The primary investment thesis of a private credit lender is simple — get the loan repaid at maturity. Private credit lenders do not make loans as a means to acquire their borrower’s business. There are circumstances, however, where private credit lenders must be prepared to take ownership when the borrower is distressed and there is no realistic prospect of near-term loan repayment. Becoming the owner of a borrower’s business may very well be the loan recovery option of last resort.
In a recent judgment, the English court refused to sanction a restructuring plan put forward by oil and gas producer, Hurricane Energy PLC.
Background
The German Federal Court of Justice (Bundesgerichtshof) recently changed its interpretation of the law regarding clawback claims, Vorsatzanfechtung (case of actio pauliana). Here, we outline how the Court's position on clawback claims has changed and what this could mean for future claims.
What are the existing legal provisions?
Op 28 juni 2021 heeft het kabinet een wetsvoorstel in consultatie gebracht met als doel de turboliquidatie van rechtspersonen transparanter te maken voor schuldeisers. Om dat te bereiken, stelt de minister voor dat het bestuur van een rechtspersoon binnen tien werkdagen na de ontbinding een aantal documenten deponeert bij het Handelsregister en van de deponering mededeling doet aan de schuldeisers. Ook bevat het voorstel de mogelijkheid om, indien een bestuurder de nieuwe regels niet naleeft, een bestuursverbod op te leggen.
On 28 June 2021 the Dutch government initiated a public consultation procedure concerning a legislative proposal intended to make expedited liquidation of legal entities more transparent for creditors. To achieve this goal, the Minister has proposed that the management board of a legal entity should file a number of documents with the Trade Register within 10 days of liquidation and then notify their creditors that they have done so. The proposal also allows for the possibility of disqualifying a managing director who should fail to observe the new rules.
We anticipate a more assertive regulatory enforcement program under the Biden administration, particularly focused on fund managers’ conflicts of interest, advisers’ codes of ethics, and related policies and procedures relating to material nonpublic information. These concerns may be heightened for fund managers participating in bankruptcy proceedings, where competing fiduciary obligations arise, particularly in the context of serving on creditors committees.
The Hong Kong government will introduce a long-awaited statutory corporate rescue procedure (CRP) in 2021, bringing the regime more in line with international practice in jurisdictions such as the UK and the USA.
The current lack of a CRP in Hong Kong means that there are limited options available to distressed companies and the lack of a moratorium on creditor enforcement jeopardises legitimate restructuring efforts. The Companies (Corporate Rescue) Bill is timely given the difficulties brought by the current economic downturn, itself exacerbated by the impact of COVID-19.
Dutch football club ADO Den Haag has filed for WHOA proceedings after its major shareholder failed to pay €2 million due to the club, leaving it unable to meet its financial obligations.
The decision
From 1 July 2021, directors in the UK could be subject to a wrongful trading claim if their company goes into liquidation or administration.
Wrongful trading
This means that directors may be personally liable to contribute to the company’s assets:
The Hong Kong government will introduce a long-awaited statutory corporate rescue procedure (CRP) in 2021, bringing the regime more in line with international practice in jurisdictions such as the UK and the USA.
The current lack of a CRP in Hong Kong means that there are limited options available to distressed companies and the lack of a moratorium on creditor enforcement jeopardises legitimate restructuring efforts. The Companies (Corporate Rescue) Bill is timely given the difficulties brought by the current economic downturn, itself exacerbated by the impact of COVID-19.