Squire Patton Boggs: offering certainty to restructuring and insolvency in the face of an uncertain future post-Brexit

No one knows for certain what the future will hold for the UK and the remaining EU countries post 29 March 2019 but in the context of cross-border insolvency we do know that if there is a no-deal Brexit, that the Recast Regulation on Insolvency Regulation (EU) 2015/848 will be repealed.

So, what does this mean for UK insolvencies with a cross-border element?

In simple terms a UK appointment taker will have to apply to the EU local Court for recognition of their appointment and cannot rely on the mutual recognition which currently exists under the EU Regulation.   They may also have to seek the assistance of the EU local courts to enforce judgments and orders and negotiate with foreign office holders. The UNCITRAL Model Law on Cross-Border Insolvency may plug some of the gaps on mutual recognition, but not all.

What is clear is that the support and assistance of local lawyers is key to ensuring cross-border insolvencies are managed without additional cost, frustrations and delays and that assets are recovered and value maintained for creditors.

Where can we help?

Squire Patton Boggs has one of the largest, most experienced and respected global restructuring and insolvency practices of any law firm, with more than 130 experienced lawyers in 36 offices in 15 countries collaborating on domestic and cross-border restructuring matters.

Cross-border restructuring and insolvency cases require a diverse set of skills and for our lawyers it is second nature to operate across different markets and boundaries blending our understanding of the potential risks, with a strategic approach, efficient project management, local insigt and the ability to see the bigger picture.

If the UK exits the EU without agreement, Squire Patton Boggs through its network of European offices will continue to provide office holders with the skill, support and assistance required to manage cross-border insolvencies efficiently and effortlessly whether the appointment taker is a UK insolvency practitioner seeking assistance in the EU or an office holder based in the EU seeking assistance in the UK.

We have 14 offices throughout Europe and our partners are recognised leaders in their field, competing at the top level in their markets and representing the very best clients. We boast broad sector experience in diverse industries, regularly advising on the most complex and challenging restructuring assignments. We bring you deep industry knowledge, with proven strength in diverse sectors such as automotive, manufacturing, energy and utilities, chemicals, retail and leisure. Our client base spans every type of business, both private and public, worldwide, from Fortune 100 and FTSE 100 corporations to emerging companies.

Please get in touch with your usual contact at Squire Patton Boggs for any enquiries or contact our Cross Border Restructuring Practice European Co-Chair Susan Kelly on +44 774 092 4773 or by email to susan.kelly@squirepb.com.

Spotlight on conflicts of interest for insolvency practitioners

Andrew Tate & Paul MuscuttPaul Muscutt, London restructuring partner at law firm Squire Patton Boggs, talks to Andrew Tate, former R3 President, Chair of R3’s Policy Group and Partner at accountancy firm Kreston Reeves LLP, about conflicts of interest in the restructuring and insolvency profession*. Continue Reading

Can’t Prove it? You’ll lose it.

Can you prove it?Summary

The High Court has issued a judgment dismissing the entirety of the Claimants’ claim in a long-running dispute commenced by a pair of property developers against a Judicial Factor to the estate of a Scottish businessman (the “Deceased”). Squire Patton Boggs represented the successful Defendant, who was awarded the majority of his costs on the indemnity basis.

The judgment emphasises the importance of litigants ensuring that there are no obvious evidential holes in their case prior to trial. Whilst this should go without saying, the judgment demonstrates that the Court is highly unlikely to permit the parties to adduce key evidence at a very late stage (especially items with a long lead-in time, such as expert evidence) to try to paper over those evidential cracks at trial. The case is also a further reminder that if parties fail to call a witness of obvious relevance to their pleaded case, then they do so at their peril.

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“I’ll Be Back . . . Probably”: The Terminator’s Conundrum

A recent decision in the In re RMH Franchise Holdings bankruptcy case pending in the District of Delaware, highlights the importance of complying with a contract’s termination provision before the contract counterparty files for bankruptcy.

In RMH, Applebee’s Restaurants LLC and Applebee’s Franchisor LLC (collectively, “Applebee’s”) entered into 160 pre-petition franchise agreements (the “Franchise Agreements”) with the Debtors.  The Franchise Agreements, among other things, granted the Debtors the right to use the Applebee’s name, food recipes, operating methods, and restaurant style, in exchange for a monthly royalty fee and a percentage of gross sales.  The Franchise Agreements were governed by Kansas law. Continue Reading

BHS CVA: landlords win on penalties

Closed down BHS department store

Background

BHS agreed a CVA with its creditors in March 2016. As with so many large, high-profile CVAs the key issues for BHS were the rental burdens arising out of their store network- they are known as “landlord CVAs”.

