The much anticipated judgement of Mr Justice Snowden in relation to a restructuring plan proposal (the “Plans”) made by Virgin Active Holdings Limited, Virgin Active Limited and Virgin Active Health Clubs Limited (the “Plan Companies”) was handed down on 12 May 2021.

This week’s TGIF considers the most recent case involving Gunns Limited where the Full Federal Court confirmed that the ‘peak indebtedness’ rule has been abolished in a partial win for Gunns creditor.

Key takeaways

On May 14, 2021, Gateway Kensington LLC, filed a petition under Chapter 11 of the Bankruptcy Code in the Bankruptcy Court for the Southern District of New York (Case No. 21-22274).

Introduction

The United States Bankruptcy Court for the Southern District of Texas recently clarified the administrative expense standard applicable to indenture trustees by holding that they can recover fees and expenses as administrative expenses only when they make a “substantial contribution.” This standard requires a greater showing than “benefit to the estate,” which is the general administrative expense standard. In re Sanchez Energy Corp., No. 19-34508 (Bankr. S.D. Tex. May 3, 2021).

Background

In what is likely to be the most significant change to the UK restructuring and insolvency market since the Enterprise Act 2002, the Court has yesterday¹ paved the way for restructuring plans under Part 26A to the Companies Act 2006 ("RPs") to be used to compromise the rights of landlords, financial creditors and other unsecured creditors provided the company shows that those creditors are "out of the money". There may even be no need to ask those compromised creditors to vote on the RP.

Landlords of New Look stores have failed in their challenge to a CVA which wrote off rent arrears and imposed turnover rents on hundreds of stores.

Like so many high street fashion retailers New Look was already in a precarious position before the pandemic hit. When its turnover was reduced to nil overnight it projected it would run out of cash without help.

Puncturing a popular myth, Mr Justice Harris in Re FDG Electric Vehicles Limited [2020] HKCFI 2931 held that when the Hong Kong court recognises offshore provisional liquidation orders (“PL Order”), there would not be an automatic stay on proceedings in Hong Kong.

Further, any assistance granted to the offshore provisional liquidators must be restricted to assets in Hong Kong.

The decision is sound in principle and sits well with international insolvency standards.

The Myth

Before embarking on any litigation, or continuing any litigation that is on foot at the time of the liquidator's appointment, a liquidator should carefully weigh up the benefits and risks of pursuing a particular course of action.

A liquidator can be exposed personally in litigation. We discuss the risks to a liquidator associated with litigation by examining some recent cases where liquidators have been ordered to pay costs personally. We provide guidance on ways to mitigate this risk.

Balancing risk – weighing up competing priorities

The recent Accountant in Bankruptcy v Peter A Davies case examines how a family home is dealt with following sequestration of an individual. The sheriff's comments about the case suggest there could be room for improvement in the Bankruptcy (Scotland) Act 1985, to make the process clearer for everyone involved.

Case background