In the current market, investors are increasingly considering their options in relation to the stressed and distressed credits in their portfolios. Whilst mindful of stakeholder relationships, secured lenders may, in some circumstances, wish to consider the "nuclear option": enforcing their share pledge over a holding company of the operating group (ideally, such pledge being over a single company which directly or indirectly holds the entire business - a "single point of enforcement").
Senior secured creditors, being the anchor creditor in the capital stack, will always be focused on ensuring their priority claim is as robust as possible, with clearly delineated capacity for 'super priority' debt. However, today's documentary flexibilities, coupled with local legal restrictions, can mean senior secured creditors are not as 'senior secured' as they think. Here are some points to think about.
Super Senior Debt
Fraudulent trading is both a civil and criminal offence. The recent judgment of the High Court in Bouchier v Booth provided a helpful reminder of the principles that a Court will apply when considering whether directors have acted in a manner that constitutes fraudulent trading and the high threshold for proving fraudulent conduct.
The Court of Appeal has ruled that the previous decision of the High Court to sanction a restructuring plan ("Plan") that had been proposed by the Adler Group ("Adler") should be set aside. The decision marks the first appeal in relation to a restructuring plan under Part 26A of the Companies Act 2006 ("Companies Act") and the decision offers clarity on the approach to restructuring plans, particularly when considering issues of "fairness".
The Supreme Court has provided welcome clarity for insolvency practitioners in confirming that administrators of a company appointed pursuant to the Insolvency Act 1986 ("IA 1986") will not be criminally liable for a failure by the company to comply with redundancy notification requirements.
On 1st November 2023, the new Luxembourg law of 7 August 2023 on the continuation of businesses and modernisation of insolvency law (the "Law") enters into force.
This long-awaited reform implements Directive 2019/1023 to introduce a modern restructuring regime, with out-of-court and court supervised mechanisms to protect companies in distress. The Law is expected to provide more flexible and effective measures for businesses under financial stress and their creditors, making Luxembourg an attractive jurisdiction for restructurings.
Volatile credit markets and guarded banks have made securing term loan C (TLC) debt attractive for borrowers who heavily rely on letters of credit to trade but either have low credit ratings or otherwise have difficulty accessing large enough revolving facilities to support the high amount of letters of credit needed.
Earlier this year, the English Court refused to sanction two Part 26A restructuring plans ("RPs") which sought to bind HMRC, the UK tax authority, into restructurings via "cross-class cram down".
Once perceived as a relatively moribund restructuring market, where stressed and distressed borrowers and lenders ended up stuck in interminable refinancing cycles faced with court proceedings that, at least in perception, prioritized local creditor interests, today’s landscape could not be more different.
The English High Court has sanctioned a restructuring plan in respect of EUR 3.2 billion of bonds issued by the German real estate business, Adler Group. The main objective of the plan was to avoid Adler's imminent insolvency by facilitating access to EUR 937.5 million of new money funding and thereby providing a stable platform from which Adler Group can pursue a solvent wind-down by asset sales over time in recovered market conditions. This represents a novel use of the restructuring plan procedure, which has previously been seen exclusively as a corporate 'rescue' tool.