In July 2017, we wrote about the case of Hamersley Iron Pty Ltd v Forge Group Power Pty Ltd (in liquidation) (receivers and managers appointed)[1], in which the Western Australian Supreme Court held that rights of set off enjoyed by an insolvent company’s contractual counterparties would not apply if the company had granted a security interest over the relevant contractual rights under the Personal Property Securities Act 2009 (PPSA).

The decision has been overturned by the Court of Appeal of the Supreme Court of Western Australia[2], such that the existence of a security interest will not necessarily of itself preclude the operation of statutory or contractual set off rights in favour of third parties.

The decision is significant because it potentially has a dramatic impact on the competing rights of secured and unsecured creditors in liquidation, and may prevent secured creditors from enjoying a windfall at the expense of unsecured creditors. It also places the emphasis firmly on the terms of the relevant security interest and underlying contract, which will now need to be considered in detail each time there is a claim for set off by the insolvent company’s contractual counterparties.

[1]               [2017] WASC (2 June 2017)

[2]               Hamersley Iron Pty Ltd v Forge Power Group Pty Ltd (in liquidation) (receivers and managers appointed) [2018] WASC 163

 

Continue Reading Court of Appeal overturns Hamersley Iron v. Forge Group Power – set off rights in liquidation restored

Astaldi, the Italian multinational construction company, filed on Friday (28 September) for concordato in bianco. This is an in-court restructuring proceeding under the Italian Bankruptcy Law, which imposes a standstill period for up to six months. Astaldi’s reference to certain provisions in the Bankruptcy Law indicates that it intends to use the standstill period to prepare for a concordato preventivo filing. Astaldi again delayed publication of its 30 June 2018 financial report, and said that it would voluntarily migrate from the “Star” segment of the Borsa Italiana to the general MTA segment. The full text of the announcement is available here.

Astaldi’s €620m RCF matures in 2019, and its €750m bonds mature in 2020. Astaldi had previously announced a €300m capital raise plan, conditioned on the sale of its stake in the Third Bosphorus Bridge. This plan stalled after the sale was delayed amidst the recent economic uncertainty in Turkey. Astaldi announced that its new preliminary restructuring proposal contemplates a lease of its business units to two new Astaldi SPVs, new super senior funding and a capital raise.

In this report, we will discuss:

  • Key takeaways for bondholders;
  • Concordato in bianco; and
  • Concordato preventivo.

Continue Reading Astaldi files for concordato in bianco

The English High Court has decided that collapsed retailer British Home Stores cannot challenge its own company voluntary arrangement as an unenforceable contractual penalty and must repay rental discounts to its landlords (Anthony John Wright and Geoffrey Paul Rowley as joint liquidators of SHB Realisations Limited (formerly BHS Limited) (in liquidation) v The Prudential Assurance Company Limited [2018], decision handed down on 6 March 2018)

The case, in which Hogan Lovells represented the successful landlord, provides important guidance on the operation of company voluntary arrangements (CVAs), particularly after termination, and the payment of rent as an expense of a company’s administration in priority to other debts. Continue Reading BHS Company Voluntary Arrangement – Landlords Win on Penalties

The Second Circuit recently issued its decision on an appeal to the Momentive Performance Materials Inc. (“MPM”) bankruptcy case. Amongst other issues, the Court found that when determining the appropriate interest rate in a Chapter 11 cramdown, courts should consider market factors rather than strictly apply the Till formula. The Court’s decision will benefit secured creditors when a market rate is ascertainable, as they will no longer have to accept below-market take-back debt.

Continue Reading Impact of Second Circuit’s Momentive decision on interest rates under Chapter 11

On 24 October 2017 the Court of Appeal handed down its decision in what has become known as the Waterfall IIA and B litigation (Burlington Loan Management Limited and others v Lomas and others [2017] EWCA Civ 1462).  The decision also covered an appeal of one point from the High Court Waterfall IIC decision.  A number of the issues originally intended to be covered in the appeal fell away following the earlier Supreme Court decision in Waterfall I (see the joint administrators of LB Holdings Intermediate 2 Ltd v the joint administrators of Lehman Brothers International (Europe) [2017] UKSC 38).  The remaining  issues concerned the calculation of, and the entitlement of creditors to, statutory interest, in accordance with Rule 2.88 under the Insolvency Rules 1986.  By way of background, as it relevant for a number of the issues forming the subject of the appeal, under Rule 2.88(9) statutory interest accrues either at the rate specified in s.17 Judgments Act 1838 or the “rate applicable to the debt apart from the administration”, whichever is the higher.

