The impact of Covid-19 is clearly the big talking point for 2022, with several questions arising: will new variants emerge, what steps will governments take to limit the spread, and what impact will it have on industries? To date, enforcement actions, insolvencies and restructurings have been relatively light, but with new restructuring legislation reforms on the horizon, and creditors starting to ramp up speed to enforcement, it appears likely that there will be an increase in winding up and cross-border restructuring work.
Looking ahead to 2022, from our position as primarily offshore lawyers, we have identified some specific trends on the horizon for the benefit of all our clients – onshore counsel, banks, asset managers, trustees, corporates, insolvency practitioners and individuals.
Bermuda: Enforcement Rising as Lenders Begin to Lose Patience
A noticeable trend has developed whereby creditors, particularly financial institutions, appear to be moving more quickly to formally enforce their rights by way of winding up petitions. This is particularly the case as regards debtor companies operating in Asia. Lenders appear less willing to wait to see whether the market improves or the fortunes of a borrower change. We are seeing far more instructions to move expeditiously to seek liquidation orders. This is not a trend that we believe will ease in 2022. A corollary to this seems to be how the Bermuda Court’s approach the application and use of Bermuda’s light touch provisional liquidation regime to support restructuring. The court of course remains willing to make an initial order appointing provisional liquidators for restructuring purposes. That said, creditor dissent seems to have caused the court to expect more advanced and developed restructuring plans earlier in the process and scrutinizing those proposals quite carefully.
BVI: Injunction Route of Interest In Respect of Asset Protection
Similar to Bermuda, BVI creditors, particularly where lending is in place to fund operations in Asia, are keen to move as swiftly as possible to winding up proceedings upon payment default where there is no or insufficient security. Complex and drawn out restructuring does not appear to be in favour, at least to the extent that it involves the Court via schemes of arrangement or light-touch provisional liquidation. Where winding-up and provisional liquidators may not be appropriate, but there is still a need to protect assets pending determination of claims, a significant development in 2021 was the placing of injunctions in support of claims overseas on a statutory basis (by the enactment of section 24A of the Supreme Court Act). We have already seen these provisions being used successfully to obtain injunctions and expect this to continue in 2022.
Cayman: Legal Reforms Open Up NewRestructuring Options
Reforms to Cayman Islands insolvency legislation are expected to come into force in early 2022, providing practitioners with an alternative restructuring tool. The amendments to the Companies Act set out a new restructuring officer regime available to companies in financial distress which can be accessed without the presentation of a winding up petition. A key benefit of the new regime is the immediate statutory and worldwide moratorium which will take effect on the filing of the application seeking the appointment of restructuring officers with the Grand Court, similar to the US Chapter 11 regime. Another important reform is the removal of the “majority in number” or “head-count” test for shareholder schemes of arrangement such that only the “majority in value” test must be satisfied to approve a proposed shareholder scheme of arrangement at the relevant meeting(s).
Guernsey: Regulatory Action Likely As Moneyval Inspection Looms
We are expecting the next Moneyval assessment in 2023. The visit will be the first since 2016 and Guernsey needs to be ready to present a picture of robust regulation. The key aspects from the GFSC’s perspective are likely to be its ability to demonstrate prosecutions for money laundering offences, significant sanctions imposed upon licensees in breach of AML/CFT regulations and that the civil forfeiture regime is being used effectively. Guernsey has a legitimate need to demonstrate its continuing commitment to developing international standards and these sorts of actions will inevitably remain a major part of that. This may lead to an increase in enforcement action and prosecutions in the window before Moneyval’s visit. This is something that regulatory lawyers – and specifically those who deal with regulatory disputes – are very focused on for 2022.
Ireland: Attitudes of Secured Lenders Will Be Key
Insolvency rates have been relatively low during the pandemic, but as economic conditions improve and government support measures fall away, there will be an increase in corporate restructurings and insolvencies. We anticipate that Ireland will be a key jurisdiction for cross-border restructurings following on from Ballantyne Re, Nordic Aviation Capital and Norwegian Air in 2020 and 2021. The approach of secured creditors towards defaulting corporate borrowers will be a critical issue in 2022 – whether they will support via consensual restructurings, or action security enforcement or debt recovery proceedings. We also expect certain loans to be packaged for disposal to third parties, some of whom will have loan to own strategies. For SMEs, the initial applications of the recently enacted Small Company Administrative Rescue Process (“SCARP”) will be keenly observed. Advisors will want to ascertain whether SCARP will offer SMEs a viable, lower cost process to reach consensual restructurings with creditors.
Jersey: Uncertainty Likely To Lead To More Trust Litigation
There is a growing trend of families looking at ways to restructure their wealth, or divide interests between branches of the family. That will bring about significant decisions for trustees to make and can also see them (and other fiduciaries) subject to scrutiny and even attack. The Court will inevitably be faced with applications by trustees for the blessing of momentous decisions (such as restructurings or terminations), or by beneficiaries seeking to remove incumbent trustees. Not only do we expect the level of contentious situations within trusts to continue to grow, but there is an inevitability that economic downturn will lead to challenges and claims over the ownership of assets held in trust or possibly the spectre of a trust’s asset value falling below its borrowing, leading to considerations of the complex interplay between insolvency and trusts.