Increasing cash flow pressure on many businesses has resulted in a heightened risk for directors that a company may be wrongfully trading and personal liability may then accrue to the directors.
This briefing looks at the potential impact of the coronavirus COVID-19 on businesses and examines steps that can be taken by stakeholders and directors to recognise, manage and mitigate the risks. In particular, we look at: the potential impact on businesses; managing insolvency risk; considerations for directors; and considerations for lenders.
Global outlook for the coronavirus situation
The recent English judgment of System Building Services Group Limited¹ is an important decision for directors of offshore companies in 'soft touch' provisional liquidation, and highlights the importance of conducting a thorough analysis of the order appointing provisional liquidators for the purposes of ascertaining the scope of directors’ duties that apply during the course of their post-appointment restructuring efforts.
Alexandra Vinogradova v (1) Elena Vinogradova, (2) Sergey Vinogradov (BVIHCMAP 2018/052)
With the States of Guernsey's approval yesterday of the Companies (Guernsey) Law, 2008 (Insolvency) (Amendment) Ordinance, 2020 (the "Ordinance"), Guernsey took a step towards further enhancing its reputation as a robust jurisdiction for restructuring and insolvency.
If a company becomes insolvent or experiences a liquidity crunch, which necessitates a restructuring or resort to higher-risk financing arrangements, the directors should consider whether to commence formal proceedings to facilitate the restructuring or financing.
In an 8-1decision issued on May 20, the Supreme Court held that rejection of an executory trademark license agreement in a bankruptcy of the licensor is merely a breach, and not a termination or rescission, of the agreement. The licensee retains whatever rights it would have had upon a breach of the agreement prior to bankruptcy and can continue to use the trademarks pursuant to its contractual rights under applicable law. Mission Product Holdings, Inc. v. Tempnology, LLC, 587 U.S. ___, No. 17-1657 (May 20, 2019).
Background
Not for a long time has the importance of understanding and managing a director’s duties in times of financial distress been so overwhelming. Here, Carey Olsen partner David Jones and associate Tim Molton examine those duties in greater detail, particularly in relation to Guernsey’s company law.
Service area / Restructuring and Insolvency
Location / British Virgin Islands
Date / February 2019
This article considers how to challenge an act, omission or decision of an office-holder.
The right to bring a challenge derives from Section 273 of the BVI Insolvency Act 2003, which provides:
A person aggrieved by an act, omission or decision of an office holder may apply to the Court and the Court may confirm, reverse or modify the act, omission or decision of the office holder.
What Is the "Rule in Gibbs"?
The rule in Gibbs is a long-established common law principle in which the Court of Appeal determined that a debt governed by English law cannot be discharged or compromised by a foreign insolvency proceeding(Anthony Gibbs and Sons v La Société Industrielle et Commerciale des Métaux (1890) 25 QBD 399). The rule in Gibbs remains a fundamental tenet of English insolvency law.
Why Does the Rule in Gibbs Matter?