Litigation over statutory interest is rare because statutory interest is only payable once all provable debts have been paid in full.  However, following the payment in full of all provable debts, there remains in the LBIE estate a surplus of c.£7.9bn.  There are, accordingly, significant amounts at stake in the litigation.

Continue Reading The latest in the Lehman Waterfall litigation

In our previous blog post, we examined the decision of the New South Wales Court of Appeal to uphold the composition of classes of creditors in the Boart Longyear restructuring by way of scheme of arrangement.

Following an extensive second court hearing to approve the schemes of arrangement (which involved multiple days of hearings, several adjournments, and a court-ordered mediation), amended versions of the Boart Longyear schemes have now been approved by the Australian courts.

The decision emphasises the importance of the court’s overall “fairness” discretion in approving a scheme, irrespective of whether classes of creditors have been properly constituted. Importantly, differential treatment within a class of creditors that may not be sufficient to justify the creation of a separate class may nonetheless create sufficient unfairness to cause the scheme to ultimately fail. Significantly, the court was clear in its final judgment that the schemes as initially drafted would not have passed the “fairness” test and would have been rejected.

Continue Reading Update – Boart Longyear schemes of arrangement approved

Despite a modest uptick in recent years, it is still a relatively rare occasion for the Supreme Court of the United States to tackle issues involving bankruptcy. This term, however, the Supreme Court has granted certiorari in two bankruptcy appeals that could have important consequences for the financial community. In FTI Consulting, Inc. v. Merit Management Group, LP, the Court will define the parameters of the safe harbor of Bankruptcy Code section 546(e), which excludes certain financial transactions from the debtor’s avoidance powers. In PEM Entities LLC v. Levin, the Court will also determine whether federal or state law should apply when analyzing whether debt should be recharacterized as equity. Both cases could alter how financial transactions are structured and documented.

Continue Reading Dabbling in distress: U.S. Supreme Court to hear two important bankruptcy issues next term

In the recent case of Hamersley Iron Pty Ltd v Forge Group Power Pty Ltd (in liquidation) (receivers and managers appointed)[1], the Western Australian Supreme Court has confirmed that the grant of a security interest under the Personal Property Securities Act 2009 (PPSA) by a company to a third party will likely render any rights of set-off enjoyed by the company’s contractual counterparties worthless where the company subsequently enters liquidation.

The PPSA is a relatively new legislative regime in Australia, and applies to a wide range of “in substance” security interests over most types of property other than land. The decision is significant, because it represents the first time an Australian Court has conducted a detailed analysis as to the interplay between security interests granted under the PPSA and statutory rights of set-off applicable in insolvency.

[1] [2017] WASC (2 June 2017)

Continue Reading The limitation of set-off rights in liquidation

In one of the most significant decisions relating to schemes of arrangement in Australia in recent years, the New South Wales Court of Appeal has dismissed an appeal challenging the composition of classes of creditors in the Boart Longyear restructuring.

The decision significantly widens the extent to which creditors within the same voting class may be treated differently, both in terms of their existing rights and their rights under the proposed scheme. As a result, the decision may lead to greater flexibility for stakeholders and distressed companies seeking to devise restructuring plans via scheme of arrangement. Continue Reading New South Wales Court of Appeal upholds Boart Longyear scheme classes decision

It has long been considered that lenders under a syndicated facility retain a right to seek to recover their portion of a loan directly following a payment default, typically by seeking the winding up of obligors. This is based on the several nature of the rights of finance parties which appears in clause 2 of the standard LMA terms.

However, a recent first instance decision of the Hong Kong court in Charmway Hong Kong Investment Limited and others v Fortunesea (Cayman) Ltd and others (unreported) found that a syndicated facility based on LMA standard terms creates an aggregate loan, rather than individual loans due to the lenders.  Continue reading