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)
We are still in the early days of the economic shock of the coronavirus, with positive trends not yet clear. Restructuring specialists at Keystone Law have combined our experiences of enquiries from businesses, Insolvency Practitioners (IPs) and other stakeholders during lockdown and noted the following developments which will help businesses and advisors prepare for a post-lockdown business environment:
It’s becoming apparent that despite the government’s intervention with business rate holidays, relief against forfeiture and furloughing of staff during the coronavirus pandemic, many licensed, leisure and retail businesses are in dire straits as a result of closure. Whilst emergency insolvency legislation is in place to provide a breathing space for companies, this will only help financially distressed but viable businesses. As a result, it is unfortunate that insolvencies already reported in the press will just be the tip of the iceberg.
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
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.
Under Finance Bill 2020, HMRC will move up the insolvency order of hierarchy from unsecured creditor to secondary preferential creditor status in respect of:
Businesses will be considering dramatic changes over the next few days and weeks. The Government last week closed certain business such as pubs, theatres, restaurants and cinemas. Last night, the Government went further and ordered that all non-essential retail businesses and hotels should close and that people should not leave their homes to work unless it absolutely cannot be done from home.
With coronavirus causing unprecedented distress to the whole global economy, all types of business in every sector will be affected. These are not normal times, and it is clear that all businesses will need to formulate coherent action plans to survive. The Government appears to be working on emergency plans to provide help to trade and industry that has already been badly affected by underlying economic uncertainties. More high-street names have closed their doors this week.
It concerns me when I meet with a director of a failing company and he or she simply doesn’t know the various insolvency procedures should their company get into financial difficulties.