The challenges facing the businesses of the United Kingdom at the start of 2021 are perhaps greater than any of us have seen in our lifetimes. In addition to the economic consequences of the restrictions on daily life imposed to counter Covid-19, we are now seeing the effects of the exit of the UK from the EU with businesses having had little time to get up to speed on the new regime.
We all know 2020 made an impact – and as we look at the year ahead, there are a few repercussions of the incredible strain placed on businesses that are likely to come into the limelight as a result. While there are some global trends in litigation – like litigation funding and class actions - some Scotland specific trends are also worth highlighting. With that in mind, here are the five key things for litigators to watch in the year ahead:
1) Frustration and leases in Scots law
I have obviously been a good boy this year because my gift from the Insolvency Service has arrived - the November 2020 Insolvency statistics. And like any properly brought up child, I decided to sneak a peek at my present before Christmas Day.
What the numbers show us is a continuation of the trend that the previous figures disclosed - corporate insolvencies remain markedly lower than the equivalent period last year. In Scotland in particular this is driven by a massive reduction in the number of compulsory liquidations this year (Nov 2019 - 56; Nov 2020 - 13).
Earlier this year the UK Government introduced a number of temporary measures intended to avoid large scale insolvencies across the country. One of these measures was the suspension of wrongful trading liability.
This suspension was in place until September 30, 2020. Most of the other temporary measures were extended (e.g. the effective suspension of winding up petitions by creditors has been extended until December 31, 2020) but the suspension of wrongful trading liability was not extended.
Where a company becomes insolvent, there is a considerable risk that its employees end up being both out of a job and out of pocket. With the news that Arcadia Group has fallen into administration this week, we explore where employees stand when they are owed money from their insolvent employer and what steps they can take to maximise the chance of recovering sums.
A floating charge will usually set out the rights exercisable by the floating charge holder after the point at which that floating charge has become "enforceable". The floating charge might also contain language clarifying when the charge is deemed to be enforceable - typically after the occurrence of an event of default set out in the underlying facility agreement which is secured by that charge
The Insolvency Service has released the latest insolvency statistics (to September 2020).
These figures are particularly interesting as they shed light on the effects of the various changes to the insolvency landscape that have occurred since Covid-19 started to affect the economy.
Since March 2020, we have seen the introduction of the Corporate Insolvency & Governance Act ("CIGA"), Government schemes and lockdowns of various sizes, shapes and geographical restrictions.
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?
Insolvency legislation has been coming thick and fast in recent months, and this time it's pre pack sales to connected parties that are facing further scrutiny.
The concern is that the voluntary measures which were put in place a few years ago have not provided enough transparency so new legislative measures are on the horizon. On 8 October the UK Government published a set of draft Regulations which will tighten up the processes around pre-pack sales to connected parties.
What is a pre pack?
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.