Restructuring

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The proposals would give the Bank of England wide-ranging powers to deal with acute failure scenarios, treating policyholder liabilities as loss-absorbing.

By Victoria Sander and Tim Scott

HM Treasury is proposing a new UK resolution regime for insurers that would appoint the Bank of England as resolution authority with sweeping powers to resolve insurers through transfer or bail-in, and to make resolution plans and assess resolvability in advance. The regime would share many similarities with the Banking Act 2009 (BA09).

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FSMA 2023 includes a court procedure for failing insurers to temporarily write-down liabilities, with implications for counterparties.

By Victoria Sander and Tim Scott

The recently passed Financial Services and Markets Act 2023 (FSMA 2023) provides for a new write-down procedure under which failing insurers can apply to court to have their insurance liabilities written down. Write-downs are intended to be temporary (though no period is specified), followed by a subsequent write-up, which is a transfer of the business or application…

Defined benefit pension arrangements in the UK may not be immune to cross-class cramdown powers under a Part 26A restructuring plan.

By Shaun M. Thompson, Hafza Hussein, Paul R. Lawrence, and Tim Bennett

As the UK looks set to enter a new restructuring cycle, the question remains whether a restructuring plan (RP) could be used to cram down defined benefit (DB) pension liabilities in the face of opposition from UK pension plan trustees and in light of the new and wide-ranging criminal offences introduced by the Pension Schemes Act 2021. The UK Pensions Regulator (TPR) has a statutory duty to reduce the risk of DB plans entering the Pension Protection Fund (PPF), which is the UK’s “lifeboat” arrangement for DB plans whose sponsoring employers have become insolvent.

Consumers and service providers should take note of some of the enhanced risks upon an e-money institution’s insolvency.

By Hongbei Li

Technology is rapidly changing the way customers and businesses interact with financial systems. Fintech companies are a driving force behind the disruption of traditional banking and payment services, with regulatory innovation close behind.

In the 12 months to June 2021, electronic money institutions (EMIs) in the UK processed more than £500 billion of transactions, according to Financial Conduct Authority (FCA) data. In 2019, UK EMIs held £10 billion in customer funds, the UK government estimates. By 2025, more than seven in 10 smartphone owners will be mobile P2P payment users. As a major remittance source country, the UK has seen a 30% growth in its digital remittance market in 2021. According to Statista, this market is predicted to grow to more than $4.6 billion by 2025. These trends are fuelling the UK’s ambition to become a world leader in payments innovation.

The scheme offers a credible implementation alternative, but no “one size fits all” solution exists for German credits.

By Daniel Splittgerber

German credits in sectors such as real estate, automotive, and energy face a worsening macro backdrop. At the same time, the available toolkit for financial restructurings has expanded, offering multiple options without the need for recourse to insolvency proceedings.

Since Germany implemented the EU Preventive Restructuring Directive and introduced its national scheme (the Corporate Stabilisation and Restructuring Act, or StaRUG) in early 2021, the StaRUG has become a credible implementation alternative, and one of the key options for non-consensual implementation planning. In 2021, only a few dozen German schemes were implemented for small and medium-size enterprises (SMEs), a testament to Germany’s economic strength and hot capital markets. This allowed debtors to refinance but often at a high cost. As the last quarter of 2022 and 2023 foreshadow a bleaker outlook from both a macro and an interest-rate perspective, next year is likely to bring a significant uptick in restructuring activity for German credits and a heightened focus on the StaRUG.

Judicial comments cast doubt on the ability to compromise US law-governed debt effectively based on Chapter 15 recognition alone.

By Bruce Bell, Adam J. Goldberg, Howard Lam, Flora Innes, and Tim Bennett

A recent first instance decision in Hong Kong has highlighted an important conflict-of-laws issue that will inform where debtor groups with a Hong Kong presence choose to promote a restructuring. Re Rare Earth[1] relied on the rule in Gibbs to cast doubt on the ability of an offshore scheme of arrangement to compromise New York law-governed debt.

Insolvency officeholders may need clearance upon appointment to entity in an affected sector.

The National Security & Investment Act (NSI Act) came into force in early January, and market participants might reasonably have expected a common approach to the practice of mandatory and voluntary notifications to have bedded down by now. However, due to the breadth of the provisions, the lack of clarity in their application to ordinary course secured financing transactions, and the ramifications for a transaction of failing to notify, significant concerns remain in the market that transaction timetables and enforcement strategies will be adversely affected in situations in which there may be little obvious threat to national security.

Debtors and investors have an enhanced choice of restructuring venues as the EU Restructuring Directive is rolled out in Member States

A number of key European jurisdictions have now implemented the EU Preventive Restructuring Directive, the broad thrust of which is to introduce harmonised out-of-court restructuring procedures across Member States to address financial difficulties at an early stage of distress. These measures include the introduction of cross-class cramdown (including of shareholders) and a moratorium to provide a debtor with breathing space to propose a restructuring. Germany (StaRUG) and the Netherlands (WHOA) were first movers, with each procedure coming into force in early 2021. The French revised conciliation and accelerated safeguard process became law in October 2021. Italy and Spain are expected to implement and/or consolidate their equivalent procedures to meet the extended deadline of July 2022, but other Member States may need further extensions. Although no longer bound to do so, the UK enacted its own cross-class cramdown and standalone moratorium tools in 2020. Therefore, there are now genuine choices for debtors, and a healthy competition is emerging between the different regimes.

Balancing the urgency of delivering a restructuring with regulatory requirements in a regulated sector.

Restructuring a company in a regulated sector is always challenging. Navigating directors’ duties is difficult enough in an unregulated sector, but the additional layer of oversight and statutory compliance required in regulated sectors often places directors proposing a restructuring in the invidious position of balancing the interests of the company’s creditors with their wider regulatory duties.

The forecast for the English scheme and plan looks set fair despite concerns around Brexit turbulence.

The restructuring market’s appetite for Part 26 schemes of arrangement and Part 26A restructuring plans shows no signs of diminishing, with some debtors (Smile Telecoms and ED&F Man) even taking a second bite of the cherry. In this article, we explore recurring themes identified in the market throughout the past 18 months.