In keeping with the general theme of this 'new year', the insolvency division of the English High Court started 2021 in much the same way as it finished off 2020.

It followed up its landmark judgment in Re Tokenhouse VB Limited [2020] EWHC 3171 (Ch) (Tokenhouse) with a decision in the case of Re NMUL Realisations Limited [2021] EWHC 94 (Ch) (NMUL), in ruling that failure to comply with procedural notice provisions did not invalidate the appointment of the administrators.

Another interesting case on schemes around the issue of insolvency. A judgment handed down yesterday by Snowden J in MAB Leasing Limited (a Malaysia Airlines leasing company) "parked" the issue of whether a Part 26 scheme (note, not a Part 26A plan) was an insolvency related event under the Cape Town Convention and Aircraft Protocol, as there was unanimous creditor consent. At the earlier convening hearing, Zacaroli J, without needing to decide the issue, stated that the company counsel's skeleton provided a "powerful case for concluding that the [Cape Town Convention] did not apply".

Very interesting judgment yesterday from Zacaroli J in "gategroup Guarantee Limited" (with a small g) that Part 26A plans are insolvency proceedings and therefore fall outside European civil and commercial jurisdictional rules. Pre-Brexit case law tells us that Part 26 schemes are probably not insolvency proceedings and are therefore capable of falling within those rules. Zacaroli J found that the "financial difficulties" threshold conditions to Part 26A plans (which do not exist for Part 26 schemes) made a significant difference.

Avoiding a Cliff-edge of Insolvencies? Observations ferom the recent House Of Lords debate on extension of creditior restrictions

COVID PROTECTIONS EXTENDED TO GIVE BUSINESSES A LAST CHANCE TO PLAN RECOVERY. TIME TO CONSIDER A COVID-19 CVA?

If the announcements last week on the lack of downward tier revisions for many areas is the bad news, the silver lining for the struggling and affected businesses came in the reinstatement of the temporary suspension on the use of statutory demands and winding up petitions until 31 March 2021.

Company Voluntary Arrangements (CVAs) are an insolvency procedure established under the Insolvency Act 1986 which allow a struggling company to reach a compromise on debts due with a sufficient majority of creditors, thereby avoiding a formal insolvency. They have primarily been used only by large high street retailers and are not often considered, particularly in Scotland, a realistic option for small and medium companies (SMEs).

In the face of the COVID-19 pandemic and with a new model available, we believe it is time for a rethink.

This case is within the Chestnut Portfolio acquired by the Cerberus global private investment group and has been one of its most hard fought cases, involving personal debts and security of over £12m and litigation spanning back to 2016.

Summary

With two of the UK's biggest cinema chains announcing, within days of each other, significant curbs to their operations due to COVID-19's continued impact on the entertainment sector, our restructuring and insolvency team have looked at the particular challenges faced by these venues and some of the steps their operators and funders should consider to help keep the curtains open.

THE IMPORTANCE OF THE UK'S ENTERTAINMENT INDUSTRY

The Act outlines certain insolvency law reforms in response to the COVID-19 crisis, including a temporary suspension of wrongful trading provisions for company directors. The suspension applies retrospectively from 1 March 2020 until 30 September 2020, and aims to encourage directors to continue to trade during the pandemic.

This change will not affect the directors’ duties regime. Directors must continue to comply with their duties, in particular those owed to the company's creditors where the company is, or is likely to be, insolvent.

The new UK legislation for companies in financial difficulty represents a fundamental shift in approach to restructuring in Europe and adds an important new tool to the UK restructuring framework. The availability of a plan proposed under the new Part 26A of the Companies Act 2006 (a “Restructuring Plan”) will undoubtedly change how many distressed companies seek to address their financial difficulties. However, until case law is developed, there will remain considerable uncertainty as to how the Restructuring Plan will work in practice.