The CVA followed a now common format where landlords were placed into different categories according to the viability (or otherwise) of the specific premises , the top category benefitting from the least interference with lower categories taking increasingly substantial reductions in rent. There was a provision (clause 25) which stated that on termination under that clause “the compromises and releases effected under the terms of the CVA shall be deemed never to have happened”. Furthermore, a landlord creditor was entitled to send a notice demanding payment within 14 days of sums due and if payment were not made, a further notice could bring about the termination of the CVA on receipt by BHS. One of BHS’ landlords served the relevant notices on BHS and the CVA accordingly terminated with effect from 16 December 2016. It should also be noted that BHS has gone into administration in April 2016, and liquidators were appointed in October 2016. The formal procedures had run concurrently with the CVA until it was terminated.

Prudential was a landlord in respect of two leases. It contended that it should be paid certain additional sums following the termination of the CVA, provable in BHS’ liquidation and that, in so far as its claims related to periods in which the BHS administrators were using its properties for the purposes of its administration, they were payable in full as expenses of the administration.  In SHB Realisations Limited in liquidation [2018] EWHC 402 (Ch) the liquidators sought directions from the court:

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Third Circuit Makes Clear That Plan Releases Can Extend To Post-Confirmation Acts

We have discussed plan releases in prior posts.  Oftentimes, disputes involving plan releases revolve around whether, and in what contexts, third-party releases in plans are appropriate.  Recently, the Third Circuit Court of Appeals addressed the relatively unique question of whether releases in a confirmed plan are binding upon post-confirmation purchasers of the debtor’s stock. The Court’s decision in Arctic Glacier Int’l, Inc. puts buyers of a debtor’s claims and shares on notice that they are bound by the terms of the plan, including third-party release provisions.

Factual Background

In Arctic Glacier, the debtors, including Arctic Glacier Income Fund (“Arctic Glacier”), filed for protection under Canada’s Companies Creditors’ Arrangement Act. The debtors also filed for and received recognition under Chapter 15 of the Bankruptcy Code. Under the debtors’ plan of arrangement (the “Plan”), Arctic Glacier was to liquidate and distribute the proceeds to its creditors, giving lowest priority to shareholders. A Monitor appointed under the Plan was empowered to sell and distribute assets with few limitations on when or how much he could distribute as long as he gave 21 days’ notice of any distribution. Continue Reading

I’ll Gladly Pay You Tuesday for an Ice Cream Cone Today: 11th Circuit Clarifies Availability of “New Value” Defense in Bankruptcy Preference

Last month, the Eleventh Circuit Court of Appeals clarified the circumstances under which a creditor can assert a “new value” defense to a preference action under section 547(c)(4) of the Bankruptcy Code—rejecting as dictum language in a prior decision indicating that the new value provided needed to remain unpaid in order to setoff against preference payments.  The Eleventh Circuit’s decision also had the effect of narrowing a split among the circuits.

The Background

In Kaye v. Blue Bell Creameries, Inc. (BFW Liquidation, LLC), Bruno’s Supermarkets filed a chapter 11 bankruptcy.  Blue Bell was one of Bruno’s pre-bankruptcy vendors, making regular deliveries of ice cream to Bruno’s on short-term credit.  Historically, Bruno’s paid twice per week for Blue Bell’s daily deliveries.  Eventually, due to cash flow problems, Bruno’s began paying only once per-week, and occasionally delayed payments even further.  In other words, Blue Bell received payments at irregular intervals, particularly during the 90 days preceding Bruno’s bankruptcy filing, all the while continuing to make its deliveries to Bruno’s.  Continue Reading

Government proposes legislation to enhance UK insolvency regime

On 26 August, the Government announced that it will be making changes to UK insolvency legislation. The changes are intended to support distressed companies and address issues highlighted by major company failures and include:Houses of Parliament

  • the ability for all companies to apply for a moratorium
  • a new insolvency process – the “restructuring plan”, enabling companies to cram down creditors
  • a prohibition on suppliers enforcing termination provisions in contracts and licences upon insolvency
  • an increase in the prescribed part
  • a change to the requirement to prove insolvency on a preference claim.

