Vexed issues can arise in the context of determining appropriate voting classes and addressing the impact of divergent interests within voting classes.  Our highlight article this month reviews the approach taken in respect of those issues in a recent decision of the New Zealand Supreme Court, involving a creditors' compromise under Part 14 of the Companies Act.  At the same time in the United Kingdom, the High Court also considered class composition and 'special interest' matters in sanctioning the Lehman Brothers International (Europe) administrators' scheme of arrangement.

In the Asia-Pacific region, we focus on developments in Singapore, with consideration of the criteria for the availability of DIP financing in restructuring proceedings and an analysis of a High Court decision confirming the power of the Court to grant a Mareva injunction in support of foreign court proceedings.  We also have a report from Australia on the regulations setting out the exceptions and excluded arrangements to the recently enacted stay on enforcement of ipso facto provisions in corporate insolvencies. 

The newsletter also features a review of the FirstEnergy Solutions case from the United States, which examined questions of jurisdiction to determine the rejection of regulated power purchase agreements, and a note on the rejection by the Canadian Court of a discretionary deemed proxy voting arrangement in respect of a CCAA plan.

Finally, we turn to the adoption in Europe of new Annexes to the Recast Insolvency Regulation, together with recently announced corporate insolvency reforms in the United Kingdom.  Those reforms are expected to include new restructuring tools in the form of formal restructuring plans (modelled on the scheme of arrangement) and a restructuring moratorium, as well as a ban on the enforceability of ipso facto termination clauses.

Scott Abel, Fellow, INSOL International
Partner, Buddle Findlay

   
Classes of Creditors: the New Zealand Supreme Court's View 
   
In Trends Publishing International Ltd v Advicewise People Ltd & Ors [2018] NZSC 62, New Zealand's Supreme Court addressed the controversial question of class composition in relation to creditors' compromises under Part 14 of the Companies Act 1993.  Some ten days later, the same question was addressed by the English High Court in Re Lehman Brothers International (Europe) [2018] EWHC 1980 (Ch), in the context of a scheme of arrangement (as reported on further below).  The two courts came to very different conclusions. 

In the New Zealand Supreme Court, the majority confirmed the High Court and Court of Appeals' earlier judgments.  In those judgments, the lower courts had unanimously concluded that classes in Part 14 compromises were defined by reference to wider economic interests in the compromise.  That was, on its face, a departure from the English and Australian courts' longstanding approach to the definition of classes of creditors. This article briefly explains why and considers whether New Zealand has really departed from the English and Australian consensus view about class construction. 

By

Sebastian Bisley, Partner  

  
To read the full article please click here
   
For the case decision please click here

 
Cases
 
Canada
  
Discretionary Deemed Proxy Ruled Fundamentally Undemocratic for Voting Creditor Claims 
    
Arrangement Relatif à Bloom Lake 2018 QCCS 1657 
     
Bloom Lake General Partner Limited, Wabush Resources Inc. and related entities (Bloom Lake) received Court protection under the Companies’ Creditors Arrangement Act in 2015. In 2018, a proposed settlement was reached of preference claims that would result in between $62 and $100 million available for distribution to third party unsecured creditors.
   
Employees and retirees held a significant claim of approximately $103.8 million for post-employment benefits and the main issue in this decision was how the 2,400 employees and retirees would vote their claims. The non-unionized employees and retirees were represented by several appointed employees (Representative Employees) and the unionized employees and retirees were represented by their Union. Bloom Lake proposed that each individual would vote their own claim, but the Representative Employees and the Union sought a discretionary deemed proxy which would apply unless the employee or retiree opted out of it. 
   
For a case note by Baker Mckenzie, 15 August 2018 please click here
   
For the case decision please click here
    
USA
   
FirstEnergy: Bankruptcy Court Asserts Primacy Over FERC; Approves Rejection of Power Purchase Agreements

In re FirstEnergy Solutions Corp., et al., v. Federal Energy Regulatory Commision, Et Al. Case No. 18-50757

The U.S. Bankruptcy Court for the Northern District of Ohio asserted its primacy over the Federal Energy Regulatory Commission (FERC) in deciding whether to allow FirstEnergy to repudiate certain FERC-regulated power purchase agreements (PPAs). In a decision with significant implications for all participants in rapidly evolving wholesale power markets, the bankruptcy court applied the highly deferential business judgment standard instead of the more stringent standard applied by FERC when evaluating proposed changes to PPAs featuring mutually agreed-upon filed rates. The court’s decision is now the subject of a direct appeal to the U.S. Court of Appeals for the Sixth Circuit, and the outcome may inspire additional action by Congress and the President. 

For a case note by K&L Gates, 4 September 2018 please click here

For the 18 May 2018 case decision please click here

Articles

USA

The Ever-Shrinking Chapter 11 Case

This article reviews a recent report by Fitch Ratings, one of the “big three” credit rating agencies entitled the “Shrinking Length of U.S. Bankruptcies.” The report 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 reorganisation or liquidation has been declining significantly – with four months being the median duration for the 30 US 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.

