It’s an open secret that the commendable goals envisaged by the legislature with the introduction of the business rescue proceedings in Chapter 6 of our Companies Act are being hampered as a result of poorly drafted statutory provisions that govern the business rescue process. Section 141(2)(a)(ii) is however not one of these vague provisions. In Western Crown Properties 61 (Pty) Ltd vs Able Walling Solutions (Pty) Ltd & Others/ 8073/16, the Western Cape High Court considered this provision and whether a business rescue practitioner can merely file a notice for the termination of the business rescue proceedings without applying to court to liquidate the company. Continue Reading Taking the easy way out of business rescue proceedings
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 , 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
On 8 February 2018, the Hong Kong Court of First Instance (the “Hong Kong Court“) ruled in Re Supreme Tycoon Limited  HKCFI 277 that the common law power to recognise and assist foreign insolvency proceedings extends to voluntary liquidations. This is the first authority on this issue in Hong Kong. Continue Reading Hong Kong Court confirms common law recognition and assistance for foreign voluntary liquidations
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  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)  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.
On September 18, 2017, the iconic US-based retailer Toys “R” Us filed for Chapter 11 in the US Bankruptcy Court for the Eastern District of Virginia in front of Judge Keith L. Phillips. The company filed twenty-five entities, explaining that its $5.3 billion debt obligations and operational issues had led to the need for reorganization.
The company’s Canadian subsidiary also began parallel proceedings under the Companies’ Creditors Arrangement Act (CCAA) in Canada. Meanwhile, the Company’s operations outside of the U.S. and Canada, including its approximately 255 licensed stores and joint venture partnership in Asia, which are separate entities, are not part of the Chapter 11 filing or CCAA proceedings.
Since the company went private in 2005 it has had approximately $400M of annual debt service payments- these obligations have inhibited reinvestment in the core operations of the business.
The company is optimistic that Chapter 11 offers an opportunity for Toys “R” Us to deleverage, relieve itself of unprofitable lease obligations, and invest back into their business in the U.S. and Canada. At present the company has a total of $3.1 billion of DIP financing, including two $450 million term loans and a $1.85 billion revolver.
The Company intends to pay vendors in full under normal terms for goods and services delivered on or after the filing date. As the Company’s international subsidiaries are not part of the Chapter 11 filings and CCAA proceedings, Toys “R” Us’ international subsidiaries will pay vendors for all goods and services in the normal course.
Private equity firms routinely appoint directors to boards of their privately held portfolio companies and other investment vehicles, some of which will eventually face financial distress. Often, a person appointed to a board by a private equity firm has a relationship with the firm (e.g., they work there or are a trusted friend) but limited experience when it comes to what to do under troubled circumstances. Such individuals may worry about their personal liability in such a situation. What should such an individual do?