On Aug. 11, 2020 a Credit Derivatives Determinations Committee for EMEA unanimously determined that the Chapter 15 filing by British retailer Matalan to enforce its English scheme triggered a Bankruptcy Credit Event under standard credit default swaps. This decision diverged from the Determination Committees only prior decision (involving Thomas Cook) on this point.  Understanding what types of restructurings or other transactions may be implemented without triggering a Bankruptcy Credit Event is important for investors buying or selling credit protection in respect of companies contemplating restructuring. Indeed investors in the company should be alert as well. While the Matalan and Thomas Cook decisions provide useful guidance, whether an English scheme or Chapter 15 will constitute a Bankruptcy Credit Event needs to be carefully considered on a case-by-case basis.

English Schemes and Chapter 15

The English scheme of arrangement is a long-established procedure that can be used to alter the rights of creditors. Companies that would otherwise be unable implement corporate actions due to unanimous consent requirements under their finance documents may be able to use schemes to effect such actions if they can obtain the support of a statutory majority (greater than 50% in number and at least 75% in value) of each affected class of creditors and the scheme is sanctioned by the court. Schemes are a product of the Company Act 2006, which is not a bankruptcy or insolvency law, and can be used by solvent and insolvent companies alike.

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