Insolvency & Bankruptcy

Abstract: On 28 March 2020, the Insolvency Service announced that the Government was placing before Parliament temporary reforms to the insolvency law to help companies through the economic crisis caused by the coronavirus pandemic. The reforms initially highlighted were a moratorium on the ability to present or pursue winding-up petitions and the suspension of the law on wrongful trading. What emerged in the form of the Corporate Insolvency and Governance Act 2020 , which came into force on 26 June 2020, was in fact a mixture of temporary emergency measures to deal with the consequences of the pandemic (largely to do with the compulsory winding up of companies and a temporary relaxation of wrongful trading liability) and permanent measures: a new free-standing moratorium, a new restructuring procedure and the disapplication of insolvency based supplier termination provisions in certain contracts. Emergency moves dealing with insolvency are not without precedent. This article examines a range of measures that were introduced during the First and Second World Wars that were designed to respond to the unusual circumstances caused by a global crisis. They were more radical and far reaching than anything contemplated by the 2020 Act . In particular they provided relief for individual as well as corporate debtors. This article demonstrates that the measures adopted in the two world wars went some way towards meeting their objective of saving small businesses from bankruptcy.

Abstract: Reviews changes to German business restructuring procedures under IDW S6 during the coronavirus pandemic and the temporary relaxation of specific insolvency laws. Outlines the role and scope of IDW S6, its uses in risk mitigation, its acceptance as proof as to the merits in restructuring proceedings by the tax authorities, and the issues which an IDW S6 restructuring report must cover.

Abstract: In late 2019, Congress enacted the Small Business Reorganizations Act. The Act's timing is fortuitous: Weeks after it went into force in February, 2020, the Covid-19 pandemic damaged countless small businesses--enterprises that the Act may provide an opportunity to save. The Act provides businesses with powerful options to reorganize under a new 'subchapter V' of Chapter 11 of the Bankruptcy Code. Subchapter V eases the requirements for confirmation of plans that creditors don't approve by simply requiring debtors to project their 'disposable income' and pay it to creditors for three to five years; provides incentives for the parties to reach agreement on reorganization plans; lowers the debtor's disclosure obligations; eliminates the regular appointment of an official committee of creditors; requires the appointment of a trustee to aid in plan negotiations; and permits modification of loans secured by a mortgage on a debtor's primary residence.Creditors will have to develop a new playbook for subchapter V cases. Most scholarship has emphasized debtors' new options, but this Article presents an analysis from the perspective of creditors. Of course, creditors are not created equal; strategies will only be useful to creditors with claims substantial enough to justify the investment of time and money. Well-positioned creditors will extract whatever strategic gains they can at the expense of the debtor and of less privileged creditors. The game is multilateral, not simply creditor vs. debtor. The Article suggests strategies for variously positioned creditors to protect their interests.The Article suggests seven major strategies: 1) Creditors should seek influence or control a debtor's entry into subchapter V by making agreements with debtors concerning the election, using financial maneuvers to work around subchapter V's debt limits, or challenging the debtor's eligibility for entry.2) Creditors should monitor and make use of trustees as circumstances warrant, whether by cultivating and working closely with them, by seeking to minimize their role and save expenses, or, at the extreme, by opposing them and seeking their removal. 3) To combat debtors' tendency to delay, creditors should apply pressure on the debtor by emphasizing the statutory emphasis on speed, scrutinizing the debtor's required disclosures, and enlisting the trustee and court where possible.4) Creditors should avoid holding general unsecured claims, and, if eligible, should take the election offered by SS1111(b) of the Code. 5) Subchapter V places a premium on plans being approved by creditors, so those whose votes are needed for confirmation should extract concessions in exchange for their vote. For those privileged creditors, this should be a major point of leverage.6) Creditors should look to obtain information at every opportunity, including at the required meeting of creditors and status conference early in the case, in the disclosures and filings made by the debtor, and through formal discovery. 7) Creditors extending credit secured by a residence should designing lending practices to ensure that they cannot be 'modified' by debtors in bankruptcy. Many of the strategies above will be of keen interest to secured and other privileged classes of creditors. The Article predicts that with these and other strategies in hand, such creditors will not lose much ground under subchapter V. But the law lowers protections for general unsecured creditors, particularly those who remain passive. A number of the strategic tools presented in this Article can aid disfavored general unsecured creditors as well--but frequently, they will have too little at stake to make it worth putting their energy into the new small business bankruptcy game.

