One of the temporary measures that was not extended was the disapplication of the wrongful trading rules of section 214 of the Insolvency Act 1986 as regards the personal liability of company directors. The discontinuation of the temporary protection has been criticised by business and most recently by the Institute of Directors (IoD) which commented that "Failing to extend the suspension of wrongful trading rules was a mistake. Without this protection, the pressure is on directors to simply shut up shop when faced with difficulty". Is that concern justified?

For litigators the most important provision is the extension of the restrictions on the use of statutory demands and winding up petitions until 31 December 2020. The Act, of course, provides that no winding up petition can be presented on the basis of a statutory demand during the relevant restricted period and that where a winding up petition is presented (by a creditor on any basis) a court must be satisfied that coronavirus has not had a "financial effect" on the company before the presentation of the petition.

In a decision arising out of Tribune’s 2008 bankruptcy, the United States Court of Appeals for the Third Circuit recently issued a decision affirming confirmation of the media conglomerate’s chapter 11 plan over objections raised by senior noteholders who contended that the plan violated their rights under the Bankruptcy Code by not according them the full benefit of their prepetition subordination agreements with other creditors.

1. Talk to your contracting partners about any difficulties that have arisen or that you anticipate might arise. Everyone knows that unanticipated issues are going to get in the way of normal business. So address them head on. Pretending that they don't exist isn't going to be of any help to you or your business partners.
2. If you are struggling financially take advantage of the government support. Our website provides guidance on how to access that support. Speak to your bank. The risk to banks is significantly mitigated by the government guarantee.

Midlothian Council v Raeburn Drilling and Geotechnical Limited & Others

One area of practice where clarity by the government will be essential is whether directors are going to be held to all the same standards during this crisis as they are in any other recession.

As the coronavirus (COVID-19) pandemic continues to shake global markets, it is likely that more companies will need to restructure to address liquidity constraints, to right-size their balance sheets, or to implement operational restructurings. In addition to a potential surge in restructurings, the spread of COVID-19 is already having pronounced impacts on companies planning or pursuing restructurings, and further market turmoil may cause even broader changes to the restructuring marketplace.

Potential Increase in Restructuring Activity

The U.S. Supreme Court held today in Mission Product Holdings, Inc. v. Tempnology, LLC that a trademark licensee may retain certain rights under a trademark licensing agreement even if the licensor enters bankruptcy and rejects the licensing agreement at issue. Relying on the language of section 365(g) of the Bankruptcy Code, the Supreme Court emphasized that a debtor’s rejection of an executory contract has the “same effect as a breach of that contract outside bankruptcy” and that rejection “cannot rescind rights that the contract previously granted.”

In a recent decision arising out of the Republic Airways bankruptcy, Judge Sean Lane of the United States Bankruptcy Court for the Southern District of New York held that the liquidated damages provisions of certain aircraft leases were improper penalties and, thus, “unenforceable as against public policy” under Article 2A the New York Uniform Commercial Code. In re Republic Airways Holdings Inc., 2019 WL 630336 (Bankr. S.D.N.Y. Feb. 14, 2019).

On February 8, 2019, the United States District Court for the Southern District of Texas, Houston Division, affirmed a Bankruptcy Court order enjoining a claimant from pursuing claims against a debtor’s non-debtor affiliates based upon third-party release and injunction provisions included in the debtor’s confirmed chapter 11 plan. In re CJ Holding Co., 2019 WL 497728 (S.D. Tex. Feb. 8, 2019).