- With levels of distressed debt and corporate bankruptcies on the rise, this article revisits the interesting intersection of English law distressed debt, U.S. bankruptcy and the century-old Rule in Gibbs in the context of cross-border restructurings.
- Cross-border recognition of formal insolvency/bankruptcy proceedings is complex and achieved in several different ways depending on the fact pattern, particularly as between the United States and the UK.
- Unless new legislation is enacted in the UK that modifies or overturns the Rule in Gibbs, the English law principle of freedom of contract and its applicability in the context of restructuring and insolvency proceedings (subject to applicable exclusions) is here to stay, for now at least.
With levels of distressed debt and corporate bankruptcies on the rise, it is quite timely that we revisit the interesting intersection of English law distressed debt, U.S. bankruptcy proceedings (in particular, under Chapter 11 of the U.S. Bankruptcy Code) and the century-old Rule in Gibbs in the context of cross-border restructurings.
Under English law, a formal insolvency procedure is often the only alternative for a debt issuer in financial difficulties that is not able to restructure successfully on a consensual basis. If an issuer has assets in the United States, instead of commencing a formal restructuring or insolvency procedure under English law, it may opt for effecting a restructuring of its debt using Chapter 11 bankruptcy proceedings. A very recent example is Cineworld Group, which had issued English law debt instruments. In late 2022, Cineworld Group and certain of its affiliates filed petitions for relief under Chapter 11 in the U.S. Bankruptcy Court for the Southern District of Texas. The company recently emerged from Chapter 11 bankruptcy with a plan of reorganisation that cut its global debt by approximately US$4.53 billion.