As we see more businesses having to close doors or adapt to a new set of rules, we set out a summary of some of the issues we anticipate for those needing to shut down but preserve their businesses at least until the lockdown is over. We will produce a more detailed client alert as matters develop although one message is clear – employers, employees, suppliers and customers are facing unique challenges and the best way to survive is to identify the issue, understand the options, and engage with pragmatism.

Employees

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?

The Pension Schemes Bill 2019 is causing a marked degree of consternation in the restructuring community. The proposed legislation introduces new offences that can be prosecuted in the criminal courts and further moral hazard powers that are likely to significantly reduce the directors’ and insolvency practitioners’ ability to provide commercial and creative solutions to creditors of financially stressed companies.

At clause 107, the Bill introduces two new criminal offences and below we address the concerns these cause:

With the introduction of electronic filing which allows parties to file documents at court 24/7 we consider the recent case of Wright v HMV Ecommerce Limited (2019) in which the court was asked to confirm whether administrators were validly appointed following the directors filing a notice of appointment after the court office was closed.

The Electronic Working Pilot Scheme (“EWP“) Practice Direction came into effect in 2015, initially in the London region. It now applies in all Business and Property Courts in England and Wales from 30 April 2019.

In the last week we have seen MPs criticise accountancy firms, KPMG, Deloitte, EY and PWC in their first report on the collapse of Carillion, describing the big four as “a cosy club” and calling for the firms to be forcibly broken up. Whilst not suggesting that the firms were to blame for the collapse, it is the level of fees reportedly paid to the firms which caught the MPs attention– £72 million in 10 years.

(Bankr. S.D. Ind. Dec. 4, 2017)

The bankruptcy court grants the motion to dismiss, finding the defendant’s security interest in the debtor’s assets, including its inventory, has priority over the plaintiff’s reclamation rights. The plaintiff sold goods to the debtor up to the petition date and sought either return of the goods delivered within the reclamation period or recovery of the proceeds from the sale of such goods. Pursuant to 11 U.S.C. § 546(c), the Court finds the reclamation rights are subordinate and the complaint should be dismissed. Opinion below.

(Bankr. E.D. Ky. Nov. 22, 2017)

(B.A.P. 6th Cir. Nov. 28, 2017)

The Sixth Circuit B.A.P. affirms the bankruptcy court’s dismissal of the Chapter 12 bankruptcy case. The court finds that the bankruptcy court failed to give the debtor proper notice and opportunity to be heard prior to the dismissal. However, the violation of due process was harmless error. The delay in filing a confirmable plan and continuing loss to the estate warranted the dismissal. Opinion below.

Judge: Preston

Attorney for Appellant: Heather McKeever

(6th Cir. Nov. 14, 2017)

(Bankr. W.D. Ky. Nov. 1, 2017)

The bankruptcy court grants the creditor’s motion for stay relief to proceed with a state court foreclosure action. The creditor had obtained an order granting stay relief in a prior bankruptcy filed by the debtor’s son, the owner of the property. The debtor’s life estate interest in the property does not prevent the foreclosure action from proceeding. Opinion below.

Judge: Lloyd

Attorney for Debtor: Mark H. Flener

Attorney for Creditor: Bradley S. Salyer