As the business world starts to count the cost of the COVID-19 pandemic and the government measures taken to contain it, attention is turning to the tools available to help companies that have been financially impacted.

Many companies are deferring payments to conserve liquidity, raising difficult questions around directors’ duties and leading to an immediate focus on how to protect the business from resulting creditor action.

Historically, the interests of landlords whose commercial real estate is occupied by debtors in Chapter 11 proceedings have been generally well protected. Indeed, Section 365(d)(3) of the Bankruptcy Code requires the debtor to timely perform all of its post-petition obligations under its nonresidential leases of real property — most important among those, rent.

The English Court of Appeal has handed down its judgment in the Debenhams case, on which we acted. A copy of the judgment can be downloaded here. This upholds the decision of the High Court, which followed the earlier decision in Carluccio’s.

On March 27, the president signed into law Phase 3 of the federal stimulus program, called the Coronavirus Aid, Relief, and Economic Security Act, or CARES Act. Title I of the act, titled the Keeping American Workers Paid and Employed Act (KAWPEA), directs, among other amounts, $349 billion to small businesses as part of an expansion of the U.S. Small Business Administration’s (SBA) Section 7(a) loan program under a new paycheck protection loan program (PPP) as well as $10 billion through an expansion to the SBA’s Section 7(b) economic injury disaster loan (EIDL) program.

The question is not if but how deeply the global coronavirus (COVID-19) pandemic will disrupt businesses and impact future operations. That answer differs based upon each company’s industry, access to cash and other capital, debt structure, ability to manage expenses, lost revenues, and operational interruption. Certain industries, such as airlines and airline service companies, hotels, restaurants, sports and entertainment, media, and retailers, among others, are suffering immediate adverse effects. Our healthcare resources are being stretched thin.

The recent decision of the Bankruptcy Court for the Southern District of New York in In re AAGS Holdings LLC, Case No. 19-13029 (SMB) (Bankr. D. Del. Nov. 12, 2019), underscores the ability of debtors — and specifically, for purposes of this Client Alert, parties to real property purchase contracts — to take advantage of the Bankruptcy Code’s 60-day tolling period to get more time to close on a purchase despite a “time of the essence” ("TOE") closing deadline.

Yesterday the UK Insolvency Service released their quarterly statistics spanning October to December 2019. These confirm that liquidations and administrations in 2019 hit levels not seen for over five years. This signals a potentially serious underlying concern about the UK economy.

On 28 March 2019 the European Parliament adopted a Directive on insolvency, restructuring and second chance (the Directive). This project has had a long tail, following a Commission Recommendation issued in 2014 and, after that had no impact, a draft Directive in November 2016. This draft Directive is now about come to fruition. It has three main aims

1. to ensure that member states have a preventive restructuring framework – which includes a restructuring plan;

Are you prepared to take advantage if one of your competitors falls into difficult times or enters an insolvency process? Do you know your way around buying from a distressed seller? What are the things you need to know? How can you prepare? What will make your bid most attractive?

Recent high profile collapses such as HMV have highlighted the opportunities that can be found within the distressed space – if you are prepared and know how to act swiftly.

On 18 December 2018 the English Court of Appeal held in the case of OJSC International Bank of Azerbaijan that the rule in Gibbs is still a fundamental tenet of English insolvency law and not to be sidestepped by the Cross-Border Insolvency Regulations.

Facts

The facts in summary are these: