This note sets out the circumstances in which a creditor may successfully lift a statutory moratorium against a company in administration in England and Wales, and in Singapore.
English law
United Cannabis Corp. entered into chapter 11 several days ago in an effort to stop various patent infringement claims being lodged against it. Most bankruptcy courts have said that use of the federal bankruptcy laws by companies in the cannabis space is a no go because even if the companies are in compliance with applicable state laws, they are operating in violation of federal law. United Cannabis Corp. mostly deals in hemp based products, the production and sale of which do not violate the Controlled Substances Act.
In the current climate, it is expected that thousands of business will enter administration and Administrators will need to assess each administration on its merits to see if it is appropriate to adopt a light touch approach.
As a result of the unprecedented situation that is being faced by businesses due to the Covid-19 pandemic lockdowns there have been many discussions within the insolvency and legal sectors about how best to rescue struggling businesses.
As a creditor, especially during the current Covid-19 crisis, it may be tempting to accept all and any payments from debtors.
Payments that a debtor company makes to you during the period where there is a winding-up petition in place will be a void disposition, under section 127 of the Insolvency Act 1986, unless there is an application to the Court and receipt of what is known as a “validation order,” allowing you to keep the money.
What’s happening in real life?
Business Secretary Alok Sharma has announced that the government will be introducing measures to “improve the legal options for companies running into major difficulties. The overriding objective is to help UK companies, which need to undergo a financial rescue or restructuring process, to keep trading. These measures will give those firms extra time and space to weather the storm and be ready when the crisis ends”.1
The temporary amendments to the insolvency laws which are being considered include:
The changes?
On Saturday, during the Government’s daily Coronavirus update, it was announced that it would shortly legislate to:
In a recent decision, [1], the High Court decided that it was not in the public interest to wind up a business rates mitigation scheme under its Insolvency Act powers, as it found that this scheme did not subvert the intention of insolvency law.
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On December 20, 2019, Judge Marvin Isgur in the U.S. Bankruptcy Court for the Southern District of Texas (Houston Division) entered a memorandum opinion which held that debtors' midstream gathering agreements formed real property covenants "running with the land" under Oklahoma law - and such agreements could not be subject to rejection under section 365 of the Bankruptcy Code. See 11 U.S.C. section 365(a) (allowing a debtor-in-possession, "subject to the court's approval," to "assume or reject any executory contract.").
Withdrawal liability under ERISA can be a significant factor considered by private equity funds in making investments in portfolio companies. And it becomes an even more significant factor if the private equity fund is determined to be a member of the company’s “control group” in which case the fund (and perhaps its partners) c