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Throughout the past year, the covid-19 pandemic has continued to cast a shadow over the global economy. The ability of domestic, international and multinational institutions to respond to the ongoing health crisis and its sprawling impact on various industries continues to be tested today even as vaccine rates rise. While in the United States new corporate bankruptcy filings are down in part as a result of government support programmes put in place during the early days of the pandemic, the availability of private capital at very attractive pricing levels and the overall resiliency of the US economy despite heavy headwinds, companies in the United States (and elsewhere) have continued to need to consensually restructure their debts or seek formal protection from their creditors as certain industries face market disruptions, labour shortages and supply chain interruptions. The profound impact that the pandemic has had on the global economy is particularly apparent in the restructuring and insolvency context where the efforts of practitioners, financial institutions, businesses and government actors to respond to the ongoing pandemic all intersect.
Even without the pandemic, the landscape of liquidation and restructuring regimes around the world is diverse and ever-changing as lawmakers attempt to update and revitalise the laws in order to better address the needs of corporations. In the context of the pandemic, and the economic upheaval it caused, these differences have become even more apparent.
This volume contains chapters on domestic insolvency laws around the world written by experienced local practitioners, including comparative analyses of different jurisdictions, notable case highlights in each jurisdiction and key domestic legislative and jurisprudential developments. This volume also includes insights on key trends in the insolvency space that may continue in the coming year as the world continues to grapple with the consequences of global shutdowns caused by the pandemic.
The impacts of covid-19 have become more apparent now, over a year into the global pandemic
Over the past year, as countries around the world quickly took steps to address the novel coronavirus, experts universally predicted that the impact on the global economy would be significant and long-lasting. Indeed, the economic ramifications of the pandemic were nearly immediate. In response to these events, the authors of the Brazil chapter note that the global pandemic placed legislative reform, which had previously progressed at a lackadaisical pace, on an accelerated track. Moreover, the Brazilian government decided to pursue more sweeping reforms in lieu of the incremental measures originally proposed.
Now, with over a year of information to look back on, it is clear that some areas of the world have been hit harder by the economic disruptions than others. In the Mexico chapter, the authors discuss the substantial toll that the global pandemic has had on an already struggling economy and forewarn that the economy may not recover until there are meaningful changes in certain government policies. On the flip side, the authors of the British Virgin Islands chapter observe that the anticipated surge in restructuring and liquidation proceedings was much more modest than originally predicted.
More noticeable, however, is the way that covid-19 has affected some industries more than others. In particular, industries related to tourism and hospitality have, unsurprisingly, been hit the hardest. The chapter titled ‘Recent Developments in DIP Financing for International and Domestic Debtors’ discusses the restructuring proceedings filed by LATAM Airlines Group SA, Grupo Aeroméxico SAB de CV and Avianca Holdings SA, all of which are non-US airlines that filed for Chapter 11 relief in the Southern District of New York as a direct result of the pandemic. The Mexico chapter also touches on the financial difficulties of Interjet, a Mexican low-cost airline that was forced to cease operations in December 2020. The authors of the Mexico chapter further note that as of September 2021, the airline industry still has not reached pre-pandemic levels of operation.
After nearly a year of lockdowns and social distancing, the first vaccines for covid-19 have been approved and are being administered to the public. It would be easy to believe that the worst of the pandemic is now behind us, but, as noted in the Cayman Islands chapter, the global pandemic is by no means over. This is particularly true given the uneven vaccine rates and new virus mutations. In the coming year, we may expect the global pandemic to continue to impact the global economy. Furthermore, even as financial conditions improve, we may expect to see uneven recovery rates in certain parts of the world and certain industries.
Insolvency regimes continue to strive for holistic restructuring solutions
As noted by several authors in this volume, an effective financial reorganisation often requires a holistic restructuring of an entire corporate group. As an example, this issue commonly arises in the context of group guarantees where multiple corporate entities are obligated to repay a single financial debt. Different jurisdictions take different approaches on this issue, so while the United States will require each guarantor to file Chapter 11, in the United Kingdom a restructuring can release group guarantees even without the participation of every guarantor. Although requiring each guarantor to participate in an insolvency proceeding will increase the number of corporate entities that must file, any logistical burdens can be lessened when courts administer the related proceedings together, which is the approach taken in both the United States and the Cayman Islands.
