Much like the English Scheme of Arrangement which has become a popular debt restructuring solution for international debtors, the English High Court is an attractive forum for insolvency litigation thanks to the potent combination of wide-ranging powers available to Insolvency Practitioners (IPs) under the Insolvency Act 1986, and the increasing availability of litigation funding arrangements in the London market.

Eurosail’s journey has come to an end: the Supreme Court rejects the “point of no return” test, returns to balance sheet basics.

John Houghton, European Head of Restructuring and Co-Global Chair of Bankruptcy and Restructuring remarks:

English schemes of arrangement under the Companies Act 2006 (Schemes) have been increasingly used by non-English companies as a powerful tool to restructure their financial indebtedness. Recent prominent examples of German companies that have utilized Schemes to cramdown non-consenting or “holdout” creditors in order to restructure the company’s balance sheet include TeleColumbus, Rodenstock and Primacom.

There are several reasons for this trend:

98% of the liabilities of Lehman Brothers International (Europe) (in administration) (“LBIE”) were denominated in non-sterling currencies. The fall in sterling after LBIE entered administration resulted in significant paper losses for creditors, which they sought to recover from the LBIE estate. The recent decision of the UK Supreme Court in Waterfall I refused to recognize such claims.*

There are essentially three types of insolvency proceeding: liquidation, receivership and administration. Liquidators realise and distribute a company’s assets before dissolving the company. Receivers usually realise certain secured assets to repay certain debts, before appointing a liquidator. However, an administrator’s first objective is to rescue the company as a going concern. It is only if this is not practicable that the administrator can realise and distribute a company’s assets.

CMS is advising HSBC on its expedited appeal of a recent controversial decision by the High Court refusing assistance under the cross-border assistance provisions of section 426 of the Insolvency Act 1986.  The decision of the Court of Appeal will be of great interest to those involved in cross-border insolvency and restructuring as well as foreign courts.

In a recent case, the court held that a party to a settlement agreement (in this case a broker) cannot restrict the indemnity it is providing so that the indemnity is not payable if the insured goes into administration, or liquidation, or undergoes some other insolvency event. The decision is important on its own facts. But it does also raise questions about the legitimacy of other clauses in insurance contracts which depend on whether or not the insured or reinsured has entered into any kind of insolvency event.

A real, as opposed to remote, risk of insolvency is not necessarily enough for the duties of a board of directors to switch from being owed to its shareholders to being owed to its creditors.

Administrators can be validly appointed to a company by the holder of a floating charge which was given by the company in breach of a negative pledge in favour of an existing secured creditor and even if, both at the time of the purported creation of that floating charge and on the day of the purported appointment of administrators, the company had no assets which were the subject of the floating charge.

As the dust begins to settle after the EU referendum and the potential ramifications of Brexit continue to be digested, we examine the potential impact of Brexit on the UK cross-border restructuring and insolvency regime and its consequences for the UK’s reputation as a leading creditor-friendly restructuring jurisdiction.