For the full article please see Squire Patton Boggs, eSquire Global Crossings Blog, 20 August 2018

Cases
  
Singapore
  
A Singapore Court Confirms Power and Jurisdiction to Grant Mareva Injunction in Aid of Foreign Court Proceedings 
   
China Medical Technologies, Inc. (in liquidation) & CMED Technologies Ltd vs Wu Xiaodong & Bi Xiaoqiong (in her personal capacity and as trustee of the Xiao Qiong Bi Trust and the Alisa Wu Irrevocable Trust) 
      
The primary argument before the Singapore Court in this case was whether the Singapore Court has the power to grant a Mareva injunction in aid of Hong Kong proceedings pursuant to section 4(10) of the Civil Law Act of Singapore (Cap 43, 1999 Rev Ed).
   
This judgment clarifies previous divergent decisions, and confirms that the Singapore Court does have power to grant a Mareva injunction in aid of foreign proceedings provided that:

• the cause of action is justiciable in a Singapore Court;
  
• the Singapore Court has in personam jurisdiction over the defendant;
  
• the defendant has assets in Singapore;
  
• substantive proceedings have been brought in Singapore, but may be stayed pending determination of the foreign court proceedings; and
  
• the foreign court’s judgment is capable of enforcement in Singapore.
  

For a case note by Cosimo Borrelli and Simon Ma of Borrelli Walsh, 3 September 2018 please click here
   
For the case decision please click here
      
Legislation
   
Australia   

A Stay or No Stay, that is the Question

In Australia on 1 July 2018, the stay on ipso facto clauses introduced by the Treasury Laws Amendment (2017 Enterprise Incentives No. 2) Act 2017 (Act) came into effect and applies to contracts entered into on or after that date. The Act, left a number of issues up in the air which were expected to be filled by regulations. This article summarises the provisions of the Corporations Amendment (Stay on Enforcing Certain Rights) Regulations 2018 which set out a lengthy list of contracts to which the stay will not apply and the Corporations (Stay on Enforcing Certain Rights) Declaration 2018 which contains a list of contractual rights which will not be affected by the stay, both of which were released in late June 2018.

Articles
 
Singapore
 
Debtor in Possession Financing in Asia - Considerations for Financial Institutions 
  
As Singapore continues efforts to position itself as a restructuring hub in Asia, its adoption of debtor-in possession financing, commonly known as DIP financing, is likely to generate increased interest. The Singapore regime is predominantly modelled on relevant provisions from the US Bankruptcy Code and incorporates concepts of DIP financing that are a hallmark of Chapter 11 reorganisations. This article provides a brief overview of the US legislation compared with the regime in Singapore and the first judgment that discussed the legislation (Re Attilan Group Ltd [2017] SGHC 283) issued on 8 November 2017.  It also considers the strategies that financial institutions will want to consider to protect and / or enhance their positions as appropriate when DIP financing looms over their debtors.
   
For the full article please see Mayer Brown, Legal Update Asia, 29 August 2018 

If you would like to send an article for inclusion in one of our forthcoming issues please contact our Technical Officer, Louise Jennings at louise@insol.ision.co.uk

If you would like to introduce a new member to INSOL International please contact our Database Manager, Tony Ashton, at tony@insol.ision.co.uk

American Bankruptcy Institute  
Asociación Argentina de Estudios Sobre la Insolvencia  
Asociacion Uruguaya de Asesores en Insolvencia y Reestructuraciones Empresariales  
Association of Business Recovery Professionals - R3  
Association of Restructuring and Insolvency Experts  
Australian Restructuring, Insolvency and Turnaround Association  
Bankruptcy Law and Restructuring Research Centre, China University of Politics and Law 
Business Recovery and Insolvency Practitioners Association of Nigeria  
Business Recovery and Insolvency Practitioners Association of Sri Lanka  
Canadian Association of Insolvency and Restructuring Professionals  
Commercial Law League of America (Bankruptcy and Insolvency Section)  
Especialistas de Concursos Mercantiles de Mexico  
Finnish Insolvency Law Association  
Ghana Association of Restructuring and Insolvency Advisors  
Hong Kong Institute of Certified Public Accountants (Restructuring and Insolvency Faculty)  
INSOL Europe  
INSOL India  
INSOLAD - Vereniging Insolventierecht Advocaten 
Insolvency Practitioners Association of Malaysia  
Insolvency Practitioners Association of Singapore  
Instituto Brasileiro de Estudos de Recuperação de Empresas  
Instituto Iberoamericano de Derecho Concursal  
Instituto Iberoamericano de Derecho Concursal Colombia
International Association of Insurance Receivers  
International Women’s Insolvency and Restructuring Confederation  
Japanese Federation of Insolvency Professionals 
Korean Restructuring and Insolvency Practitioners Association   
Law Council of Australia (Business Law Section)  
Malaysian Institute of Certified Public Accountants  
National Association of Federal Equity Receivers  
Nepalese Insolvency Practitioners Association  
NIVD – Neue Insolvenzverwaltervereinigung Deutschlands e.V.  
  Recovery and Insolvency Specialists Association (BVI) Ltd  
 Recovery and Insolvency Specialists Association (Cayman) Ltd 
Restructuring and Insolvency Specialists Association of Bahamas
Restructuring and Insolvency Specialists Association of Bermuda 
REFOR–CGE, Register of Insolvency Practitioners within "Consejo General de Economistas, CGE"  
Restructuring Insolvency & Turnaround Association of New Zealand  
Russian Union of Self-Regulated Organizations of Arbitration Managers  
Society of Insolvency Practitioners of India  
South African Restructuring and Insolvency Practitioners Association   
Turnaround Management Association do Brasil
Turnaround Management Association (INSOL Special Interest Group)