Abstract: Discusses the temporary suspension of directors' personal liability for wrongful trading under the Insolvency Act 1986 s.214 in response to the coronavirus pandemic. Reviews key features of s.214 and the requirements for liability, including the absence of an intention to defraud. Considers whether its suspension was necessary to protect directors, whether it may have a detrimental effect and whether the suspension may need to be extended.

Abstract: Prior to COVID-19, we saw safe harbour protection under s 588GA of the Corporations Act 2001 (Cth) as a mechanism for directors to proactively work with their company while it was under "stress". This stress generally comes from financial and/or operational challenges that, with careful and robust planning, may be worked through with the aim of achieving a better outcome for the company and its creditors than a formal administration.

Abstract: To assist Registered Liquidators (RLs) navigate their obligations during the COVID-19 pandemic, here's an overview of our current and future insolvency regulatory areas of focus.

Abstract: As businesses emerge into the post-pandemic world, insolvency proceedings offer practical solutions to businesses aiming to recover from the recent global economic fallout. These businesses hope to repay their debts, restructure and reorganize their assets, and generally manage their operations. While effective, insolvency-based solutions are often designed only to further domestic legal and policy goals and they do not perfectly interact with cross-border business relationships. This article draws upon the authors' expertise in international dispute resolution to discuss the legal and practical challenges found at the intersection of insolvency proceedings and parallel international arbitration proceedings. These insights provide businesses and their insolvency advisers with a blueprint for managing competing concerns at a sensitive and unpredictable time in a business's lifecycle.

Abstract: The international spread of the coronavirus is not only generating dramatic consequences from a social perspective but it is also heavily affecting the global economy. For this reason, governments, financial regulators and international organizations are responding to the coronavirus with a package of legal, economic and financial measures. Among the legal measures included in these packages, many countries, including Australia, Germany, Spain, India, Singapore, Colombia, Portugal, Czech Republic, Russia, New Zealand, the United Kingdom, and the United States, have proposed or implemented temporary changes to their insolvency frameworks. This paper starts by discussing whether using the insolvency system should be the optimal solution to deal with companies affected by the coronavirus. For that purpose, it will analyze the role and limits of insolvency law. It then discusses the most relevant insolvency reforms taking place around the world as a response to the global pandemic, as well as other insolvency and insolvency-related reforms that could be implemented to minimize the harmful economic effects of COVID-19. The paper will conclude by arguing that, even though these responses can provide companies and corporate directors with a valuable breathing space, these reforms need to be accompanied by a more comprehensive package of legal, financial, tax and economic measures to support businesses, employees and the well-functioning of the judicial system.

Abstract: A tracker of insolvency reforms globally produced by Lexis Nexis in partnership with INSOL Europe is now available: 'Coronavirus (COVID-19) Tracker of insolvency reforms globally'. Details shown by the Tracker for Australia as at 19 May 2020 are included.

Abstract: An important aspect of business is the possibility of insolvency. India's new insolvency law, the Insolvency and Bankruptcy Code, 2016 (IBC) has attempted to streamline insolvencies and facilitate restructuring; although there are particular issues for airline insolvencies. The issue of cross-border insolvencies further remains unaddressed in the IBC and is particularly relevant to airlines. This chapter aims to outline international best practices in corporate insolvency and also India's approach; with a specific focus on the civil aviation sector.This chapter is divided into five parts. The first part is the introduction. The second part gives an overview of the goals of corporate insolvency and the legislative framework in India. Part III explores specific solutions for insolvencies of companies in the civil aviation sector internationally. Part IV details airline insolvencies in India and Part V concludes with some thoughts about the future legislative reform and development in India.

Abstract: The New Zealand government has introduced legislation to temporarily change certain insolvency and directors' duties laws due to the impacts of COVID-19. These changes are included in the 'COVID-19 Response (Further Management Measures) Legislation Bill 2020' (the Bill) that passed its third reading in the House of Representatives on 13 May 2020. The focus of this article is two changes to the 'Companies Act 1993' (the Act), although the Bill amends or modifies the application of 45 different Acts. The two changes are: the introduction of a temporary safe harbour for directors from breaches of the duties against reckless trading and incurring unperformable obligations; and the introduction of a temporary COVID-19 Business Debt Hibernation (BDH) scheme. These measures were outlined in a Cabinet Paper released on 4 April 2020 (the Cabinet Paper), that stated that the proposed changes were necessary to address the impacts of COVID-19 on otherwise profitable and viable businesses that are facing a real risk of being liquidated in the near future because of the serious disruption they are incurring. The two amendments are discussed in more detail below.

