS discovered that around £12.5 million of client money had been misappropriated by Mr Shah.

Executive Life Insurance Company of New York (ELNY) was placed into rehabilitation in 1991 after affiliated companies became insolvent and concerns about its future solvency arose. The rehabilitation plan adopted in 1992 involved the transfer of much of ELNY's business to another carrier; however, ELNY in rehabilitation retained substantial assets and continued payment on certain annuities, with the bulk of the payout going to structured settlement annuitants that had received long-term and/or lifetime annuities as settlements in personal injury lawsuits.

Recently, a New York state court gave the New York Liquidation Bureau ("NYLB") permission to notify more than 300,000 creditors of Union Indemnity Insurance Company (“Union Indemnity”) that it plans to make the first distribution from the insolvent property casualty insurer's estate. See In Re Union Indemnity Ins. Co., No. 41292/85 (N.Y. Sup. Ct., Oct. 10, 2007).

The Polish metal tools manufacturer, Bison Bial (Bison), will be able to receive state aid amounting to €8.2m in order to enable the company to carry out a restructuring programme to improve the firm’s economic viability. After Bison entered into financial difficulties, Poland notified the European Commission that it wanted to provide aid to the company. The Commission decided that such aid was compatible with EU state aid rules, provided that the investment programme is fully implemented and the company sells one of its production divisions by the end of 2009.