Frank
Tschentscher
President of
INSOL Europe

The latest national company insolvency statistics confirm the trends that the restructuring and insolvency experts anticipated so far last year.

The increase in the number of insolvency proceedings is expecting to continue in the following months (and probably the coming year) to reflect the consequences of the withdrawal of most measures taken by European public authorities to support their own businesses in the Covid-crisis.

Failing to meet the test of viability (requirement test as provided for by the Directive on Restructuring and Insolvency), the companies are (or will be) simply excluded from the varying restructuring tools put in place by the European Member States. 

Source: Eurostat

Consequently, it would lead these companies with no long-term viability to see their restructuring proceedings converted into liquidations or to apply for compulsory proceedings leading in most cases, if not all, to liquidations.

If we have a look to national insolvency statistics country per country, or those published by Eurostat (lastly on 17 August 2022), one can see that the latest available figures for the beginning of the year show a return to reality on the insolvency scene. Since the beginning of the year, the upward trend has clearly accelerated and now approaching the levels seen in the pre-covid crisis period (2019).

No doubt that after the Covid crisis, the geopolitical and economic situation with the expected energy crisis will now put new pressures on businesses, and particularly on micro and small enterprises, and will not lead to any improvement to these numbers…

Find the latest National and European Insolvency Statistics published on our website.

These days, with the war imposed on Ukraine on 24 February 2022 continuing with no end in sight, the German Ministry for Economic Affairs and Climate Action is focusing on action! 

Natural gas, once a resource abundantly available and cheap, has become a torture tool of choice of a bully sovereign in his attempt to counter well deserved sanctions. Consumers and industry, left with no option to instantly replace natural gas, are getting shivers when thinking of the next utility bill, foreseeing more digits than ever on the bottom line. Utilities are facing bankruptcy, left with long-term fixed price supply commitments as their own long-term supply agreement is turning out to be a useless piece of paper.

Against this background the ministry’s actions seem to be determined to – with the famous words of Mario Draghi – do “whatever it takes”, to assure appropriate and continuous supply and at the same time fairly share the burden among natural gas consumers and the state.

Curious? Details on the subject are to be published in the Autumn edition of Eurofenix.

On 5 July 2022, Scandinavian airline SAS AB and 13 affiliates filed for Chapter 11 protection in the Southern District of New York.

44% owned by the Kingdoms of Denmark and Sweden, SAS has encountered financial turbulence resulting from increased debt, reduced revenues, and labor shortages, common in an aviation industry that was heavily impacted by the pandemic and struggles to scale back up in the summer of 2022. David Conaway will be reporting on the case in the upcoming Eurofenix Autumn issue. 

Meanwhile, on 18 July 2022, Shumaker, Loop & Kendrick, LLP won an appeal at the United States 11th Circuit Court of Appeals. In the Chapter 11 case of Beaulieu Group, LLC, they defended Auriga Polymers Inc. (subsidiary of Indorama Ventures) in a preference claim filed by the Beaulieu Liquidating Trustee under Section 547 of the Bankruptcy Code. 

David Conaway, Attorney at Law for Shumaker, writes: “We successfully asserted Auriga’s “subsequent new value” defense, that after preference payments were received, Auriga shipped more goods. A substantial portion of the goods were shipped within 20 days prior to the Chapter 11 filing, which provided Auriga a Bankruptcy Code Section 503(b)(9) administrative priority claim for the value of the goods shipped. The pivotal issue in this case, as in virtually every preference case, was whether Auriga could both be paid on its Section 503(b)(9) administrative expense priority claim (for goods shipped within 20 days prior to the Chapter 11 filing) and also reduce its preference liability based on the value of shipments that comprised such claim.

In the vast majority of Chapter 11 cases, after a Section 363 sale of all assets, the “residual” assets are transferred to a “creditor” trust to realize upon such assets.  Ironically, the “residual” assets are mostly preference and other avoidance claims against creditors.  The liquidating trustees have consistently asserted that a creditor may not both receive payment on its Section 503(b)(9) claim, and also reduce its preference liability for 20 day shipments, as impermissible “double dipping”.  However, the United States 11th Circuit Court of Appeals in a well-reasoned opinion ruled that a creditor/preference defendant is entitled to both payment on its Section 503(b)(9) claim, and a reduction of its preference liability by the value of such claim.”

The UK Law Commission has recently published a consultation paper which contains provisional law reform proposals to ensure that the law recognises and protects digital assets (including crypto-tokens and cryptoassets) in a digitised world.

Courts have already ruled in England and Wales (AA v Persons Unknown) that crypto-tokens can be considered as property despite not falling under any of the two existing categories of property: “things in possession” (tangible, moveable and visible things) and “things in action” (personal property capable of being enforced by action).

In this regard, the consultation paper's key recommendation is the explicit recognition of a new, third category of personal property (“data objects”) that are distinct from those already existing categories. This would ensure that the nuanced features of digital assets are properly addressed.
 
The proposed definition of this third category of “data objects” under the paper follows three cumulative criteria: (1) being composed of data represented in an electronic medium; (2) existing independently of persons and of the legal system; and (3) being rivalrous. Although a fourth criteria (divestibility) is also considered, it is not proposed as a standalone criterion to allow for further flexibility.

Having considered stakeholder feedback that possession and possessory concepts are inappropriate for digital assets, the Law Commission provisionally suggests developing the concept of control through the common law instead. A person in “control” of a data object can exclude others from it, use it, transfer it and identify themselves as the person able to do these things. 

The paper goes on to discuss various issues around cryptoassets, including their transfer, the defence of good faith for a purchaser for value without notice, custody arrangements and trusts, and their treatment as security and collateral. It also considers how existing legal frameworks for things such as breach of contract, vitiating factors, following and tracing, equitable wrongs, proprietary restitutionary claims, and unjust enrichment can be applied to them.

You can download the consultation paper from the Law Commission website.