A number of UK insolvency trade association bodies and professionals are advocating for the use of what is known as a light-touch administration for companies in financial distress as a result of the coronavirus (COVID-19) pandemic.

Light Touch Administration – What Is It?

In response to the coronavirus (COVID-19) pandemic, US bankruptcy courts have granted extraordinary equitable relief in some cases. As government orders enforcing stay-at-home measures have forced many businesses to shutter indefinitely, bankruptcy courts have implemented procedures to allow the ongoing—albeit virtual—administration of bankruptcy cases.

A Roll of the Dice: Mothballing Bankruptcy Cases Under 11 USC § 305(a)

With effect from 6 April, the UK government has increased the “prescribed part”—a portion of floating charge realisations that is set aside for unsecured creditors on a company’s insolvency—from £600,000 to £800,000.

Prescribed Part

A recent Sheriff Court judgment is the latest decision to consider the role and remit of the court reporter in a liquidation which, unusually, involved the court appointing two reporters.

In Scotland, the Insolvency (Scotland) (Receivership and Winding Up) Rules 2018 provide that where there is no creditors committee, the remuneration of a liquidator shall be fixed by the court. In practice, the court appoints a reporter to examine and audit the liquidator’s accounts and to report on the amount of remuneration to be paid.

The measures include temporarily suspending wrongful trading liability for directors and implementing a new restructuring plan and moratorium to provide companies with a period of time to explore rescue options during the coronavirus (COVID-19) pandemic.

On top of the multiple challenges hitting retail and leisure landlords and occupiers arising from COVID-19, the news that Intu has had to write down the value of its shopping centre portfolio by nearly £2 billion came as further bad news.

It seems that business disruption due to coronavirus is pretty inevitable. What should you as a company director be doing if the disruption means your business starts to suffer?

What changes for me as a director?

As a director, you know that you owe duties to the company. When the business starts heading towards insolvency, there is a change of emphasis and instead of doing what is best for the shareholders, you have to change and consider what the consequences of your actions will be for the company’s creditors.

The latest amendments to the Kazakhstan Rehabilitation and Bankruptcy Law were signed on April 2, 2019, and became effective from April 14. The amendments enhance the priority right of secured creditors through the acceptance of pledged assets in kind or the implementation of self-facilitated foreclosure over pledged assets. Notably, the law provides that pledged assets are carved out from bankruptcy estates.

Priority of Claims of Secured Creditors

To exercise a priority right, a secured creditor must comply with the following procedure:

The UK government has published a draft Finance Bill 2020, which includes a provision that, if enacted, will give HM Revenue & Customs (HMRC) secondary preferential creditor status for certain taxes which a company has collected but failed to pay to HMRC on the date it enters insolvency.

New Priority Status

Against the backdrop of the insolvency of Scottish companies carrying on business in India, a recent decision of the Inner House of the Court of Session has considered the competency of seeking declaratory orders in petition procedure.

Background

In October 2016, we reported on a Court of Session decision which concerned three Scottish registered companies carrying on business in India and which had been placed into administration under the Insolvency Act 1986.