From 1 December 2020 new changes to the priority rules in insolvency will have a real impact on the recoveries achieved by secured creditors on the insolvency of a debtor. These new rules give HMRC priority above floating charge holders and ordinary unsecured creditors in relation to tax collected by an insolvent company from third parties, such as VAT, PAYE income tax and NICs.

The High Court refused to appoint an examiner to New Look Retailers (Ireland) Ltd (New Look), where it transpired that it had sufficient funds to survive for a number of months but had not engaged substantively with creditors before applying for the appointment of an examiner.

Background

New Look operates 27 stores in Ireland, all of which are rented. It closed its stores 2 days before the Government mandated lockdown in March.

Late in the evening on 30 July, the last day before its summer break, the Irish parliament (Oireachtas) passed the Companies (Miscellaneous Provisions) (Covid-19) Bill 2020. This is likely to be signed into law and commenced within two weeks.

Three of its provisions are particularly relevant to insolvency processes during the COVID-19 crisis.

Creditors’ meetings

The Office of the Director of Corporate Enforcement (ODCE) has provided guidance on its approach to directors of companies, made insolvent by the COVID-19 pandemic, who act in good faith on objective evidence in trying to rebuild their businesses.

The issue

The consequences of the COVID-19 crisis have made many businesses that were solvent, and will likely become solvent again, technically insolvent.

Notwithstanding the phased return to some level of normality, some businesses will continue to be significantly affected, particularly those in the hospitality sector where longer term challenges may be encountered due to social distancing requirements, consumer unease and the likely absence of international travel for many months, or perhaps even longer.

The first reading of the Corporate Insolvency and Governance Bill (the "Insolvency Bill") took place on 20 May 2020.  The Insolvency Bill will be debated by the House of Commons on 3 June 2020 and is proposed to be introduced as fast-track legislation. 

There have been increasing concerns in recent weeks that UK insolvency law does not accommodate the short-term impact of COVID-19 on many businesses.  In response, the Business Secretary announced on 28 March that the UK's insolvency rules would be amended as part of the Government's wider business support package.  Whilst the measures that the Government intends to implement have not yet been fully detailed, this note summarises what has been announced so far and what we might expect, based on the Business Secretary's comments.

COVID-19 is an unexpected shock for many businesses. Some businesses are being significantly affected, particularly those in the travel and hospitality sectors. We consider some of the options open to otherwise good businesses facing cash-flow and other financial issues as a result of COVID-19.

How are governments dealing with COVID-19

We consider one case illustrating the efficiency of international insolvency proceedings commenced in Ireland, improvements to the efficiency of the appellate courts and one imminent legislative change, which will impose an administrative burden on the holders of security over book debts.

Ireland as an efficient venue for international insolvency

Less than an hour after an oxygen tank exploded on Apollo 13, mission control told the crew to isolate a small tank, containing 3.9 pounds of oxygen.^[1] Days later, that tank provided the oxygen to keep the crew alive while landing back on Earth.

If they had left that tank for even another hour the oxygen in it would have been almost gone.