On 20 May 2020, the UK Government introduced the Corporate Insolvency and Governance Bill (the “Bill”) to the House of Commons. The Bill introduces a new debtor-in-possession moratorium to give companies breathing space in order to try to rescue the company as a going concern. The Bill is currently only in draft form and therefore amendments may be made. It is anticipated that the legislation will come into force by the end of June 2020.

This blog (the first in a series of blogs about this new measure) outlines the key provisions of the moratorium and how it will work.

The UK Government published the Corporate Governance and Insolvency Bill on 20 May 2020. The legislation will be fast tracked and include both temporary and permanent changes to the UK insolvency legislation.

The temporary measures, aimed at supporting businesses struggling with cash flow and facing distress due to COVID-19, include prohibitions on presentation of winding up petitions and winding up orders, suspension of wrongful trading laws and the ability to apply for a moratorium.

During the COVID-19 crisis, many companies are facing unexpected financial distress, and taking steps to stabilise their business and bolster their finances.

Many directors will not have experienced these issues before, and should be aware of how their duties are impacted when the company is in financial distress.

This guide has been prepared on the basis of Hong Kong law principles. Many of the principles will also be applicable to other common law jurisdictions.

How are companies responding to the current crisis?

COVID-19 is placing unprecedented strain on all businesses, and insolvency practitioner (“IP”) practices are no exception. Government-imposed restrictions on activities and movement will have a direct impact on the ability to carry on business as usual. There may be fewer employees available (through illness, self-isolation and furloughing), strain placed on remote working capabilities and a limited ability to carry out site visits to deal with cases as usual. Closure of schools and caring responsibilities may also lead to reduced personnel capacity.

COVID-19 and Government-imposed restrictions are placing an unprecedented strain on everyone and businesses and individuals may be facing extreme financial pressure. COVID-19 is impacting businesses throughout the supply chain in most, if not all, sectors. This may mean that clients and debtors are unable to meet their obligations and there may need to be changes as to how these are dealt with. This note aims to provide some guidance to help Insolvency Practitioners (“IPs”) deal with certain practical issues that may arise in active cases.

In Joint Provisional Liquidators of Moody Technology Holdings Ltd [2020] HKCFI 416, the Hong Kong Court of First Instance (the “Hong KongCourt”) granted a recognition order to foreign provisional liquidators who were appointed on a soft-touch basis, to explore and facilitate the restructuring of a company. The order was made despite soft-touch provisional liquidation being per se impermissible in Hong Kong.

Background

The principle in ex parte James, under which the Court will not permit its officers (such as a liquidator) to act in a way which, although lawful, does not accord with the standards of right-thinking people, has recently been clarified by the English Court of Appeal in Lehman Brothers Australia Limited (in liquidation) v Edward John Macnamara & others (the joint administrators of Lehman Brothers International (Europe) (in administration)) [2020] EWCA Civ 321

Over the weekend, the Business Secretary announced that UK Insolvency Laws will be changed.

The changes will give businesses “extra time to weather the storm” and give comfort to directors who, challenged with trading through a difficult cash flow period, will not face claims for wrongful trading.

Relaxation of wrongful trading provisions

The proposed measures alleviate concerns that borrowing additional funds offered by the Government could place a director at risk of personal liability.

In this article, we focus on working capital and consider ways a business can seek to weather the storm and preserve all-important liquidity through this challenging period.

Practical Tips

Given the unprecedented challenges presented by COVID-19 globally, what can senior management do in order to manage and mitigate the risk to the company's financial health?

As we close the week which has seen the Government and the Bank of England publish details of their financial support package for business, the business community awaits the formal launch of both the Coronovirus Business Interruption Loan Scheme (CBILS) and the Covid Corporate Financing Facility (CCFF) next week.

CBIL scheme