Abstract: This article will look at the changes made to the restructuring of small businesses under the 'Small Business Reorganization Act'. To do so, it will first provide a brief overview of Chapter 11, followed by a discussion of the changes made to Chapter 11 under the 2019 Act. The article will conclude with a discussion of the impact of the Act to date as small businesses in the United States struggle to survive.

Abstract: Considers the possible impact on creditors of the temporary ban on insolvency proceedings imposed during the coronavirus pandemic. Reviews key aspects of the moratorium, the issues arising when administrators and courts are deciding whether to consent to enforcement of creditors' rights, the relevant creditor considerations, and how the moratorium's rules compare to those of the Corporate Insolvency and Governance Bill 2019-21.

Note: link to the Corporate Insolvency and Governance Bill on the UK Parliament website. Link to Bill Documents which explain the purpose of the Bill.

Abstract: The Commonwealth of Puerto Rico and certain of its affiliated entities have filed 'bankruptcy' petitions under Title III of the Puerto Rico Oversight, Management, and Economic Stability Act ('PROMESA'). This short paper provides a brief update on the current status of the restructuring process. As is well known, Puerto Rico's economy was already deeply distressed, and then came hurricanes, earthquakes, and COVID-19. Given the poor state of the local economy, the island arguably needs extensive debt relief. Before COVID-19, the oversight board had proposed modest debt relief, and even that was deemed unacceptable by bondholders, who argued for cuts to local pensions equal to those being faced by bondholders. As a result, the restructuring process is apt to continue to be quite lengthy and contentious. Puerto Rico's indeterminate legal status - as neither U.S. state nor independent nation - further complicates matters.

Abstract: My last contribution to the ARITA Journal came just weeks after the devastating bushfires tore through large parts of the country. Thousands of Australians were affected, and the economic impacts of the disaster will likely linger for many years.

It seems unfathomable that Australia, and indeed the world, is already facing another crisis. The economic impacts of the COVID-19 crisis are far-reaching. Nearly all industries have been impacted, some more than others.

Those providing personal insolvency services are being required to adapt quickly to a fast-changing environment. The difficult economic conditions are putting a financial strain on many Australians - but steps are being taken by both the private and public sectors to support those that are facing unmanageable debt.

Abstract: A summary of the key Government measures introduced in response to the economic and related impacts of coronavirus.

Abstract: The impact of COVID-19 has forced many companies to file for bankruptcy and amongst this the government has made amendments to the Insolvency and Bankruptcy Code 2016 to prevent companies from insolvency proceedings. Such amendments are treated a boon for the companies as it has given them chance of survival in these difficult times.

Abstract: Policymakers have minimized the role of bankruptcy law in mitigating the financial fallout from COVID-19. Scholars too are unsure about the merits of bankruptcy, especially Chapter 11, in resolving business distress. We argue that Chapter 11 complements current stimulus policies for large corporations, such as the airlines, and that Treasury should consider making it a precondition for receiving government-backed financing. Chapter 11 offers a flexible, speedy, and crisis-tested tool for preserving businesses, financing them with government funds (if necessary), and ensuring that the costs of distress are borne primarily by investors, not taxpayers. Chapter 11 saves businesses and employment, not shareholders. For consumers and small businesses, however, bankruptcy should serve as a backstop to other policies, such as the CARES Act. Consumer bankruptcy law's primary goal is to discharge debts, but that's not what most consumers need right now. What they need is bridge financing, and perhaps forbearance, until the crisis ends, they get back to work, and they regain their ability to pay their debts again. These key policy levers--bridge financing and forbearance--are available in theory to small businesses in Chapter 11, especially if the government supplies the bridge financing when credit markets are dysfunctional. The practical reality is that bankruptcy is expensive for small businesses, which may deter them from using it in the first place. Equally important, our courts will be flooded if Chapter 11 is the primary rescue policy for small businesses.

