European corporate defaults show signs of levelling off; risks remain tilted to downside Two years of rating pressure on European corporates shows signs of easing but credit risk remains tilted to the downside for the rest of 2025 given geopolitical uncertainty, economic headwinds and challenging financing conditions for the smallest firms. Scope Ratings forecasts that corporate defaults will ease in the second half of 2025 and through 2026, supported by the region’s gradual return to more robust GDP growth after two years of stagnation.

The case of SBP 2 S.À.R.L v 2 Southbank Tenant Limited [2025] EWHC 16 (Ch) highlights the importance of careful drafting and robust legal advice when looking to forfeit a lease.

Background

Introduction

Insolvency is a critical financial state that affects both individuals and businesses worldwide. It occurs when a person or organization can no longer meet its financial obligations as they fall due or when liabilities exceed assets. Understanding insolvency is vital to navigate financial challenges effectively and develop strategies for recovery.

Types of Insolvency

1. Cash Flow Insolvency

Harrington v. Purdue Pharma L.P., 144 S. Ct. 2017 (June 27, 2024)

A new, bipartisan bankruptcy bill in the U.S. Senate purports, according to an official document, to:

In 2019, Congress enacted the Small Business Reorganization Act, which created subchapter V within chapter 11 of the Bankruptcy Code. Congress’ intent was to create a more cost-efficient and streamlined restructuring process for small businesses by modifying certain provisions of chapter 11 for debtors with claims below a specific debt cap. In particular, because creditors typically have smaller claims against these small businesses, the new subchapter takes into account the likelihood that there will be no or minimal meaningful creditor participation.

Conventional wisdom suggests there is no requirement that a debtor be “insolvent” to file a case under Chapter 11 or any other chapter of the Bankruptcy Code. No Code provision explicitly imposes such a requirement. Yet in 2023, several courts addressed the issue, and two courts directed the dismissal of massive Chapter 11 cases imposing what may fairly be characterized as an insolvency requirement.

Businesses worldwide are feeling the pressure of historic inflation and rising interest rates. UK insolvencies have reached their highest level since 2009, while numbers are also increasing in Australia, Canada and China.

This article examines the latest restructuring and insolvency trends – including zombie companies, landmark court decisions, and new legislation in Canada and the EU.

‘Zombie companies’ could lead to a wave of insolvencies

Ken Baird, Katharina Crinson, Guilhem Bremond, Michael Broeders, Charlotte Ausema, Jan-Philip Wilde, Ana López, Silvia Angós, Mark Liscio and Samantha Braunstein, Freshfields Bruckhaus Deringer

This is an extract from the 2024 edition of GRR's the Americas Restructuring Review. The whole publication is available here.

(Published in the Fall 2023 issue of The Bankers' Statement)

On April 19, 2023, the U.S. Supreme Court held that Section 363(m) is a not a jurisdictional provision. Thus, challenges to Section 363 sales that have closed can be heard on appeal notwithstanding a Section 363(m) finding in the sale order, so long as the appellate decision does not affect the validity of the sale to a good faith purchaser.¹