The economic impact of the COVID-19 pandemic led to a wave of creditor schemes of arrangement ("schemes") and restructuring plans ("RPs") in the second half of 2020, which shows no sign of abating in 2021. For the uninitiated, the scheme (a long-established tool) and the newer RP process are court led UK restructuring options that a company can use to bind a minority of creditors into a restructuring. An RP can also be used to "cram down" an entire dissenting creditor class into a deal where certain conditions are met.

As we previously discussed in our Bankruptcy Bytes video series, the filing of a bankruptcy petition generally gives rise to an “automatic stay” against any attempt to exercise control over the debtor’s property, or property of the bankruptcy “estate” which comes into existence when a bankruptcy case is filed.

Introduction

Private credit lenders started 2020 both with anticipation and trepidation. Activity levels were strong and default levels were at historic lows, but private credit lenders worried about the risk of economic headwinds – after all, we were then in the extra innings of the longest economic recovery on record.

The new Part 26A Companies Act Restructuring Plan procedure, dubbed the “Super Scheme”, (summarised here) was gathering pace in the English courts since its introduction in June last year. Last week’s judgment in gategroup presents a potential speed bump in terms of its implementation as the restructuring tool of choice in European cross-border restructurings.

On 22 February 2021, the eagerly awaited ministerial draft regarding the Federal Law on the Implementation of the Directive on Restructuring and Insolvency (EU) 2019/1023 (DRI) was published. The draft includes not only a new federal law on the restructuring of companies ("Restructuring Act", abbreviated to "RA"), but also amendments to the Austrian Insolvency Code, the Court Fees Act, the Judicial Contribution Act and the Lawyers' Tariff Act. The review period ends on 6 April 2021. Austria is obliged to implement the directive by 17 July 2021.

The Supreme Court, recently, in the case of Phoenix Arc Private Limited v. Spade Financial Services Limited ¹, held that the intent of Sec. 21 of the Insolvency and Bankruptcy Code, 2016 (“IBC”) will be defeated if related parties are just determined “in presaenti” i.e., on the present basis. The issue pertained to the interpretation of Section 21 of the IBC, which provides for constitution of the Committee of Creditors (“CoC”).

On Oct. 27, 2020, Judge Marvin Isgur for the U.S. Bankruptcy Court for the Southern District of Texas held that (1) a make-whole premium was not interest or unmatured interest and thus not subject to disallowance, (2) a make-whole claim was enforceable as liquidated damages under New York law and (3) the solvent debtor exception survived the enactment of the Bankruptcy Code and the Noteholders were entitled to postpetition interest at the contractual default rate.

From 6 April 2021, a new regime for witness statements in the Business and Property Courts will come into force. Practice Direction 57AC will introduce significantly tighter requirements that will apply to all trial witness statements signed on or after 6 April 2021, including those in claims that have already been issued.

Purpose of the new regime

“What is clear is that the selection of creditors for the class composition cannot be arbitrary or capricious. If there is evidence of a calculated and dishonest move to remove or to place certain creditors in certain class with the purpose of ensuring that the class is constituted in such a way that certain creditors would not be able to vote or that their votes would be rendered ineffective, this will be considered as class manipulation or gerrymandering.”

per Judicial Commissioner Ong Chee Kwan.