UPDATE ON TEMPORARY PROVISIONS
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.
- The hospitality industry has been fighting back against the Government's lockdown measures due to the lack of financial support, but there is absolutely no doubt that the worst is yet to come as having weathered lockdown 2.0, Government policy now looks set to deny many operators the ability to trade properly in the run up to Christmas, with hard hit businesses set to miss out on circa £7.8bn of trade.
- The majority of the temporary measures introduced by the Corporate Insolvency and Governance Act 2020 may have been extended, but directors remain mindful of their statutory duti
The Federal Court has today sensibly ruled that security interests do not vest in the company grantor simply because the company had at some time previously been in liquidation, administration or subject to a deed of company arrangement (DOCA). This decision should come as a great relief to secured lenders and suppliers to companies that have successfully passed through a restructuring and have resumed "business as usual".
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.
Executive summary
On a UK company’s insolvency, the UK tax authority (HMRC) will become a preferential creditor in respect of certain unpaid taxes (Crown Preference) with effect from 1 December 2020. Despite lobbying against the move (including in light of the COVID-19 pandemic), the UK government has persisted with the change, perhaps in an attempt to shore up its tax take.
The reform in context
Almost 20 years ago the Government decided to abolish Crown Preference bringing it into step with other western jurisdictions such as Germany and Australia. It was considered at the time "inequitable" to elevate the public purse above ordinary unsecured creditors for whom the impact was potentially far greater.
Astonishingly, in the midst of a global pandemic and a looming "No Deal" Brexit, absent a dramatic last minute "U-turn" by the Government (let's face it, it wouldn’t be the first !), Crown Preference will return with effect from December 1st 2020.
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
What is the Cape Town Convention?