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

Tightening trade restrictions and concerns swirling around intellectual property rights are creating new risks for conglomerates faced with financial stress, especially when it comes to selling their assets.

When conglomerates encounter financial difficulties, they often sell assets to raise cash and pay off debts. But governments in the United States and elsewhere have begun to increase scrutiny of sales of assets to foreign entities buyers. Many governments have the power to restrict certain sales of assets on the basis of national interest concerns.

The hair salon Regis announced recently that the company has entered administration. The news might not come as a surprise because the chain, prior to the company’s administration, was subject to a company voluntary arrangement (“CVA”) whose validity was challenged by landlords.

The joint administrator of Regis commented: “trading challenges, coupled with the uncertainty caused by the legal challenge, have necessitated the need for an administration appointment”.

Today the Government published draft provisions for inclusion in the Finance Bill which will amend the Insolvency Act 1986 and grant HMRC preferential status on insolvency. A status that was removed in 2003 but which will be re-instated (in part) from 6 April 2020.

Despite huge concern from the lending market, voiced in responses to the Government’s consultation on this measure, the only material change we can see is confirmation that preferential status will not apply to insolvency proceedings commenced before 6 April 2020.

In Mission Product Holdings, Inc. v. Tempnology, LLC, 587 U.S. ___ (2019), the Supreme Court held that a debtor’s rejection of a trademark license does not eliminate the licensee’s right to use the trademark through the completion of the contract, settling a split in the Circuits. The Supreme Court also ruled that the case was not moot, despite the bankruptcy estate’s distribution of all of its assets, which may have important implications for the developing jurisprudence on mootness in bankruptcy cases.

The proposal to reinstate Crown preference in insolvency has met resistance from all angles; the insolvency profession, turnaround experts, accountants, lawyers and funders. But despite HMRC’s bold statement in its consultation paper that the re-introduction of Crown preference will have little impact on funders, it is clear following a discussion with lenders that it may well have a far wider impact on existing and new business, business rescue and the economy in general than HMRC believes.

In In re 1141 Realty Owner LLC, et al., No. 18-12341 (SMB), 2019 WL 1270818 (Bankr. S.D.N.Y. March 18, 2019), Bankruptcy Judge Stuart M. Bernstein of the U.S. Bankruptcy Court of the Southern District of New York recently reaffirmed that upon sufficient contractual language, "make whole" prepayment premiums are enforceable under New York law even after loan acceleration. The court emphasized that the language of the contract provided for such a result and that this was an enforceable liquidated damages clause under New York law.

In a unanimous 25 February panel decision, the Second Circuit Court of Appeals held that the trustee liquidating Bernard L. Madoff’s investment firm can claw back billions in Ponzi scheme proceeds from investors who received the proceeds indirectly through non-U.S. “feeder funds” (funds that aggregate investor capital to invest in funds such as Madoff’s).

In a recent decision, EMA GARP Fund v. Banro Corporation, No. 18 CIV. 1986 (KPF), 2019 WL 773988 (S.D.N.Y. 21 February 2019), District Judge Katherine Polk Failla of the U.S. District Court for the Southern District of New York enforced a foreign reorganization plan in the United States on the basis of international comity, notwithstanding that no application for recognition and enforcement had been made under Chapter 15 of the U.S. Bankruptcy Code. Banro Corp.