Summary

Intro

The UK insolvency regime has changed. Our earlier alert set out a brief overview of the changes. This is note provides more detail and flags some practical steps that the suppliers of goods and services may wish to consider.

In a nutshell

The High Court in London gave judgment on Friday, 3 July 2020 on the relative ranking of over $10 billion of subordinated liabilities in the administrations of two entities in the Lehman Brothers group.

Even before the advent of Covid-19, insolvency-related D&O claims already made up a large part of the management risk landscape.

Corporate insolvencies are on the rise. 2019 saw the highest level of underlying insolvencies since 2013, with the retail, hospitality and construction industries particularly affected. As the ongoing uncertainty of the pandemic further increases the risk that companies will run into financial difficulties, insolvency can only continue to make up a large source of directors’ and officers’ (D&O) claims.

Introduction

Earlier in March and prior to Covid-19 taking over both the world and the legal world, Mr Justice Snowden handed down his judgment in Bilta (UK) Limited (in liquidation) et ors v (1) Natwest Markets PLC and (2) Mercuria Energy Europe Trading Limited [2020] EWHC 546 (Ch) in which he found both RBS (as defined below) and RBS SEEL (also as defined below) liable for dishonest assistance and knowingly being a party to fraudulent trading. As demonstrated below, the judgment contains a number of cautionary lessons for both banks and traders alike.

At our webinar on 2 July 2020 we examined the impact of the CIGA for corporates engaged with third parties who might enter into an insolvency process.

We have put together this question and answer sheet responding to the questions raised which, together with our quick guides, will help corporates understand the issues and challenges that the new processes and procedures could pose.

In light of these changes and looking towards how trading

What is the impact on standard termination clauses, which are triggered by an insolvency event?

On 26 June 2020, The Corporate Insolvency and Governance Act 2020 (Act) became law, providing the UK (but with separate provisions for Northern Ireland) with temporary and permanent changes to insolvency law aimed at helping businesses manage the economic implications of COVID-19.

Of particular interest to the construction industry will be one of the new Act’s permanent measures relating to continuing supply.

On 26 June 2020, the Corporate Insolvency and Governance Act (the “CIGA”) entered into force. We summarised the key terms of the proposed legislation in our previous client alert (link to previous alert).