Basile Fémelat and Nicolas Marchand, AKD Luxembourg

This is an extract from the 2020 edition of GRR's the Europe, Middle East and Africa Restructuring Review. The whole publication is available here.

In summary

Postpetition financing provided by pre-bankruptcy shareholders or other "insiders" is not uncommon in chapter 11 cases as a way to fund a plan of reorganization and allow old shareholders to retain an ownership interest in the reorganized entity. The practice is typically sanctioned by bankruptcy courts under an exception—the "new value" exception—to the "absolute priority rule," which prohibits shareholders and junior creditors from receiving any distribution under a plan on account of their interests or claims unless senior creditors are paid in full or agree otherwise.

After a year in which numerous businesses have relied on various forms of government support to stay afloat, many will be hoping that 2021 offers the chance to emerge from this period and resume some degree of normal trading. Certainly, the coming year will be make-or-break time for those businesses that have been most impacted by the pandemic – and as government assistance is wound back, the demand for working capital funding is likely to be high.

Ross Miller, Simmons & Simmons LLP

This is an extract from the second edition of GRR's The Art of the Ad Hoc. The whole publication is available here.

Introduction

In the wake of the economic stress created by COVID-19, we have seen increased opportunities for buyers looking to acquire distressed companies and assets in Canada. Increased deal flow in industry sectors that have been hit hardest by COVID-19, including retail, hospitality, travel, cannabis, and oil and gas has occurred, and with the passage of time other sectors will be affected.

As lenders prepare for a world with an increased risk of borrower failures, liquidations, and bankruptcies, many have begun focusing on requiring that borrowers form special purpose entities (“SPEs”) to mitigate against those risks. In this publication, we explore how recent case law has viewed the formation and use of SPEs and which structures have been more effective than others.

Current State of the Law Regarding Bankruptcy Remote Entities

As interest rates remain relatively low and financial liquidity levels remain high, investors with a higher risk appetite will continue to find increased opportunities with distressed assets. In Brazil, these have already reinvigorated the trend of M&As in Q3 of 2020.

A revigorated trend

INTRODUCTION

1) Premise.

Italian Law Decree no. 83 of 27 June 2015, converted with amendments by Italian Law no. 132 of 6 August 2015, introduced an important amendment within the context of transfers or sales carried out while composition with creditors proceedings is pending, by adding art. 163 bis to the Italian Bankruptcy Law (“BL”), titled "Competing Offers". The rationale of such measure, made clear by the legislator itself in the report accompanying the conversion bill, is twofold:

(i) maximize the recovery prospects of the composition creditors;

Executive summary

On a UK company’s insolvency, the UK tax authority (HMRC) will become a preferential creditor in respect of certain unpaid taxes (Crown Preference) with effect from 1 December 2020. Despite lobbying against the move (including in light of the COVID-19 pandemic), the UK government has persisted with the change, perhaps in an attempt to shore up its tax take.

The reform in context