However, legislative changes are unlikely before 2019 given that implementation depends on parliamentary time, which is currently engaged with Brexit.  Continue Reading

Let’s fly away…..

In the holiday season many of us jet-set to foreign shores – but do we ever think  about how we might get home if our budget airline goes bust or are we just hunting for the best deals to make the pound stretch further?

The last decade has seen a number of airlines collapse or be swallowed up by competitors:

Airline Ceased operation Reason
Monarch Airlines 2017 Administration
Air Berlin 2017 Administration
British Midland International (including BMIbaby) 2012 Acquired by IAG and intergrated into British Airways
Flyglobespan 2009 Administration into liquidation
Zoom Airlines 2008 Administration into liquidation
XL Airways UK 2008 Administration into liquidation
Silverjet 2008 Administration into liquidation
GB Airways 2008 Acquired by Easyjet

Following the collapse of Monarch last year, over 110,000 passengers were stranded abroad and the Government launched an operation to replace the flying programme for two weeks to repatriate customers, at a cost of approximately £60 million. At around the same time the German government was mounting its own programme to keep Air Berlin flying to avoid similar impacts for its passengers. Following these events, the Government issued a consultation paper on airline insolvency and the Airline Insolvency Review Interim Report was published on 12 July 2018 (to read the full report please click here: https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/724883/airline-insolvency-review-interim.pdf.).

The review was established to determine the extent to which it is appropriate to protect passengers from the impact of future airline insolvencies and how to minimise the impact on the taxpayer.

The review details that the airline industry is one that has seen ‘considerable change over the last few decades as regulatory reform and liberalisation has increased competition and reduced prices’. It estimates that the risk of further airline failure in the UK market remains around 25% in the next 15 years.

The UK aviation market is concentrated in the top 3 airlines (EasyJet, British Airways and Ryanair) with the rest of the market comprising a number of smaller airlines. However, even the major airlines have hit the press recently as they have been significantly affected by the recent air traffic controller strikes. EasyJet have estimated that the strikes have cost the airline £25million and accordingly they will be lodging a complaint with the European Commission, following similar action being taken by IAG (owner of British Airways) and Ryanair.

The recent air strikes, together with the unusually hot British summer, are likely to have had an effect on demand for ‘last minute’ bookings. Despite this, it seems that EasyJet in particular still have an optimistic outlook. It was reported that the airline has raised its full year profit outlook to between £550 million to £590 million due to the strong demand for seats. Such demand is in part attributable to EasyJet taking over some of Air Berlin’s services following its collapse last year, however, it still demonstrates the demand for a cheap getaway/cheap business travel.

The advice to passengers is still to travel but not to “have your head in the clouds”. Whether you are protected on your holiday mainly depends how the travel is booked. In general, purchases of accommodation and flights result in the creation of a ‘package holiday’ which in the UK is subject to ATOL protection. Other protections can be dependent on the method of payment used for your travel services or the terms of your travel insurance. If booked on a credit card in the UK, usually the card company is jointly liable for the provision of services. Equally, some travel insurance policies include supplier failure cover, but not all do. Whilst airline insolvency is relatively rare, neither the passenger nor the government/taxpayer want to be left footing the bills if an airline does “fail to take-off”.

The Ever-Shrinking Chapter 11 Case

Most observers of the world of chapter 11 bankruptcy cases – and particularly those professionals who practice in that arena – will not be surprised to learn that their individual experiences and anecdotal reports suggesting that the duration of Chapter 11 cases has continued to shrink have been validated by Fitch Ratings, one of the “big three” credit rating agencies.  Fitch’s August 7, 2018 report, entitled “Shrinking Length of U.S. Bankruptcies,” provides many useful statistics and analyses of recent and historical trends in chapter 11 cases.

According to Fitch, the median duration from the date of filing of a chapter 11 petition to the date of confirmation of a plan of reorganization or liquidation has been declining significantly – with four months being the median duration for the 30 U.S. cases studied with plans confirmed in 2017 and five months for the 34 cases studied with plans confirmed in 2016.  In contrast, the median duration for the 304 cases which Fitch studied where plans were confirmed between 2003 and early 2018 was seven months. Continue Reading

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