Temporary insolvency practice direction provides certainty about administration appointments

Courthouse Close with Justice inscribedThroughout the pandemic we have seen a succession of temporary practice directions, enabling practitioners to deal with the swearing of notices of intention (NOI) and notices of appointment (NOA) of administrators remotely, as well as answering a question which the judiciary had grappled with several times – when does a notice of intention or notice of appointment come into effect if filed outside of court hours?

The new temporary practice direction (TIPD) that came into force on 1 October largely replicates it predecessors, but unlike its predecessors that were in place for a finite period, it appears that the new temporary practice direction may be a permanent fixture –  at least until the issues addressed in the TIPD are addressed by a substantive rule change (see the introduction to the TIPD).

This is welcome news for those who may have been concerned about a return to pre-COVID cases that had to address the issue of when an NOI and NOA takes effect and whether administrators had been validly appointed. Continue Reading

Bankruptcy Venue “Reform” – What Are The Odds This Time?

Here we go again – proposed bankruptcy venue legislation is back after previous “reform” efforts came up empty.  For those seeking legislative action, what are the chances for venue reform now?

Venue for bankruptcy cases is governed by 28 U.S.C § 1408, which provides that corporations may file in the district (a) in which their “domicile, residence, principal place of business in the United States, or principal assets in the United States” have been located during a majority of the prior 180 days, or (b) in any district where an affiliate, general partner or partnership has filed.  Because of the different bases for venue, a company may have multiple choices where to file its chapter 11 case.  For instance, if the company is incorporated in Delaware, like many companies are, venue in Delaware is permitted even if the company is headquartered in another state and otherwise has no connection to or assets located in Delaware.  Alternatively, if the company has an affiliated debtor incorporated or located in a state, the company can file in its affiliate’s venue, even if the affiliate is insignificant in size or importance.  All of this optionality may lead to “forum shopping,” meaning a company is strategically able to choose where to file its bankruptcy case, based on factors such as favorable case law in the district, the particular judges (and at times the fact that there is only one judge) in the district or the procedures employed in the district for complex cases.  These choices can in many cases be dictated by lenders, who view the judges or jurisprudence in those districts as more favorable to their positions.  Oftentimes, these choices lead to filings in Delaware, the Southern Districts of New York and Texas, as well as the Eastern District of Virginia—jurisdictions which are favored by debtors and lenders—which has resulted in a concentration of bankruptcy filings, especially by large public companies, in those jurisdictions. Continue Reading

Nero CVA challenge – part two: the rejection of the challenge

Coffee in the spotlightIn our earlier blog, we considered the application to strike out the challenge against the Caffè Nero company voluntary arrangement (“CVA”) (Nero Holdings Ltd v Young) and the rejection of Caffè Nero’s strike-out action by the Court.

In particular, the Nero case focuses on electronic voting (which is increasingly popular in the current climate) and the impact of last minute offers and modifications  particularly where creditors may have already voted before the modification is proposed. The hearing has now taken place and the creditors’ CVA challenge was rejected.

This case provides useful clarification of electronic voting procedures and how to consider existing votes in light of proposed modifications. Continue Reading

A (partial) phasing out of the current prohibitions on presenting UK winding up petitions?

Businessman Jumping Through HoopsFurther to our blog last week regarding the restrictions on presentation of winding-up petitions being (partially) lifted, the draft legislation replacing the existing restrictions has now been published and is due to come into force on 29 September 2021.

Following the end of the current restrictions on 30 September 2021 (please see our previous blogs for further detail on current restrictions), new rules on presenting a winding-up petition will be in force from 1 October 2021 to 31 March 2022. In order for creditors to present petitions on the ground that a company is unable to pay its debts, certain “new” conditions must be met.

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Updated: Guide To Financial Support Measures Across Europe And The Middle East

Our most recently updated guide includes updates for the UK, France, Italy, Germany, Czech Republic and Slovakia.

In brief, the updates include:

UK

  • Updates to the Coronavirus Job Retention Scheme (CJRS) including that claims for furlough days in August 2021 must be made by 14 September 2021.
  • Updates to temporary extension to carry back of trading losses outlining the de minimis aspect which must be considered when applying.
  • Updates to the Temporary reduced rate of VAT for hospitality, holiday accommodation and attractions relating to application considerations.
  • Updates to the Business Rates Relief Fund including confirmation that it will be available once the MCC legislation has passed and local authorities have set up local relief schemes.

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Resetting the UK Landlord and Tenant Relationship Post-COVID-19 Webinar

Empty street in Marylebone district, London, EnglandOn 29 September 2021, our panel of experts will consider the position of UK landlords and tenants post-pandemic. Our speakers will explore strategies for rent recovery and rent payment from both the landlord’s and tenant’s view, the question of arbitration versus negotiation, the impact of re-negotiating and re-gearing leases on covenant strength and values, and the formal restructuring options available, including how tenants can use them and how they affect landlords. We will also consider the wider context of directors’ duties for both landlords and tenants, and aim to provide some ideas to help manage the landlord and tenant relationship moving forward.