Abstract: Notes key measures introduced by the Corporate Insolvency and Governance Act 2020, their application to limited liability partnerships, and Re Lehman Brothers Europe Ltd (In Administration) (Ch D) on whether former administrators whose discharge from liability was not dealt with by the creditors' committee before it was disbanded had standing to apply to the court for discharge under the Insolvency Act 1986 Sch.B1 para.98(2)(c).

Abstract: Notes impending revisions to the UK insolvency regime, in response to the coronavirus pandemic, to permit UK companies undergoing restructuring or corporate rescue to continue trading. Details the main reforms, including a moratorium to protect companies considering restructuring, the protection of suppliers, and the temporary suspension of the wrongful trading regime under the Insolvency Act 1986 s.214.

Abstract: Highlights the Government's intention to introduce changes to the insolvency framework in response to the coronavirus pandemic. Details the additional restructuring tools proposed, including protection of companies' supplies to allow trading to continue, and the introduction of a new restructuring plan.

Abstract: The article discusses how the COVID-19 presents companies with major challenges including restricted operation, cancellations and the lack of customers that can also lead to liquidity problems in otherwise healthy companies and discusses requirements for opening insolvency proceedings. It informs that in the case of corporations, insolvency law overindebtedness - are met, there is an obligation of the Austrian Insolvency Code to file an application for bankruptcy without culpable hesitation.

Abstract: Highlights the 31 March 2020 publication by the President of Brazil's National Council of Justice of Recommendation No.63/2020, detailing six guidelines to mitigate the impact of restrictions introduced in response to the coronavirus pandemic, and relating to courts dealing with bankruptcies and business recovery actions. Summarises the main recommendations, including that general face-to-face meetings with creditors be suspended.

Abstract: The economic impact of the Covid-19 outbreak has triggered calls for emergency fiscal and legislative measures to address liquidity and legal problems in several areas of law. Some of these measures address specifically companies in financial distress and insolvency statutes. Among the proposed changes to the insolvency framework, the UK Government announced a suspension of wrongful trading provision as outlined in section 214 of the Insolvency Act 1986 ('the Act'). This announcement was later implemented (with significant amendments) in section 10 of the Corporate Insolvency and Governance Bill ('the Bill'). This measure applies retrospectively from 1 March 2020 for a 3-month period or one month after the coming into force of the Bill, whichever is later. To assess the need for such a measure, this paper investigates the requirements to establish a successful claim for wrongful trading and the interpretation of those requirements, stemming from the case law. It also discusses the announced suspension as implemented by the Government in the Bill. This analysis strongly suggests that the suspension of (liability for) wrongful trading does nothing to achieve the purpose for which it was introduced, i.e. to facilitate business rescue and/or to help viable companies to survive the crisis created by the Covid-19 pandemic. To the contrary, the suspension of personal liability actions against the directors is likely to curb the rule of law in the UK. Laws are deferred and the exercise of civil liability remedies restricted without any apparent justification and with no proof that this measure is relevant to address the crisis created by the Covid-19 pandemic.

Abstract: COVID-19 has severely disrupted the conduct of business around the globe. In jurisdictions that impose one or more 'lockdowns', multiple sectors of the real economy must endure prolonged periods of reduced trading or even total shutdowns. The associated revenue losses will push many businesses into bankruptcy. No public policy response can recover these losses. States can, however, act to reduce the amplification of the shock by the way in which they treat the cohort of newly bankrupt businesses. In jurisdictions where a well-functioning reorganisation procedure is capable of producing value-maximising outcomes in normal conditions, the temptation may be to subject this cohort to treatment by such procedures. This temptation should be resisted, not only because of the (significant) costs of these procedures, or because of concerns about institutional capacity to treat a high volume of cases, but also because such procedures are likely to be a poor 'fit' for the treatment of COVID-19 distress. In our view, the more attractive routes to relief are bail-ins (one-time orders to creditors or counterparties, or some class thereof, to forgive), bail-outs (offers to assume the debtor's liabilities, or a class thereof), or some combination of the two. In this paper, we explain why a public policy response is necessary to mitigate the amplification of the shock caused by trading shutdowns, and compare treatment by the prevailing bankruptcy law with treatment by bail-ins or bail-outs along a range of dimensions. We conclude by tentatively suggesting some principles to help guide the choice between bail-ins and bail-outs, and the design of either form of intervention.