New York’s Sovereign Debt Restructuring Proposals

The confluence of the COVID-19 pandemic, high inflation, and increased borrowing costs culminated in countries incurring record levels of debt.[1] Despite this global debt crisis, there is currently no comprehensive set of rules or body of law to govern the restructuring of sovereign debt. Instead, when a sovereign restructures its debt, it is usually guided by contractual collective action clauses (“CACs”) through which bondholders agree to be bound by a restructuring proposed by a sovereign if a specified majority of bondholders approves the proposal.  

Until now. New York is now taking a stab at improving the mechanisms available to sovereigns restructuring their debt. This comes as no surprise, because New York law governs approximately half of all sovereign bonds issued globally.[2] The New York legislature is considering three types of reforms to its law governing sovereign debt: (i) a comprehensive mechanism for restructuring sovereign debt;[3] (ii) limits to recovery on certain sovereign debt claims;[4] and (iii) changes to the champerty defense.[5]

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Are UK Restructuring Plans Still too Expensive?

Save your Sterling concept high quality and high resolution studio shoot

As far as they go, restructuring plans have worked well since they were first introduced 3 years ago.  This is reflected in the most recent review of CIGA published by the Insolvency Service which reflects favourably on this new insolvency measure. However, there are still some barriers to its use.

Not unsurprisingly costs are quoted as one of biggest burdens, not only the costs of set up but also the costs to and of challenge.  The review quotes that the “need for two court applications two hearings and costs of counsel as well as required valuation evidence” drives costs up, with stakeholders estimating costs to be between £2m and £10m at the top of the market and between £1m to £2m in the mid-market.

Certainly for “small” enterprises, that level of cost would price restructuring plans out of reach.

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Expected Changes to the UK Corporate Moratorium

The three year review of CIGA (the Corporate Insolvency and Governance Act) published by the Insolvency Service suggests that we might see changes to the corporate moratorium process – will these address concerns about the process and encourage more insolvency practitioners to recommend its use?

The moratorium aims to protect companies from enforcement action to give a struggling business opportunity to seek advice, negotiate with creditors and agree plans.  In practice (partly due to the support measures from the Government that we saw during the pandemic) it has only been used by about 40 companies to date.

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Are HMRC Critical To UK Restructuring Plans?

It’s now level pegging for HMRC on cram down –  twice it has been crammed down, and twice it has not.

In the most recent restructuring plan proposed by Prezzo, the court sanctioned the company’s restructuring plan and crammed down HMRC as both preferential and unsecured creditor.  Unlike Houst’s restructuring plan, where HMRC was also crammed down, HMRC fiercely contested the plan proposed by Prezzo. 

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Bank Failures Breathe New Life into Old Issue

The first half of 2023 witnessed the failure of three financial institutions in quick succession—Silicon Valley Bank (March 10, 2023), Signature Bank (March 12, 2023), and First Republic Bank (May 1, 2023).  This was the first time three financial institutions failed in such a compressed time period since the Great Recession of 2008.  The failure of Silicon Valley Bank (“SVB”) on March 10, 2023 ended a continuous 868 days with no bank failures, the second longest stint since 1933.[1]  The collapse of these financial institutions and the ensuing bankruptcy filings of the applicable holding companies spotlight issues unique to banks, including the role of the Federal Deposit Insurance Corporation (“FDIC”) as receiver of the bank.  Specifically, the pending chapter 11 case of SVB Financial Group (the “Debtor”), the parent company of SVB, has already touched on the FDIC’s right to tax refunds and the FDIC’s exemption from the seemingly straightforward obligation under sections 541 and 542 of the “Bankruptcy Code to turnover assets of the debtor’s estate.  The question arises–are the issues arising in the SVB bankruptcy case a sign of things to come?

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Are UK Interest Rate Rises Squeezing Working Capital?

Cash Flow

In its battle to control and reduce the rate of inflation, the Bank of England has increased interest rates for a 13th consecutive time. Already at its highest level for nearly 15 years, rising interest rates are continuing to apply pressure on finances both at home and in businesses. Despite the Bank’s efforts, although slightly reduced from 10.1% in the year to March 2023, inflation remains stubbornly high at 8.7% being both above the widely forecasted figure of 8.2% and significantly above the Bank’s target of 2%.

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Envision’s Bankruptcy Provides Insight Into All That is Ailing The Healthcare Industry

The increase in bankruptcy filings that restructuring professionals have been expecting is now arriving.  With rising inflation, increased interest rates, tightening credit markets, labor shortages and supply chain disruptions, we are starting to see a dramatic increase in filings.  Last week the American Bankruptcy Institute noted that commercial Chapter 11 filings increased 105% in May 2023 as compared to May 2022 and across the board filings are on the rise as well.

The healthcare industry is not immune from the pressures impacting the economy.  Indeed in many ways, healthcare has been one of the most impacted industries since the beginning of the COVID-19 pandemic.  According to Debtwire, through the first five months of 2023, we have already seen approximately the same number of healthcare Chapter 11 filings as we did in all of 2022.  Despite the increasing number of pre-pack and pre-arranged Chapter 11 cases, since 2016 half of all healthcare cases have been “free fall” cases, resulting in longer and sometimes more contested proceedings.

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(UK) Disclosure and Vote Swamping Revisted – Has the Position Changed following the Mizen CVA Appeal?

In two recent blog posts we discussed the challenge made to the Company Voluntary Arrangement (CVA) of Mizen Build/Design Ltd (the “Company”) by Peabody Construction Limited (“Peabody”) and the finding of (i) a material irregularity based on failure to disclose information to creditors in the CVA proposal, and (ii) unfair prejudice based on vote swamping.

The first instance decision was appealed by the Company, and subsequently dismissed by Sir Anthony Mann, with the original finding of material irregularity being upheld, albeit for different reasons.  The finding of unfair prejudice was not decided, although was briefly touched upon at the conclusion of the judgment.

This blog considers, what the judge said on appeal, particularly in relation to the extent of disclosure required in a CVA.

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Delaware Bankruptcy Court Approves DIP Financing of 700 Bitcoin

On May 8, 2023, online cryptocurrency exchange platform Bittrex, Inc. and three of its affiliated entities (collectively “Bittrex”) filed for chapter 11 to wind down their U.S. and long-dormant Malta operations.  The bankruptcy filing followed costly regulatory investigations and an April 17, 2023 SEC enforcement action alleging that Bittrex improperly sold crypto assets that were securities.  Unlike other crypto bankruptcies, Bittrex did not risk, hypothecate, or loan cryptocurrencies needed to meet its contractual obligations to its customers.  Instead, since March 31, 2023, Bittrex had been urging its 5.4 million customers to withdraw their cryptocurrency deposits.  Bittrex’s ultimate goal in its case is to pay all customer’s claims in full as soon as possible.

What is particularly interesting about the Bittrex case is that for the first time, on June 7, 2023, a bankruptcy court authorized a debtor to obtain postpetition financing solely in bitcoin (“BTC”) from the DIP lender.

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Can UK Administrators Apply For Conditional Discharge of Liability?

The court has recently confirmed that it does have jurisdiction to grant administrators a conditional discharge of liability but decided not to do so in the case of Re Central Properties Holdings Ltd (in administration) [2023]

In this blog we consider why the court refused to make that order and whether there are any circumstances in which a court will make a conditional order for exit and discharge.

Although in most cases administrators appointed by the court will be able to exit the administration by filing a notice a court, they will always need to apply to court for an order to discharge them of liability.

It could therefore save costs if administrators could obtain a conditional order, but is this a real option for a court appointed administrator and if so, when?

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