Chaired by head of UK Restructuring & Insolvency John Alderton, we will hear from:

  • Michelle Adams, Partner, Litigation, Squire Patton Boggs
  • Jonny Lees, Director, Teneo
  • Prew Lumley, Partner, Real Estate, Squire Patton Boggs
  • Russ Hill, Partner, Restructuring & Involvency, Squire Patton Boggs
  • Tim Simmons, Partner, Sanderson Weatherall

Please click here to register for this event.

UK Court Sanctions First “Mid-tier” Company Restructuring Plan

Opening the door for the SME market, Sir Alistair Norris has sanctioned the first ever restructuring plan for a “mid-market” company.  The plan sanctioned in Amicus Finance PLC (in administration) is also the first restructuring plan proposed by insolvency practitioners and the first to cram down a secured creditor.

The sanction judgment is short, but the adjourned convening hearing that was dealt with by Mr Justice Snowden (the first hearing was before Mr Justice Trowers) gives some insight into the plan.

There were, so it seems from the convening judgment, a few bumps in the road, but with a helpful steer from the court the bumps were flattened, creditors meetings were ordered and the restructuring plan sanctioned.

From a practical point of view, here are the key takeaways:

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(UK) Winding Up Petitions – The Hurdle of the Coronavirus Test

The recent case of Re A Company [2021] EWHC 2289 (Ch) outlines how the coronavirus test for winding up petitions will be applied by the Courts. Taking a similar approach, to the cases of Newman v Templar Corp Ltd [2020] EWHC 3740 (Ch) and Re PGH Investments Ltd v Ewing [2021] EWHC 533 (Ch), both as detailed in our blogs here and here, the low threshold test for determining whether coronavirus had an impact on the financial position of the Company was applied.

The coronavirus test prohibits a creditor from pursuing winding up proceedings against a debtor company that has been financially effected as a consequence of the coronavirus pandemic.  The temporary changes to winding up petitions are set to end on 30 September 2021 (and therefore the helpfulness of this case is perhaps limited).  However if, as hinted at by the UK government, these measures are extended to prohibit recovery of COVID rent arrears, it is worth noting how the debtor and court approached the question of whether coronavirus has had a ‘financial effect’ on the company.

Financial Effect

It is not a requirement that the pandemic must be shown to be the (or even a) cause of the company’s insolvency.

In this case the debtor company’s evidence addressed the fact that the company had experienced difficulties with workers self- isolating, which had delayed completion of projects, and therefore cash flow.  The Judge commented that that alone would have sufficed to show that coronavirus had had a financial effect on the debtor company.

From a debtor company’s perspective, demonstrating that coronavirus has had a financial effect on the company is unlikely to be difficult to evidence, particularly where the business has been affected by the availability of workers.  That said, the petitioner did criticise the debtor’s evidence in this case, and similar criticisms have been raised in previously reported cases.

Although the judge commented that more particularised evidence could have been given by the debtor company about the company’s reduced turnover, she did take into account that the debtor company’s experience was supported in evidence by independent articles that mirrored ‘what was being reported in articles concerning the construction industry generally.’

If a debtor company is able to demonstrate that coronavirus had had a financial effect on the company, the onus then falls on the petitioning creditor to evidence that a debtor company would have been unable to pay the debt in any event.

In this case, the petitioning creditor was not able to overcome the second limb of the test because more evidence was required to demonstrate that the company was insolvent within the meaning of s123 Insolvency Act 1986.

Although the bar is low to establish that coronavirus has had a financial effect, bare assertions will not suffice to show that a debtor company would still not have been able to pay. This is a difficult evidential point for a petitioner who cannot give direct evidence on the finances of the debtor.

Congress Proposes Significant Bankruptcy Code Changes to Protect Tort Claimants and Creditors

Two controversial mechanisms are available in many circuits to assist parties in a chapter 11 case to reach a global resolution and obtain plan confirmation:  non-consensual third-party releases and preliminary stays against third-party litigation.  On July 28, 2021, the House Committee on the Judiciary Subcommittee on Antitrust, Commercial and Administrative Law announced proposed legislation, the Nondebtor Release Prohibition Act of 2021 (“NRPA”), which would largely prohibit the use of nonconsensual third-party releases.  Testimony given before the House Committee discussed how plans of reorganization proposed in Purdue Pharma, USA Gymnastics, Boy Scouts of America, and various Christian diocese bankruptcy cases contain such releases and how these releases could negatively impact tort claimants who are victims of egregious acts.

The NRPA would: (i) prohibit chapter 11 plans from containing nonconsensual third-party releases; (ii) limit the duration of injunctions precluding the initiation or continuation of lawsuits against non-debtors to 90 days after the petition date; and (iii) permit the dismissal of a case commenced by a debtor that was formed through a divisional merger (i.e., separation of a company’s liabilities and assets) within 10 years of the petition date.  Although the intent of the NRPA to protect tort claimants is understandable, some may be concerned that the means by which the NRPA seeks to effectuate this end may diminish the equitable powers that have in many cases seemed to serve bankruptcy courts, debtors, and their stakeholders well in many complex and difficult cases. Continue Reading

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