The recently enacted Coronavirus Aid, Relief, and Economic Security (CARES) Act expands the application of the Small Business Reorganization Act of 2019 (SBRA) to more distressed businesses. The SBRA gives qualifying businesses and their owners more leverage to reorganize in bankruptcy court over the objection of creditors. The SBRA process is also less expensive and more streamlined than a typical Chapter 11 case.
- The COVID-19 pandemic has shifted the underwriting analysis for suppliers and creditors from customer-specific financial review to global health and macroeconomic analyses that are outside of the comfort zone of most company credit managers.
- Credit managers have seen their customers in long-thriving industries (e.g., travel, hospitality, entertainment) face a sharp and sudden loss of revenue.
A new chapter has begun in the ongoing saga to clarify the role of the Federal Energy Regulatory Commission (FERC) in bankruptcy proceedings involving FERC-jurisdictional contracts. In a March 30 order, the FERC identified how it will exercise its jurisdiction under the Federal Power Act (FPA) concurrently with the Bankruptcy Court with regard to the proposed rejection of FERC-jurisdictional contracts in bankruptcy.[1]
State governments can be creditors of individuals, businesses and institutions that are debtors in bankruptcy in a variety of ways, most notably as tax and fine collectors but also as lenders. They can also be debtors of debtors, in their role, for example, as the purchasers of vast quantities of goods and services on credit. And they can also be transferees of a debtor’s property in (at least) every role in which they can be creditors.
As markets react to the Coronavirus Disease 2019 (COVID-19) pandemic, the trading prices of loans and notes have declined. In light of these developments, borrowers and their affiliates, including private equity sponsors, are considering whether to buy back outstanding debt at a discount. In analyzing the potential benefits and drawbacks of pursuing debt repurchases, borrowers and private equity sponsors should consider the following:
Outstanding Debt Documents
Three recent court decisions address the scope and limits of bankruptcy injunctions barring future asbestos claims. The decisions – from the Second Circuit Court of Appeals, a Maryland bankruptcy court, and the Montana Supreme Court – underscore that (i) broad notice of proposed injunctions is critical and (ii) channeling injunctions under § 524(g) of the Bankruptcy Code apply only to liabilities that are derivative of the debtor’s liabilities, not to a company’s own liabilities.
Introduction
A recent decision from the United States District Court for the Southern District of New York (the District Court) in the bankruptcy cases of Sears Holdings Corp. may loom large in a day and age when shopping mall operators are seeking creative alternatives to the traditional, retail-oriented anchor-store business model.
In an opinion issued on March 24, 2020, the District Court for the District of Delaware held that pre-petition environmental fines accrued by Exide Technologies were dischargeable debts in Exide’s Chapter 11 bankruptcy case and that penalties that Exide accrued during the pendency of its bankruptcy case were not entitled to administrative priority. South Coast Air Quality Management District v. Exide Technologies, Civ. No. 19-891 (D. Del. March 24, 2020).
The Australian Federal Court has made orders relieving the administrators of retailer Colette from personal liability for rent in response to the COVID-19 crisis and the current uncertainty in respect of government policy about rent relief for tenants: see
What you need to know
Smaller Chapter 11 Cases Will Impact Many and Move Swiftly
One provision of the recently passed Coronavirus Aid, Relief, and Economic Security (CARES) Act makes available to a greatly expanded group of small businesses what is viewed as a cost-effective and time-saving bankruptcy reorganization process.