Amid the changing environment brought on the COVID-19 pandemic, ongoing issues in insolvency around the globe have continued to play out in recent months. In Europe, the UK made its long-anticipated break with the European Union, while Germany and the Netherlands have each enacted into law an EU directive concerning out-of-insolvency restructuring. In Canada, a recent court ruling involving litigation funding may provide an additional tool for insolvency practitioners, while recent temporary amendments to the U.S. Bankruptcy Code may help entities hurt by the pandemic. This issue of the Journal of Corporate Renewal addresses those issues and also includes a discussion on the changing role of the CFO.
Included in the Consolidated Appropriations Act passed by Congress and signed into law in December were several amendments to the U.S. Bankruptcy Code intended to help address the economic impacts of the COVID-19 pandemic. Cullen Speckhart and Jeremiah Ledwidge of Cooley LLP discuss how these amendments, many of which are scheduled to sunset in one or two years, can help individuals, businesses, vendors, and landlords address the economic challenges they face as a result of the pandemic.
Joe Bannister, a partner with Hogan Lovells in London, takes a look at insolvency in the UK in the wake of the UK’s withdrawal from the European Union. The 11-month transition period, during which the UK had largely been treated as an EU member state, ended on December 31. Though the two sides agreed to a trade and cooperation agreement just before the transition period expired, there was scant mention of how cross-border insolvencies involving the UK and EU member states. Bannister discusses the “brave new world” of insolvency in the UK post-Brexit.
Litigation funding, whereby a third party provides litigation-related funding in exchange for a portion of any proceeds from the litigation, has been relatively common in the United States but is less familiar in Canada. In their article, Naomi Loewith and Nickolas Tzoulas of Omni Bridgeway explain how the Supreme Court of Canada recently affirmed a lower court’s decision that a litigation funding agreement qualified as interim financing under the Companies’ Creditors Arrangement Act. The authors conclude that the Supreme Court of Canada’s guidance could lead to wider use of litigation funding as a tool for insolvency practitioners to pursue assets in insolvency cases.
To address the lack of pre-insolvency proceedings for otherwise viable businesses experiencing financial difficulties, the EU enacted the preventive restructuring framework directive in June 2019, which set a minimum framework for an out-of-insolvency restructuring regime to be implemented by each member state. Dr. Johannes Lappe of Kirkland & Ellis International in Munich and Joris Dunki Jacobs and Vincent Vroom of Loyens & Loeff N.V. in Amsterdam discuss how now that Germany and the Netherlands have implemented the EU directive into their respective national laws, the race is on to become Europe’s preferred candidate for out-of-insolvency restructuring.
Michael Smith, managing director of Norwood Advisors LLP, discusses how the duties and expectations for CFOs of companies of all sizes have expanded in recent years. He notes this is especially true for CFOs of private equity-backed companies, which recent studies indicate experience an astounding 80% turnover rate. Because of the critical nature of the role, PE-backed companies, in particular, often opt to hire an interim CFO while the search for a permanent replacement is underway. Smith provides advice for both PE funds and interim CFOs in setting expectations for the position.