Being a director is not just about managing and controlling a business; it also involves taking on certain legal duties and obligations. Directors get the benefit of limited liability, but directors' duties impose certain obligations to ensure they act in the best interest of the company, its employees, shareholders – and in certain circumstances, its creditors too.

Restructuring and insolvency issues are rarely out of the news at the moment, with a range of businesses seeking to adapt to the challenges of a post-COVID-19 world. You might have seen stories about struggling businesses going into administration or liquidation, or securing a company voluntary arrangement (CVA).

The EMEA Determinations Committee's recent bankruptcy determination involving Selecta CDS provides additional insight on the types of chapter 15 filings that are likely to trigger Credit Events.

R3, the association of business recovery professionals, has produced a Standard Form Covid 19 CVA Proposal and accompanying Covid 19 Standard Conditions.

The Standard Form proposals are intended for use by SME companies, in each of the jurisdictions across UK that have been affected by Covid 19, to save time and cost and make CVAs more accessible to them.

In Short

The Situation: On August 11, 2020, a Credit Derivatives Determinations Committee for EMEA ("DC") unanimously determined that the Chapter 15 filing by British retailer Matalan triggered a Bankruptcy Credit Event under standard credit default swaps ("CDS").

The Result: The DC's decision diverged from its only prior decision (involving Thomas Cook) on whether a Chapter 15 petition constituted a Bankruptcy Credit Event.

The Corporate Insolvency and Governance Bill (the “Bill”) has been laid before the UK Parliament today, Wednesday 20 May 2020.

The Bill, if passed, will implement some significant changes to UK insolvency law and at the same time effect a range of temporary measures to assist with corporate governance during the Covid-19 situation.

Moratorium for protection from creditors

As part of its response to the COVID-19 situation, Companies House has announced that it will accept the filing of statutory insolvency documents via emailed PDF attachments.

This measure applies to companies registered in Scotland, as well as England & Wales and is yet another practical example of the steps being taken to try and alleviate the administrative burden on insolvency practitioners.

It is perhaps not as well-known as it should be that the Bankruptcy (Scotland) Act 2016 sections 195 – 198 provides a six-week moratorium – effectively a postponement or period of protection from action to recover debts - to individuals, partnerships and trusts facing financial distress or liquidity issues.

The moratorium provides breathing space to allow parties to be protected from their creditors while they take advice and consider what debt relief options might be available to them.

A party can normally apply for the moratorium once in any 12-month period.

Wrongful trading rules, which can result in directors being personally liable for losses incurred as a result of continued trading, are being temporarily suspended in recognition of the large number of businesses being impacted by COVID-19. While this news will be welcomed by businesses across the UK, directors should not be complacent about their responsibilities.

For the benefit of our clients and friends investing in European distressed opportunities, our European Network is sharing some current developments.

Recent Developments