The ability to administer multiple related proceedings together in one action is itself an important way to achieve a universal reorganisation. This is particularly true in large organisations with complex financial structures. In order to successfully right-size these corporate groups, dozens of separate entities may need to file for relief even where the release of group guarantees is possible.
The authors of the Dominican Republic chapter note, as an important milestone in the country’s still nascent insolvency regime, that the court recently recognised a single restructuring procedure with respect to a corporate group composed of three separate entities. This unified process was not explicitly contemplated in the relevant legislation, but the court, acknowledging the importance of such a procedure, relied on the application of general principles and foreign law when making its decision.
Cross-border insolvencies continue to present additional complexities, including questions regarding the ideal forum for filing insolvency proceedings
Large, multinational organisations, which often have complex financial structures, pose their own unique complications because, in the context of a restructuring, the question of how to achieve a universal solution goes beyond the laws of a single jurisdiction. In particular, an enterprise with a global footprint will likely have affiliates and creditors in multiple jurisdictions as well as debt facilities with different governing laws.
One of the key considerations in filing for these large, multinational conglomerates is the ability to get recognition in every relevant jurisdiction. Consistent with this view, the authors of the Cayman Islands chapter note, as an important benefit to filing there, that proceedings in the Cayman Islands are often granted recognition in the United States under Chapter 15. Similarly, in the Bermuda chapter, the authors explain that a defining feature of the domestic insolvency regime there is the court’s willingness and ability to work in a coordinated fashion with foreign courts. Specifically, the Bermudan courts are able to work in parallel with foreign courts and are able to provide assistance to foreign representatives that apply to the Bermudan court for help. However, not all multinational corporations will ultimately seek recognition. For example, Aeroméxico did not seek recognition of its Chapter 11 proceedings in Mexico due to certain potential practical and legal risks that could be implicated in a local filing.
Of course, any discussion regarding recognition abroad would be incomplete without mentioning the UNCITRAL Model Law which continues to be an important guideline for jurisdictions around the world seeking to implement laws on recognition. The authors of the Dominican Republic, Brazil and Mexico chapters note that enacting legislation based on the UNCITRAL Model Law exists in their jurisdictions.
Another key consideration for large, multinational corporations looking to reorganise is the availability and scope of any automatic stay or other moratorium. A moratorium provides critical breathing room for the debtor entity as it works on formulating a reorganisation plan. However, the authors of the United States chapter note that in certain jurisdictions, including the UK, Netherlands and Germany, there is no automatic moratorium and, if a moratorium is available at all, it will only be available for a limited time after the debtor makes an affirmative request. In cross-border insolvencies, however, the question is not just whether one jurisdiction will grant a moratorium but whether other key jurisdictions will either enforce the moratorium imposed by a foreign court or grant a separate moratorium locally.
In addition, the ability to obtain some kind of post-petition or debtor-in-possession financing continues to be an important incentive for filing in certain jurisdictions. The authors of the Brazil chapter note that one of the important legislative improvements implemented by the government there includes additional protections to post-petition lenders. Similarly, the authors of the chapter ‘Recent Developments in DIP Financing for International and Domestic Debtors’ describe the ability to obtain such post-petition financing as a key component of Chapter 11 in the United States. Notably, in the United States, the post-petition financing market has experienced important changes with the increased involvement of hedge funds since 2008. These important developments are discussed in the chapter titled ‘Investment Fund Activity in US Debt Restructurings’.
In cross-border insolvencies, debtors have additional decisions to make with respect to any post-petition financing. For example, they will have to consider whether or not to seek local recognition of any order approving the post-petition financing. Sometimes, lenders may specifically request such measures. The authors of the DIP Financing chapter cite the example of LATAM Airlines Group SA, where the debtors were required, as a condition to closing, to obtain local recognition in certain jurisdictions, which may help ensure that the obligations, claims and liens arising under a post-petition financing facility are properly authorised and will be enforced under local law.
This volume provides an insightful and informative overview of recent developments and current trends in insolvency regimes across the world as well as current challenges facing governments, financial institutions, companies and practitioners. The current economic climate has made this a particularly interesting time in the insolvency world and we expect to see continued innovations to meet the needs of this increasingly global economy.