On 8 April 2020, the Council of Ministers approved Law Decree no. 23, published in the Official Gazette (General Series no. 94, Extraordinary Edition of 8 April, 2020), containing “Urgent measures related to access to credit and tax obligations for businesses, special powers in strategic industry sectors, as well as healthcare and employment interventions, prorogation of administrative and procedural deadlines”.
With a recession appearing to be inevitable, for many companies innovation is more important than ever. Innovating and contracting in times of crisis requires caution, however, and contracts should as far as possible be insolvency-proof. Popular solutions include guarantees, sureties and retention of title. But it may be worth considering a lesser known option, the intercompany settlement clause, which works as follows.
Paying a debt to an insolvent company
In the midst of the unprecedented global health challenge presented by the spread of the coronavirus (COVID-19), businesses will almost certainly face pervasive disruptions to operations as the economy experiences widespread financial distress. In light of the dramatic and continuing economic downturn, and with the certainty that almost every business sector has been or will be affected, it is imperative that each company have a plan for handling relationships with companies in financial distress.
Introduction
On February 19, the Small Business Restructuring Act (SBRA) — the most significant change to the Bankruptcy Code in 15 years — went into effect. The SBRA, also known as Subchapter V of Chapter 11, removed numerous barriers that had long prevented small businesses from reorganizing in bankruptcy. On March 27, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) went a step further and significantly expanded eligibility under Subchapter V by raising the debt limit from $2.7 million to $7.5 million. This overview answers key questions about how these new laws work.
On March 27, Minnesota Gov. Tim Walz clarified that Executive Order 20-20, which directed Minnesota residents to stay at home, applies to debt collection professionals. Due to ongoing coronavirus (“COVID-19”) concerns, Executive Order 20-20, which will remain in effect until April 10, 2020, orders all persons living in the State of Minnesota to stay at home except to engage in exempted activities and critical sector work.
The UK Government has announced wide-ranging emergency legislation in response to the Coronavirus crisis, in an attempt to reduce the burden on business and allow them to carry on trading during and after the pandemic. Some of the changes (other than the one on wrongful trading) were already intended following a consultation process that concluded in 2018 but are now being fast tracked.
An increasing number of businesses — even those that have traditionally been financially and operationally sound — are now experiencing unanticipated revenue losses as a result of the coronavirus pandemic. Companies may find themselves in the unfamiliar position of being out of compliance with financial covenants with lenders, unable to meet financial obligations to vendors, in default of contractual obligations, or in need of financial or restructuring/bankruptcy assistance.
Lenders should view as cautionary tales two recently handed down decisions regarding UCC-1 financing statements and the perfection of security interests. On December 20, 2019, the U.S. Bankruptcy Court for the District of Kansas in In re Preston held that security interests in personal property were unperfected because the UCC-1 incorrectly set forth the debtor’s name. On January 2, 2020, the U.S.
A critical bankruptcy litigation issue has finally been resolved by the U.S. Supreme Court. Until recently, litigants had been faced with the dilemma of whether to immediately appeal a denial with prejudice of a request for stay relief or wait until the underlying matter had been fully adjudicated. Given the uncertainty, parties remained unsure if they risked losing the ability to challenge the denial of stay relief by a bankruptcy court if they waited to appeal. Now it is clear that they will. In Ritzen Group v. Jackson Masonry, 589 U.S.