The Supreme Court Agrees to Resolve Recharacterization Circuit Split

Late last month, the Supreme Court granted a petition for certiorari review of the Fourth Circuit Court of Appeals’ decision in PEM Entities LLC v. Eric M. Levin & Howard Shareff.  At issue in PEM Entities is whether a debt claim held by existing equity investors should be recharacterized as equity.  The Supreme Court is now poised to resolve a split among the federal circuits concerning whether federal or state law should govern debt recharacterization claims.  The Court’s decision may have a significant impact on the likelihood of so-called rescue loans extended by existing equity. Continue Reading

Blair Nimmo, KPMG’s UK Head of Restructuring, gives Squire Patton Boggs his views on the current restructuring market

Cathryn Williams, Paul Muscutt & Blair Nimmo

Paul Muscutt and Cathryn Williams, of the Squire Patton Boggs Restructuring & Insolvency team in London, analyse the current restructuring market with Blair Nimmo, UK Head of Restructuring, KPMG.

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Czech Republic introduces new solvency test

Czech Republic MapOn 1 July 2017 a new amendment to the Czech Insolvency Act came into force. One of the most significant changes introduced by the amendment relates to the assessment of insolvency of the debtor, performed by means of the cash-flow insolvency test.

Under Czech law, the debtor is insolvent if it has several creditors, due and payable debts for more than 30 days, and it is not able to fulfill them.

However, the amendment introduces a presumption that the debtor is able to fulfill its due and payable debts where there is a so called “coverage gap”. The coverage gap is established if the debtor is able to prove that the difference between its due and payable debts and available funds is less than a tenth of its due and payable debts, or the coverage gap will decrease below a tenth of its due and payable debts during an eight-week period (12 weeks in exceptional cases). Continue Reading

The economic impact of Wimbledon, live sport and the feel good factor

Trophy WinnerThe summer of sport in the UK is well underway, with the Wimbledon championship in its second week and England having navigated the first cricket test against South Africa with a resounding victory. The British & Irish Lions even drew the test series against the All Blacks and hopes are high of Andy Murray winning a third Wimbledon title and Johanna Konta making it her first Wimbledon win. But how does success in sport affect the UK Economy? Continue Reading

Delaware Court Shuts Down Creditor’s “Unreasonable” Motion to Amend its Proof of Claim

A recent opinion by the Bankruptcy Court for the District of Delaware underscores how important it is for creditors to file complete and well-reasoned proofs of claim. The opinion also highlights the problems creditors may encounter if they have to amend their claims.

SNMP Research International, Inc. (“SNMPRI”) sold and licensed software to customers. In 1999, Nortel Networks Inc. (“Nortel”) entered into a license agreement with SNMPRI to use certain of its software. On January 14, 2009, Nortel and a number of its affiliates filed Chapter 11 petitions in the Bankruptcy Court for the District of Delaware. Continue Reading

Schemes of Arrangement: Share-splitting unsuccessful in blocking a takeover scheme

Dividing a Pie ChartIn a corporate world where the capital structures of companies are becoming increasingly complex, schemes of arrangements under the Companies Act 2006 have established themselves as the restructuring procedure of choice for many distressed companies. This popularity is evidenced by the fact that schemes of arrangement have been increasingly used by overseas companies wishing to restructure their debts under the flexibility offered by English law.

Perhaps the most attractive feature of a scheme of arrangement is that an agreement made between a company and its members/creditors will be binding on the whole class; even dissenting voters, providing the voting thresholds are met. To approve a scheme of arrangement, for voting purposes the creditors and members are divided into classes which are approved by the court. A scheme must be approved by both a majority in number of the voting shareholders/creditors (the ‘headcount test’) as well as at least 75% in value of each voting class. Before this case, it was unclear whether shareholders/creditors could legitimately split their shareholding in order to artificially meet or defeat the headcount test. However, the pragmatic judgement of Re Dee Valley – which was a shareholder rather than a creditor scheme – has shed some much needed light on this debate and in doing so, preserved the significant role that schemes of arrangement play in relation to the restructuring of struggling companies. Continue Reading

Seeing the Forest Instead of the Trees

ForestRecently, the bankruptcy court presiding over the Energy Futures chapter 11 case issued an opinion analyzing the interplay between an intercreditor agreement’s distribution waterfall and payments to be made under the debtors’ multi-step reorganization plan. The court rejected a secured creditor’s argument that the intercreditor agreement’s distribution waterfall was triggered by one step of that reorganization. In a ruling that may have far-reaching impacts on confirmation of chapter 11 plans, the court held that when evaluating the various transactions involved in a chapter 11 plan, the proper frame of reference is the reorganization as a whole, rather than the individual steps that constitute the reorganization.

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EU Insolvency Regulation is recast at last

179256068Regulation (EU) 2015/848 of the European Parliament and of the Council of 20 May 2015 on insolvency proceedings comes into effect on 26 June 2017 for insolvency proceedings that are opened on or after that date. The Recast Regulation replaces the EC Regulation (1346/2000) on insolvency proceedings and has direct effect in the UK until such time as the UK leaves the EU.

The amendments are aimed at changing the focus away from liquidations and towards restructurings, as well as making cross-border insolvency proceedings – especially of groups operating across multiple jurisdictions – more efficient.

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Russia cracks down on shareholders and management who cause company insolvency

Next GenerationThe insolvency of companies in Russia is often caused by the negligent or illegal actions of their shareholders and/or management. The Russian Federal Law on Insolvency has been amended to introduce stricter rules on “controlling persons,” which increases their liability for the damage caused to creditors by their actions. Continue Reading

The enforcement of pre-existing security over assets that become subject to a freezing order

Frosted GlassA recent decision in the High Court provided guidance with respect to the apparent conflict between freezing orders that have been granted over assets that are subject to an existing security. Generally speaking, a freezing order should only catch the unsecured elements of assets.

The question facing the court in Taylor v Van Dutch Marine Holding Ltd [2017] EWHC 636 (Ch) was whether TCA Global Master Fund LP (the “Secured Debenture Holder”) required a variation of a freezing order obtained by Kevin Taylor (the “Bridging Lender”). The Bridging Lender had secured a $2.5m judgment over the four defendants who were held to be jointly and severally liable. He was also successful in obtaining a freezing order over all of the defendants’ assets. Continue Reading